Repossessions: Why Banks Should Not
This Is Why Financial Institutes Should Avoid Repossessions at All Costs!
We all saw this coming - the end of vehicle loan deferments is looming and people are bracing for things to get “bloody.” Here is why it is imperative that lending institutes and YOU work together NOW on a long-term strategy to avoid involuntary repos at all costs.
Without awareness, history repeats itself. That said, we want to avoid the mistakes of the past and instead learn what not to do. Let’s look at what happened in the height of the recession years of the 2007-2009. The first mistake we made is that we panicked. Transportation loans, of which more than half are originated by non-bank finance companies, rely on short-term funding markets for their own financing. In those years, they panicked and acted swiftly to reclaim their collateral. The side-effects to doing that, however, exacerbated the long and very painful transportation recovery of the Great Recession.
It created a glut on the market of used equipment which drove values down. Repos created so much inventory that NEW vehicle sales stalled out for years. Further, repossessions ruined consumer credit, which in turn negatively impacted NEW vehicle sales by a lot. If people are not credit worthy and cannot buy, funding companies dry up. It’s that simple. Such was the case during the Recession. In 2017, there were 16 million new car sales. By 2009, sales crumpled to only 7.9 million sales and caused the collapse of major automakers in Detroit.
It only takes a spark to get a fire going. The consequence of repossessing equipment was a market recovery that took five years when it should have recovered in two. This is why it is so critical for us to avoid the mistakes of the past. We need to have a meeting of the minds with our financial institutions on this matter. Non-voluntary repossessions of vehicles are disastrous for both owners of transportation companies and their financial organizations and must be avoided at all costs.
The GCLA hand delivered a letter to Congressman Kevin McCarthy early this month to ask that the federal government place a moratorium on for-hire transportation vehicles repos (much like the Covid-19 Eviction Defense Project) backed by evidence that anything short of doing so is prolonging the recovery of not just luxury, but all transportation vertical markets AND gravely impacting new vehicle sales and the health of major corporations for years to come. We also asked every operator in the state of California to share a version of the letter with their local legislators. But this is just not enough. You need to do your part. You must meet under friendly terms and then re-negotiate your loans with your financial institute from a point of logic, not emotion. If this industry can revise loans to add to the backend with a longer frontend reprieve – and base that on history and a “case-for” (that means you have to have a plan of action for your business) we could avoid a lengthy recovery.
We have the historical data. We all can agree that a speedy recovery is in EVERYONE’S BEST INTEREST, with the financial institutions at the top of the list. A massive siege of equipment will force us into a very dark hole that will add many more years to restoring our livelihoods.
“Those who cannot remember the past are condemned to repeat it.”
-George Santayana, philosopher,1863 –1952
Stay Safe and Stay Strong,
Sara Eastwood-Richardson
