As Automotive Loan Delinquencies Rise, TowerGroup Underscores Need for Lenders to Rethink ‘Status Quo’ on Debt Collections

NEEDHAM, Mass.--(BUSINESS WIRE)--Similar to other areas of U.S. consumer lending, delinquency rates for automotive loans are on the rise, with the 60 days past due (DPD) category rising 25 percent between the second and fourth quarters of 2007. New research from TowerGroup finds that maintaining the ‘status quo’ in current collections practices is no longer an option for automotive lenders. Change will be mandatory to help lenders survive current market conditions that are creating a sharp increase in collections volume.

“‘Stay in Your Car Ma’am: Best Practices in Automotive Finance Collections”

Despite rising delinquencies and stories of doom in the credit markets filling the media, the reality remains that lenders do not want to repossess cars – and automobile owners want to keep their cars. Unlike real estate investors, auto buyers don't speculate on auto purchases hoping for appreciation in value, and they don't try to "flip" the car to make fast money.

Because auto loans are typically based on a fixed interest rate and a fixed monthly payment, a delinquent payment is most often a sign of trouble in other aspects of a consumer's financial health. Auto lenders must take care not to ignore these trouble signs, but instead dive right in to address delinquency problems on a number of fronts immediately if they want to avoid increased delinquency rates matching those of the mortgage industry, illiquid loan portfolios, and a diminished overall market.

In its research, TowerGroup has identified a number of best practices in collections and delinquency management, which fall into three categories: people; process; and technology.

• The “people” category encompasses a breadth of initiatives from managing the staff already in place as collectors, to capacity planning, to properly training and supporting collections staff and offering them the right incentives at the right time.
• “Process” covers a number of areas, from customer segmentation strategies and approaches to rewriting loan terms when necessary, to changing front-end processes and benchmarking performance.
• Numerous technology applications exist to help lenders combat growing delinquency rates and mitigate losses, lenders should think beyond existing collection practices to appropriately leverage IT resources.

A graphic toplining best practices in these categories can be downloaded at: http://www.towergroup.com/research/content/page.jsp?pageId=3122.

The TowerGroup research report, titled “‘Stay in Your Car Ma’am: Best Practices in Automotive Finance Collections,” is authored by Bobbie Britting, a senior analyst in the Consumer Lending practice at TowerGroup. The report suggests ways for automotive lenders to rethink delinquency, default and collections practices – providing insights to help lenders grapple with the growing volume of delinquent accounts and the challenges associated with keeping borrowers in their vehicle.

To request a copy of the research or to arrange an interview with Britting, please contact Rachael Adler at [phone] or [e-mail]. Those interested in subscribing to a TowerGroup research service may call +1.781.292.5200 or email [e-mail].

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About TowerGroup: TowerGroup is the leading research and advisory services firm focused exclusively on the financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world’s leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North America and Europe, TowerGroup serves a global client base. Visit www.towergroup.com for more information.