Repo Man
Why He's Central to New Car Sales
Repo Man is central to the auto industry. It’s also a small industry in and of itself. I start with that, before progressing to the more important aspect.
Repo Man in fact and fiction
It’s easy to find YouTubes showcasing the technology involved. That includes GPS trackers and remote immobilizers and databases of target vehicles linked to automatic license plate scanners. Speed is of the essence. Of course, time is money. More important, however, legal though repossessions may be, those whose vehicles are being returned to lender can be most unhappy about it. There are thus special skids and other tools that allow a tow truck to have a vehicle on its way in minutes.
That such technologies are available is because there are a lot of repossessions. While 2 of 3 car “owners” who lose there cars hand back their keys voluntarily, that leaves the other third. Here I use data from a 2020 online presentation that had been slated for presentation at the GERPISA conference in Ann Arbor (remember COVID?). In 2020, about 1 in 20 carowners were 90 days behind on their loans, or over 5 million households across the US (in 2024 the figure was about 1 in 23.)1 In 2020 there were an average of 10,000 potential repos every night just in Chicago, and across the country an average of 5,400 successful repos a day. That supported an industry with $800 million in annual revenue. Chasing that stream are ambulance tow truck chasing lawyers.
Repo Man also features in popular culture, including a satirical science fiction 1984 Repo Man film. Novels include a series by W. Bruce Cameron where the central character is a repo man in rural Kalkaska Michigan that includes ice fishing, logging, a small-town bar, and other pieces of local color.2 The theme has carried over into science fiction, with the novel Starship Repo by Patrick S. Tomlinson, and the gruesome repo of artificial organs in the 2010 film Repo Men.
Why Repo Man is Central to the Auto Industry
Repo man matters because almost all new car purchases are financed, either as a lease or with a standard auto loan, which can now stretch out to 96 months (8 years).3 New car sales of 16 million or so in the normal year – plus twice that many used car purchases – generate a lot of loans, with loans to over 100 million households outstanding at any given time. In 2024Q1 a total of $1.6 trillion in loans were outstanding.4
Banks like to be repaid. Life doesn’t always cooperate. All too many households buy too much car, forgetting that they also have to buy insurance and put gas in the tank, plus of course buy groceries and all that other stuff. So they don’t keep up with monthly payments. Banks may tolerate borrowers that periodically fall a month behind, given that the repossession process itself is costly, and may turn out post-retrieval to be in less than pristine condition. On top of that, about 30% of borrowers are “underwater” or “upside down”, owing more on the loan than the car’s resale value.5
Now having a car is critical for day-to-day living in the US, particularly in rural areas (I live in Rockbridge County VA). During the aftermath of the 2008-9 financial crisis, anecdotes are rife of households letting their homes be repossessed but keeping up with car payments. But people can and do fall behind. In their bank’s judgement, irremediably so. There isn’t much leeway for negotiation, as car loans get pooled into asset backed securities and sold on to investors who like the higher yields relative to corporate bonds. Those investors in turn will rely on a service company to collect and forward loan payments (and early repayments) and to collect on bad debts. Someone behind on a big car loan doesn’t typically have cash in the bank, so that only goes so far.
Conclusion
Then it’s time to call repo man. Because without the underlying ability of whoever holds the loan to take possession of collateral, banks won’t lend, and cars won’t be sold.
Afterward
The bottom feeding extreme of this process are Buy Here Pay Here used car lots.6 If you have really bad credit, BHPH is your last option. Such operations typically require weekly payments in cash, and show very little forbearance when borrowers fall behind. Most now install both GPS trackers and remote engine disablers, and are quick to “take back the keys” by activating their system and making it impossible to start the car.
To offset their risk, BHPH lots carry older cars with high markups and demand a sizeable down payment. That way, if they take a car back, between the downpayment and the markup they avoid a loss on their asset. Offsetting that, BHPH has high operational expenses and may themselves have poor access to bank loans.
The unethical extreme of the industry even likes those who can’t repay, because they make enough money selling and reselling the same car. Unfortunately, that leaves the poor purchaser even poorer, having lost the down payment, carless, and unemployed because they didn’t show up for work on time when they found themselves locked out of their car.
Microsoft Copilot. I did not check underlying sources, but this is the sort of question where AI should get the basics right. I am normally asking complicated and/or nuanced questions, and have not found AI tools useful in those cases.
The Midnight Dog of the Repo Man, The Midnight Plan of the Repo Man, and Repo Madness. I listened to all on Audible. Most of his books focus on dogs, and apparently are popular enough to be available in Polish and Chinese. In these however the central figure is Ruddy McCann, and not his dog.
I’ll return to the duration issue later, when I focus on cars as durable goods. The impact of Covid via the links between used and new car markets is a big component of the increase in US inflation. Used car prices are still at historically high levels.
A test of the Microsoft Copilot AI tool resulted in the claim that 85% of purchases are currently financed, up from 75% just prior to Covid. A follow-up query generated the $1.6 tril figure.
For news coverage from Oct 2024 see among many others the Washington Post on being car poor, and Jalopnik on how problems are amplified by a sharp drop in used EV prices, and the WSJ on owing years of payments after a car is totaled.
See BHPH Dealer. Their website has no issues subsequent to December 2023. It is but one example of a host of specialized publications. Much larger is Auto Finance News, for which I once wrote a semi-regular column. AFN provides regular coverage of delinquent loans, ABS issuance, and on and on. Talking to vendors at an AFN convention opened my eyes to the many niches that support automotive finance, and hence the overall industry.