What’s a good time to repossess a car?

Some repo agents say at night so they can work under the cover of darkness. But a crusty auto-finance guy of old thought Christmas day was a perfect time. Why? Because he knew where to go to get the car.

“When doing the loan paperwork, he asked the borrower for the address of his mother and mother-in-law,” Ron Smith, founder of the National Remarketing Conference, says in telling me a harsh holiday story.

If the loan later went bad, the lender sent the repo agents to either of the addresses on Dec. 25. “He figured the guy would be at one of those places for Christmas dinner,” Smith says. And he was usually right.

If that sounds like Ebenezer Scrooge before all those ghosts dropped in on him, well, the brutal rationalization was this: There was no amnesty day when a borrower failed to make his car payments.

A lot of people found themselves in that situation last year when there were about 1.7 million repos in the U.S., a record and a reflection of the disabled economy. Many people who ended up losing their cars had lost their jobs as a prelude.

It’s pretty basic, says Scott Hoyt, senior director-consumer economics for Moody’s. “People with jobs can make car payments. People without jobs can’t.”

The good news this year is the repo rate has dropped about 20% compared with 2009.

Commentary

But compared with home foreclosures, which happened a lot last year, too, vehicle repossessions occur much faster. Auto lenders are quicker to pull the trigger. One reason is a home isn’t going anywhere, but a car may end up in another state.

Or in an accident. If so, the car probably no longer is insured, because people not making car payments probably aren’t making car-insurance payments, either. So the lender could end up recouping only the going wreck-rate.

That’s why lenders send in the repo teams after a few missed payments. In tracking auto-loan performances, Experian Automotive doesn’t even consider 90-day delinquencies. Why not? Because the repo teams have moved in before then, says Melinda Zabritsi, the firm’s director-auto credit.

These days, some people in dire straits would rather default on mortgages than on car payments, she says. “It used to be the mortgage was the first bill paid. That has switched around. You can’t drive your house to work.”

No one wins when a car gets repossessed. Not the delinquent borrower who suddenly lacks personal transportation. Not the dealer, who typically gets a black mark for doing the deal. Not the financial institution that typically resells the vehicle for less than the remaining balance on the loan.

But modern technology is helping lenders mitigate such losses. One way to do that is to put the car up for auction online while it still is at the repo agent’s lot. Ally Financial has started doing that.

“It saves a transportation step,” Steve Kapusta, Ally Financial’s director-remarketing operations, tells me. “It also avoids the risk of the car being damaged while moving it to an auction site.”

Sometimes a buyer turns out to be closer to the repo agent’s yard, anyway. “You don’t want to transport the car 150 miles (240 km) to an auction, then take it back 150 miles to the city where you started.”

Lenders are keeping tighter reins on repo agents these days.

“There is a lot of liability involved in this business, so a one-on-one relationship with an agent is best,” Howard Segal, Wells Fargo’s director-remarketing, says at a conference panel discussion entitled Subprime Repossessions.

Making sure agents act properly has become a big issue, says Neal Boardman, a vice president at BB&T/Regional Acceptance. “There is a huge risk. We’re constantly being watched. We want to do it right, which means keeping a thumb on the agent.”

Fine, but at least give them Christmas off in return.

sfinlay@wardsauto.com