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Repossessions Rise As Car-Loan Industry Feels Pinch

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  • Repossessions Rise As Car-Loan Industry Feels Pinch

    Pittsburgh Tribune Review March 20, 2008

    http://www.pittsburghlive.com/x/pitt.../s_558130.html

    Tanya Englert's blue 2001 Jeep Grand Cherokee was repossessed in December after she had made payments to own it for the previous 3 1/2 years. "The car had problems, a big repair bill," the Norwood, Ohio, woman said. "Then I had a $400-a-month car payment, $100 a month for insurance, $100 a month for parking. Gas hit $3 a gallon. It all added up. I was just sick about it." Englert, 40, a court reporter, is now dealing with the aftermath. Because she still owed more than $10,000 and the car sold at auction for $4,200, Englert is obligated to pay the difference.

    Car loans are the latest casualty of the pinch on Americans' pocketbooks. A faltering economy, rising inflation, high gasoline prices and a tightening home mortgage market have led to a surge in auto-loan delinquencies and rising levels of bad debt for banks and institutions that offer loans for vehicles.

    As a result, automobile repossessors are seeing more activity, as lenders claim cars bought with loans that are now in default to resell the cars at auction. Fitch Ratings recently reported that the number of auto loans that were at least two months delinquent -- typically the point at which lenders take action to repossess a car -- hit a 10-year high in January, though it did not disclose specific numbers. Fitch said the average number of loans per lender that were delinquent by 60 days or more has hovered around 0.16 percent for the past six years but last year rose to 0.20 percent. Fitch attributed the rise to "increasing pressure on the consumer in a weakening economy."

    Ed Krebs, office manager of Tristate Auto Recovery Inc. in Delhi Township, Ohio, said he's seen repossessions rise by about 10 percent compared to the same time last year. "I've noticed that at most of the repossessions, the houses are in foreclosure," he said. "It's new cars and new homes, too."

    Cincinnati-based Fifth Third Bancorp, the nation's fourth-largest auto lender among its peer banks, said it has seen a sharp increase in the number of auto-loan delinquencies. And the company reported last month that fourth-quarter 2007 losses from auto loan write-offs hit $30 million, up from losses of $15 million in the three months that ended in June. Car loans past due by two payments or more began to show a noticeable increase in August, said Fred Troncone, chief collections officer for Fifth Third. Many of those loans date to late 2005 and early 2006, when automakers offered deep discounts, Troncone said.

    Some experts say Americans are paying the price for their addiction to debt and are more vulnerable than ever to credit downturns. "I can tell you what our customer is telling us," Troncone said. "Customers are impacted by the fact that they've lost income. Not only are expenses, energy and gas prices going up, but many people had multiple incomes and lost one of those incomes, so they have to tighten their belt. "They're still paying for their primary car, but payments for the secondary car are slipping."

    Mary C. Hurlburt, director of community outreach for the Cincinnati nonprofit Consumer Credit Counseling Service, said her agency's caseload grew by 20 percent last year compared to 2006. "Our clients usually keep up with credit-card payments, but they usually fall behind on their car payments," she said. Automobile repossession companies are getting more calls for voluntary pick-ups as consumers hope that willingly giving up a car will do less damage to their credit, said Gary "Huck" Finn, 63, president of Automobile Recovery Services of Cincinnati.

    "It seems people are a little more honorable," Finn said. "They call the bank and say, 'Come and get the thing.' We've been doing twice as many voluntary tows as repossessions."
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