Automotive News F&I Special Sections of 2008 - (Page JUL26) 26 • JULY 14, 2008 finance & insurance Group promotes payment assurance Alysha Webb awebb@crain.com As the auto market and economy slump, lenders are doing more business with people who have bad credit. To protect their investments, lenders rely on technologies that track vehicles, such as global positioning system receivers, and disable vehicles if loan payments stop, such as starterinterrupt devices. Now, makers of GPS tracking and starter-interrupt devices have a new trade association. The Payment Assurance Technology Association aims to standardize industry practices, reducing risk to lenders and boosting business. Jack Tracey says the Payment Assurance Technology Association “will help flush out players that are marginal.” “The payment assurance area is superhot,” Dewey told Automotive News. “The world financial crisis has made it almost an imperative.” Keeping track Auto lenders use these devices to monitor vehicles bought with subprime loans — and to disable them if loan payments stop. Global positioning system receivers: A transmitter on a car or truck bounces a signal off one or more satellites, enabling a receiver to pinpoint the vehicle’s location. Starter-interrupt devices: These allow lenders to disable vehicles remotely, using a keyboard. When payment resumes, the lender can enter a code that starts the vehicle. “The standards will be good,” Tracey says of the trade association. “It will help flush out players that are marginal.” Tracey also is executive director of the National Automotive Finance Association, a trade association that represents subprime auto lenders. Most auto dealerships that provide their own financing, such as buyhere-pay-here lots, use GPS tracking and starter-interrupt devices, Tracey says. Smaller independent finance com- panies are starting to use them as well, he says. But larger banks have been reluctant to use the devices because of a risk of bad publicity, he says. The association aims to contribute to clearer public perceptions of the industry, Tracey says. A common misperception, he adds, is that a starter-interrupt device will stop a vehicle in the middle of traffic. Expand ownership To join the association, a company must meet standards and qualifications, such as a prescribed level of capitalization. Membership thus offers reassurance to lenders about using payment-assurance devices, Tracey says. Borrowers also will benefit, he says. “To the extent that those with weaker credit could be underwritten with the use of the devices, it would expand the number of people able to own cars,” Tracey says. The new group also can improve public relations, Dewey says. Makers of devices that help repossess cars from delinquent borrowers often are seen as villains, he says. Said Dewey: “We have to be very careful and put out a very positive message.” c Risk reduction Finance companies that bundle subprime auto loans and sell them to investors are a major force driving the growth of the GPS/starter-interrupt market, Dewey said. Such lenders seek to cut the risk not only of a borrower defaulting but also of a company that provides paymentassurance equipment going out of business, he said. Jack Tracey, executive director of the trade group, says that if a maker of GPS or starter-interrupt equipment stops paying to use a satellite to transmit wireless signals, the service quits and can’t be reconnected even if payment resumes. Without a signal, he says, lenders can’t track or disable a vehicle. Risk mitigation “If we can come together as an industry, all up and down the value chain, there would be some mitigating of risk and a higher level of comfort with the service,” said Roger Dewey, president of Telit Americas and treasurer of the group. Telit Americas, of Morrisville, N.C., is a subsidiary of Telit Communications, an Italian company that makes wireless devices. Telit America’s products include GPS devices with applications for vehicle payments. Delinquency rate on indirect loans skyrockets Donna Harris dharris@crain.com Delinquencies on vehicle loans arranged by auto dealerships have reached at least an 18-year high, the American Bankers Association reports. The delinquency rate for so-called indirect loans has dipped slightly from late last year, the association says. But that decrease was insignificant, said ABA chief economist James Chessen. In the first three months of 2008, 3.09 percent of indirect auto loans were at least 30 days past due. That rate was down from 3.13 percent in the fourth quarter of 2007 — the highest delinquency rate since the ABA started keeping track in 1990. “One quarter doesn’t make a trend,” Chessen told Automotive News. “But I would have been really troubled if the American Bankers Association’s James Chessen: “We may have a period where the rate might bounce around.” rate went up again. We may have a period where the rate might bounce around at high levels.” Soaring fuel and food prices, along with declining home equity and falling stock prices, squeezed consumers in the first quarter, Chessen said. That pressure grew “more intense” in the second quarter, he added. Although Bush administration tax rebates boosted second-quarter personal income, Chessen said, food and energy prices contributed to higher inflation. Until last year, the rate of delinquent indirect loans had not exceeded 3 percent during the ABA’s period of study. The highest previous rate was 2.87 percent in the second and third quarters of 1991. The loan data cover a broad range of borrowers, from the worst to the best credit risks. Dealerships arrange about 90 percent of all vehicle loans, Chessen says. Delinquencies on direct auto loans, which consumers get directly from lenders, rose slightly in the first quarter of 2008 but remained at normal levels, the ABA says. In the first three months of this year, 1.92 percent of direct car loans were at least 30 days past due. That rate compares with 1.90 percent in the fourth quarter and 1.68 percent in the first quarter of 2007.c Past due The percentage of vehicle loans arranged by dealers that became delinquent has risen, while the past-due rate for loans made directly by lenders has stayed mostly flat. 3.50 % of loans 30 days or more past due 3.00 2.50 2.00 1.50 1.00 .50 0 Q1 2006 Direct Q1 2007 Q1 2008 Indirect Source: American Bankers Association http://www.cso.com http://www.cso.com
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