Best Practices in Repossession Management: Insights from Leading Lenders
As one of the nation’s largest repossession management firms, we collaborate with many of the major auto lenders, giving us a comprehensive view of a wide range of repossession strategies. Among leading lenders, repossession strategies are refined continuously to optimize outcomes. In contrast, some lenders maintain less effective strategies, which is often evident in their results.
This article outlines the key components we observe in successful repossession management practices. While specific strategies vary, the most effective approaches consistently feature the following elements:
- Utilization of Multiple Vendors
- Short Assignment Durations
- Multiple Rotations Between Vendors
- Transparent and Consistent Scorecards
- Clear Reward and Penalty System for Vendor Performance
Below is a bit more depth on each component:
Multiple Vendors
For optimal results, lenders typically work with 2-3 repossession vendors. This arrangement fosters a competitive environment, ensuring that vendors are incentivized to deliver high-quality service. By keeping the number of vendors manageable, lenders make their business a significant priority for each vendor, maximizing engagement and accountability.
Assignment Duration
One of the most common mistakes we see in repossession management strategy is overly long assignment durations. After a certain point, vendors are likely to deprioritize cases with extended durations, leading to diminishing returns. Larger lenders have trended toward shorter assignment periods, which tend to yield better results. From our experience, the following timelines are ideal:
- 1st Placement: 20-30 days
- Pre-Charge Off Skip: 15-25 days
- Post-Charge Off Skip: 60-90 days, depending on placement type
If the vehicle has not been located within these time frames, further efforts are often unproductive.
Multiple Vendor Rotations
Top-performing lenders incorporate up to five rotations throughout the repossession process to maximize effectiveness:
- Pre-Charge Off: One forwarder/agent placement and one skip placement
- Post-Charge Off: Three skip placements with durations of 60, 90, and 90 days
This rotational approach ensures ongoing attention and provides multiple opportunities for vehicle recovery.
Regular and Transparent Scorecards
Consistent use of scorecards significantly enhances performance by providing vendors with clear metrics to guide their strategies. Best practices for scorecards include:
- Monthly (or More Frequent) Publication: Many lenders release scorecards monthly, while some even publish them daily to encourage close monitoring.
- Transparent Methodology: Disclosing the scoring criteria enables vendors to align their efforts with lender goals effectively.
- Batch-Focused Performance: Tracking performance by closed (or nearly closed) monthly batches provides valuable insights into vendor success over time.
Rewards and Penalties
Use a transparent performance-based incentive system, reallocating market share quarterly based on vendor performance generally produces the best results. This approach motivates vendors by rewarding top performers with increased business. Minor adjustments in market share are generally insufficient; substantial shifts in market share can significantly drive vendor commitment and focus.
Most lenders that have deployed this type of strategy have found that they can also eliminate the time consuming and inefficient process of constantly seeking case updates because a true performance based approach gives the vendors all of the incentive they need to work the business properly.
Case Study: Strategic Adjustments and Their Financial Impact
As an example, a client initially assigned repossession cases to a forwarder around 60 days into delinquency and maintained this placement until charge-off, typically at 120 days. Upon revising this strategy to rotate cases as a skip assignment at 90 days, the lender realized an additional $4 million in annual net auction proceeds—a clear indication of the impact of a well-structured repossession strategy.
These best practices illustrate the substantial value derived from a strategic, data-driven approach to repossession management. By refining vendor selection, assignment durations, rotation frequency, scorecard transparency, and reward systems, lenders can significantly enhance their repossession outcomes.