The economy appears to be heading back on track. This bodes well for liquidations.
Recovery from the most pervasive recession since the Great Depression continues to move in a positive direction causing some naysayers to change their tune and join the ranks of the bulls who have already concluded that the U.S. recession ended about mid year. Has the final chapter for the recession that began in 2007 finally been written? Is liquidation performance going to get back on track? Let’s blog.
The high level of bullish optimism among analysts, economists and even CEOs stems from the release of the third-quarter U.S. gross domestic product (GDP) report which showed solid real growth at a better-than-consensus 3.5% annual rate. This report covers numerous indicators and extends a run of positive economic reports that has consistently beat forecasts for about six months and counting. Adding fuel to this fire is the outlook for continued improvements in corporate profits, the stock market’s recent strong performance and double digit improvements in U.S. manufacturing output in Q3. This list goes on, but you get the picture.
The bears among us are casting doubt on the sustainability of the economic rebound particularly since it has been so heavily dependent upon government stimulus money that, they will point out, has generated short lived results. The naysayers will also point to the U.S. unemployment rate which reached 10.2% in October, passing the double digit mark for the first time in more than a quarter century. They will go on to tell you that payrolls declined for the 22nd straight month and that foreclosures jumped nearly 23% in the third quarter with expectations that foreclosure rates may accelerate in 2010 driven by high unemployment and more adjustable rate loans resetting to higher monthly payments. This list goes on too but, again, you get the picture.
We will take our respective sides as we tend to do, joining the ranks of the bulls or the bears to debate the results. Ultimately the real driving force for those of us who are focused on liquidation results is tied directly to the behavior of the consumer (otherwise known as the debtor in the ARM industry). Since the unemployment rate continues to increase, and since foreclosures have climbed to levels never seen before, consumer confidence has deteriorated, marking a fresh low in September, a low that has only been surpassed once before — at the end of the early 1980s recession which, by the way, was the last time the unemployment rate was so high.
Therefore, I am sorry to say, we are not out of the woods yet. The good news is that debtors tend to have their lowest level of confidence during the first part of the recovery because the indicators that affect them the most, jobs and housing, are reaching their peak. Combating this are the companies that have stated their intentions to start hiring again and the companies that are suspending layoffs which are good signs the recession is starting to move behind us. Interestingly, the ARM industry appears to be one of the sectors that is ready to hire again, according to our latest Confidence Survey results.
We expect that liquidations will continue to stabilize for the rest of the year and possibly improve compared to last year’s Q4 results given that liquidations declined last year as much as 45% to 60% in Q4 (not exactly impossible to improve on that performance). Despite the growing concerns in the commercial real estate market, liquidations of consumer portfolios will likely stabilize in Q1 of ’10 compared to Q1’09 as well given that most consumers have increased their savings rates and will want to continue reducing their debt loads – the government is also considering additional stimulus programs that may include another tax rebate if needed.
What are you seeing in your own recovery efforts?
An Idea Whose Time Has Come
From texting to iPods to smart phones, technology has dramatically changed the way we live our lives. At the end of last year when the economy soured and travel budgets were slashed, I started to wonder; “Why can’t technology be utilized to revolutionize the exhibition hall experience?”
Why can’t it? What if you could get access to all participants at an exhibition without ever leaving your desk? What if it was absolutely free to attend, so you could send all interested staffers – from the IT department to Operations? What if easy access made it possible for the entire ARM industry to attend – including credit grantors, debt buyers, and ARM service providers? What if we could make this happen? Would you participate?
We thought so and that is why we created the ARM industry’s first-ever virtual expo, Expo 3.0
Envision an efficient and cost-effective expo conducted entirely online. You can literally “visit” booths, interact with decision makers through group or private chat, see a video introduction of the company or product, and leave with relevant information and appropriate contacts – all without having to leave your desk.
^pullquoteLearn more about Expo 3.0 at http://www.insidearm.com/expo/ pullquote^
Because of the expense of travel, cost to attend, and time out of the office – not to mention the travel restrictions placed upon many professionals – many stakeholders in the process of selecting vendors haven’t been able to attend tradeshows. On the flip side, these restrictions prevent vendors from sending technicians or developers to staff their booths. That’s about to change. For the first time, entire staffs will have one place to go to evaluate products and services needed to improve recoveries. Through Expo 3.0, there are no restrictions. Everyone on both sides of the buying decision can attend without the hassles of travel.
EXPO 3.0 is free to all attendees, so senior management, IT staff, collection staff, and anyone else is able to attend from their desk. And since booths at Expo 3.0 will be available for 90 days after the live event, attendees can still get the information they need even after the live show ends.
As active participants in the affairs shaping the ARM industry for nearly 20 years, Kaulkin Ginsberg has been involved in virtually every trade show and conference geared toward credit grantors, collection agencies, collection law firms and debt buyers. This year alone, our firm participated in over 17 live events. We know and appreciate the fact that there’s no substitute for face-to-face interaction. We saw the need to address the limitations involved with live events and that is why we developed a virtual experience focused exclusively on the exhibit hall.
We truly see EXPO 3.0 as a new and powerful tool to enhance and facilitate introductions within the ARM industry, and we are committed to using all of our resources to making this a successful event for all participants. I hope we’ll see you there!
ARM Industry Leaders Gather in DC for the ACA Capitol Hill Fly-In
Last night, I attended ACA International’s Open House celebrating the opening of their new Federal Affairs office in Washington, D.C. The association’s Executive Committee, agency owners, senior executives, and ACA leaders participated and members from neighboring associations stopped by. It was a nice evening.
The purpose of the event is significantly more meaningful than a typical open house celebration. Today (October 1) is the ACA's Capitol Hill Fly-In event, where industry leaders from across the country are gathered together to meet with members of the House and Senate and their staffs to garner support for the industry’s federal legislative agenda. As the current Administration attempts to create a Consumer Financial Protection Agency, reform healthcare legislation, and modernize FDCPA, industry participation is crucial.
The Consumer Financial Protection Agency (CFPA) alone is cause for concern for the accounts receivable management industry. There is a good chance that the new agency will oversee the FDCPA, making it the ARM industry’s new regulator (“Proposed Consumer Financial Protection Agency May Oversee FDCPA Enforcement,” June 25).
I am thrilled with the energy of the participants who are taking time out of their own busy schedules this week to lobby on behalf of the industry. Their efforts should not go unnoticed and should not be limited to a few days on Capital Hill. Many initiatives will have to be addressed in months to come at state capitals across the country -- and increasingly at the local municipal level as well. Participation at these levels is critical too.
On a personal note, there was another gathering of industry veterans a couple of weeks ago that should not go unnoticed. They came to pay their respects for the passing of friend and colleague, Pete Nance. His last venture in collections was the creation and sale of FAMS with partner and friend R.T. Cardwell. Pete touched a lot of people during his decades of collection service, including mine, and he will be missed by many.
Follow Mike Ginsberg on Twitter at DCS 2009
Kaulkin Ginsberg CEO Mike Ginsberg is in Puerto Rico at Dennis and Judy Hammond's Debt Connection Symposium and Expo 2009. DCS focuses on allowing the ARM industry to network with their peers within the industry as well as credit granting professionals and technology vendors.
Mike will be giving live updates from the conference on Twitter. You can follow his updates below, or directly from the Twitter site at http://twitter.com/mike_ginsberg.
Faltering Banks Create Challenges for ARM Companies
While the economy may be showing early signs of stabilizing, the banking industry continues to worsen. In data released late last week, federal regulators added 111 troubled banks to their endangered species list, bringing the total number to 416. This amount is up nearly 4 fold from a year ago, despite the trillions of dollars the government has thrown at the problem. Regulators have shut down 81 banks so far in 2009, and some analysts predict hundreds more banks will be added to the list before it is all done.
What does this mean for many companies in the ARM industry who service bank clients or rely on bank financing for operating capital or expansion?
The most immediate effect will be continued difficulty in obtaining financing. The effects of this credit crunch on the U.S. ARM industry are widespread and will continue well into 2010. Georgia, California, Illinois, and Florida have been hit the hardest, accounting for 50 percent of the bank failures since 2008.
Local banks, once a safe and reliable capital resource for many small and mid-size companies, have tightened their lending requirements to a point where it is virtually impossible for companies to borrow to finance operations or growth. As a result, those companies that rely on bank financing are adjusting their business development strategies in the short term or seeking alternative funding sources ranging from friends, family, and high net-worth individuals to venture capital, private equity and strategic partners. Those companies that planned ahead and are well capitalized are staying the course, negotiating good deals and capitalizing on the expansion opportunities they see in today’s dynamic market.
There are other ramifications to keep in mind as bank failures increase:
- Short-Term Increases in Consumer and Commercial Loan Defaults - Without access to additional financing, default rates among consumer and commercial borrowers will continue to rise, continuing to increase placement volumes and challenge recovery efforts.
- Placements Will Decrease in the Future - Placement levels in select asset classes will level off and possibly drop over time as some credit card issuers and lenders curtail their lending.
- Portfolio Prices May Decline Further - With limited financing options and concerns about future performance, pricing for many portfolio sales will remain at current levels and possibly decrease, resulting in less auctions and more one-off negotiated transactions or no-trades.
- More Distressed ARM Situations Will Occur - Capital constraints and poor performance will force some companies to break loan covenants, resulting in more distressed M&A transactions and some bankruptcies.
- Local Banks Will Merge - Another round of consolidation among local and regional banks will occur.
Summer Vacation: A Real Break, or Change of Scenery?
Taking time off in the summer is as common as the common cold. Just as the change of seasons brings on the sniffles for many of us, the summer months are a time to pack up our cars and leave our office behind, heading out for some fun and sun. Some of us head out to our favorite destination in June right after school ends, while others prefer to wait until August, venturing out just before school starts up again and clients expect us to be in our offices.
Any way we do it, most of us take a summertime vacation. The intention as we head out is always the same. We want to leave the daily grind behind, spend quality time away from our office, recharge the proverbial batteries, and come back fully rested and ready to embrace the challenges of the real world all over again.
The question I want to raise is: do we truly take a vacation, or do we remain focused on our work – or worse – do we stay completely connected while we are away from the office? Are we able to allow ourselves some time to take a well deserved mental break from our work-related commitments and focus on ourselves, our loved ones, hobbies, or whatever else we strive to do when we are away from our desks? Or, do we physically leave the office for a period of time, call it a vacation because that’s what our significant others and kids want us to do, but remain completely connected to our clients and colleagues while we are away?
Sure, we all have good intentions when we begin our vacations. We intend to relax, catch up on our reading, or simply enjoy the freedom from our daily planners for a short while. But how many of us truly stay away while we are away? Technology allows us to remain connected in so many ways that has become impossible to completely check out of the office – even for a relatively short period of time. Cell phone networks are stronger than ever, so there are few places we can hide. And cell phones are no longer just simple calling devices. They allow us to take our office along with us, empowering us to check email, download attachments, text message, and check websites. If that’s not enough, our laptops with wireless connections are not far behind us – either in the car or on our kitchen tables, ready to go on a moment’s notice.
I confess that I find myself trapped somewhere between the workaholic and true vacationer while I am away from my office. During my vacation week, I spend quality time with my wife and children without my Blackberry attached to my hip. But I also make business-related calls, read email, examine spreadsheets or plan for our latest venture. What about you? Are you truly away from your office when you’re on vacation or are you so attached that when you return you don’t feel like you were really on vacation at all? Are you somewhere in the middle like me? Chime in and let us know. It’s OK to be honest. Your family and colleagues know the truth anyway.
With the Economy Still on Life Support, How are Your Recoveries?
Economic results are out for July and the results are mixed at best. Consider the following updates:- The unemployment rate slid from 9.5% to 9.4% prompting the Federal Reserve to voice optimism that the long decline of the US economy appears to have ended.
- The housing market is still slow, with a record number of foreclosure filings posted in July.
- Retail sales fell in July after two straight months of gains. Without car sales from the "Cash for Clunkers" program, the numbers would have been even worse.
- Wages have fallen from last year’s levels, although fewer major U.S. employers are planning additional layoffs.
I could go on but you get the idea. In the ARM industry, agencies and credit grantors continue to experience lower liquidation rates compared to last year’s results generally across all asset classes and all stages of delinquency. Placement volumes are up. Those servicing later stage, lower balance and/or community accounts (i.e. healthcare, utility, and local government) are typically experiencing better liquidation results compared to those working fresh accounts, higher average balance accounts where recoveries are off anywhere from 30-60%.
I am afraid that we have not turned the corner on economic recovery yet and until consumer confidence and unemployment rates improve consistently for an extended period of time, the recession will continue to negatively impact recovery rates.
How are current trends affecting your recovery efforts? Agency and recovery managers, please share your experiences by commenting to this blog. What types of accounts are you servicing? How are your placement volumes and recovery rates? What creative techniques are you utilizing to improve your performance levels?
Six Growth Strategies for ARM Firms in a Down Economy
Collection professionals are confiding in me that they have never experienced a collection environment like this before. “When is it going to get better?” they ask. “When will the economy improve?” “How do I grow my business in this recession?”
Tough times call for a creative and thoughtful business strategy. Consider the following strategies as you seek to grow your business:
- Establish a benchmark group with peers. Easy to say and a lot harder to do. Benchmark groups are only valuable if the participants are truly peers who are willing to spending their time with you exchanging information and ideas.
- Hire proven talent to fill voids within your business. Because of downsizing, there is a lot of talent looking for employment. Be selective and do your homework. Talk to past employers, clients, and colleagues to determine why they are available and if they could add value to your organization. Then structure their compensation around success achievement of the goals that you and they establish. If you’re not willing to invest the time up front, don’t expect that you will achieve desired results.
- Partner with established companies to expand capacity, provide new services to your clients, and to expand your own client base. Other companies are experiencing the same headaches that you’re experiencing. Approach them to cross-sell. They may be receptive. Be sure to do your homework before engaging.
- Acquire a smaller or distressed business. Now is the time to consider reaching beyond your own business for growth. Be proactive. If you have excess capacity, folding in another business might make sense. Be sure to price and structure the transactions appropriately so you’re not left holding the bag.
- Reassess your marketing and advertising strategy. Don’t disband it altogether, but revisit your plan. Evaluate where you’re spending your money and where you’re achieving the best results. Look to the web and social media.
- Evaluate whether to attend or exhibit each conference or trade show on an individual basis and not because you did it before. I just returned from the annual ACA International Convention which took place in Las Vegas this year. Traveling to Sin City is not an easy trip for me from D.C. and staying at the Wynn is not inexpensive, so the decision to attend this conference was not taken lightly. I am glad I decided to go because I had the opportunity to speak to an engaged group of professionals and establish (and re-establish) valuable contacts.
What are you doing to grow your own business? Share your thoughts and strategies with us below.
Auto Dealerships Close, A Mixed Bag for ARM?
The proverbial “other shoe” has dropped and it has made a loud thud as the auto makers prepare to close dealerships across the US. This will have profound effects on the US ARM industry. Here are the cold, hard facts: Yesterday, Chrysler named the 789 dealerships that it will be pulling out of over the next few weeks. GM is also expected to name some 1,000 dealerships it plans to pull out of. While not all dealerships will close entirely, expectations are that this will add quickly and significantly to a growing unemployment rate that many believe will top 10 percent before the end of the summer.
Accelerated increases in the unemployment rate will have a profound impact on the US ARM industry in a few ways. If you see the glass half-empty, the most obvious result is that liquidation rates will be negatively impacted, as a debtor’s ability to pay is directly tied to their ability to retain employment. National collection markets including bank card/credit card and telecom have already experienced significant drops in liquidation rates since Q408, with improvement during Q109 tax season. Local collections (i.e. healthcare and municipalities) have remained relatively intact, experiencing less than 10 percent drops in liquidation rates. Anticipated layoffs due to dealership closings across the US will be felt in small and mid-size cities and local collections will inevitably be impacted as a result.
However, if you see the glass half-full; this is not entirely bad news for companies in the ARM industry. Many collection agencies are experiencing a significant increase in placement volumes and as they seek to expand operations to support this influx of new business, they will have ample candidates to choose from to hire. In an industry with consistently high turnover rates, retention levels are also improving as many employees are content they have a job.
This also means increased business for those who know where to look for it. Fewer dealerships will mean less revenue for municipalities that generate taxes from auto sales. Municipalities are already reeling. Faced with the choice of raising tax rates to offset losses or decreasing spending on road repairs or the countless other initiatives on the docket, I believe that a growing number of local governments will be more amenable to outsourcing collections to third party specialists. I encourage you to visit with the government officials in your community and you may be pleasantly surprised by their receptivity. After all, you don’t only provide a valuable service; you employ a lot of their local residents.
Thoughts from the CRS 2009 Conference
It was a pleasure to present the industry keynote at Judy Hammond’s Collection & Recovery Solutions conference (CRS 2009) in Las Vegas last week, where I shared our view on the state of the industry and future trends (you can see the slides from the presentation on kaulkin.com). Attending the show confirmed a lot of what we've been predicting for the industry. Generally, agency executives are bullish about their business due to the significant increase in placement volumes from bank card/credit card clients. First quarter performance was up due to tax refunds, but liquidations are trending down for early stage paper and most do not hold out hope that federal stimulus efforts will be effective in improving recovery efforts. Technology and other vendors are feeling the impact of the recession in the form of increased pressure from their clients to provide additional services at decreased rates.
Debt buyers are voicing their concern about portfolio pricing still being too high relative to liquidation rates (but coming down) and the impact of the credit crunch significantly impairing their ability to finance attractive purchases at reasonable rates. Those who are on the field playing ball are negotiating shorter term forward-flows with their clients and/or partnering with collection agency specialists to assure they are pricing right and have the best collectors locked in to service their purchases.
I am happy to say that quite a few recovery managers were in attendance during the sessions and in the exhibit hall, not just secretly meeting with their vendors away from the event. More so than I can recall in recent years, recovery managers made their presence felt last week.
Judy, Dennis, Chris, and Evan (et al) always produce a 5-star event and I am confident that CRS will be remembered as one of the most intimate and well-attended affairs of the year. Attendance was not down as significantly as I feared because of the impact of the recession on travel budgets and the growing paranoia over the past 2 weeks about the swine flu (I could not find a bottle of hand sanitizer anywhere).
CRS was also a personal milestone, as it was the first event where I posted live updates from the event on Twitter. Please let me know if it was helpful. We may do more twittering in the future.
