Repos Rise as Auto Loans Lengthen

There could be a 10 percent increase this year in vehicle repossessions to 1.6 million, a wholesale car dealer tells USA Today.

Thomas Webb, chief economist for Manheim tells the paper that generous auto loans have led to higher defaults, which can eventually lead to vehicle repossessions. 

And an executive with an auto auction shop in Indiana said that the company has had to use additional lots to store all the vehicles it is repossessing. “Our inventories are growing to record level,” Tom Kontos, executive vice president at Adesa Auctions told the newspaper.

The increase comes as auto lenders have been extending the terms of their loans to increase sales. Toyota Financial Services last year began offering loans of 84-months, or seven years, on new cars. The loans account for a reported 4 percent of Toyota Finance auto loans.

GMAC Financial Services also offers 84-month loans.

Longer term loans generally keep monthly payments lower, so many consumers choose to buy a more expensive car, or buy a new car more often, or rollover their old loan into a new one ("Subprime Problems Could Spread to Auto, Commercial Loans," Dec. 31, 2007).

Rating agency Standard & Poor’s found that delinquencies of 60-days or more on auto loans issued to consumers with the highest credit quality are up 20 percent compared to the same period a year ago.