[DongleDongle] "I woke up to find my car gone"... 'Repo Man' becomes an object of fear

85% of Americans Buy Cars with Loans
Loan Delinquencies Surge as Interest Rates Rise
1.2 Million Vehicle Repossessions Last Year
Debt Collection and Auction Industries Thrive Amid Recession

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Recently, amid the economic downturn, a figure has emerged as a source of fear for ordinary Americans. These are the debt collectors known as Repo Men. Americans call them "Repo Men" by taking the first letters of the English word "Repossession," which means recovery, referring to those who seize collateral from debtors who fail to repay their loans.

These Repo Men have been experiencing an unexpected boom since the COVID-19 pandemic as many ordinary Americans have faced financial hardship. This is because there has been a surge in cases where people who took out secured loans using their vehicles as collateral have failed to repay their debts.

◆ 85% of Americans Buy Cars with Loans... Struggling with Soaring Interest Rates

In the United States, cars are an essential part of daily life for ordinary people. Due to the vast land and inconvenient public transportation, it is difficult to go out without using a car.

The problem lies in how Americans purchase their vehicles. The majority of Americans use loans instead of cash when buying cars. According to the consumer advocacy group PIRG, only 15% of Americans pay cash for their cars. If these borrowers repaid their loans well, there would be no issue, but since last year, the Federal Reserve (Fed) has raised benchmark interest rates, worsening the situation.

According to Bloomberg, as of last month, 5.3% of U.S. auto loans were delinquent by at least 60 days. This is a higher delinquency rate than during the 2009 global financial crisis when the U.S. economy was severely hit. Most delinquencies are concentrated in loans taken out between mid-2021 and mid-2022.

With job losses due to COVID-19 and rapidly rising loan interest rates, the number of people unable to repay their debts has increased. In the first quarter, the average interest rate on new car loans in the U.S. was 7%, and for used cars, it was 11.1%, a significant jump from 4.4% and 7.8% the previous year. As interest rates soared, statistics show that one in six Americans with car loans now pays over $1,000 (about 1.33 million KRW) monthly just for their vehicle loan repayments.

As loan delinquency rates rise, cases of vehicle repossession are also increasing. Cox Automotive, a U.S. vehicle management service company, reported 1.2 million vehicle repossessions due to loan delinquency last year. This represents a 5.3% increase compared to the previous year. During the 2009 global financial crisis, 1.77 million vehicles were repossessed.

◆ The U.S. Faces a Repo Man Labor Shortage... Ordinary People Tremble in Fear

As the number of vehicles to be repossessed increases, debt collection companies are struggling to find enough personnel to handle the repossessions. Two years ago, Repo Men faced difficulties as the U.S. government’s cash stimulus policies during COVID-19 reduced their workload, but the situation has now reversed. According to Bloomberg, 50% of debt collection agencies in the U.S. are experiencing labor shortages because they cannot find enough Repo Men.

However, to Americans, Repo Men are like executioners. When debtors default on their loans, Repo Men tow their cars and put them up for auction. Having one's car repossessed, an essential item for daily life, poses a significant threat to their livelihood.

US Debt Collection Agent [Image source = Screenshot of Resolvyun homepage]

As cases of loan defaults increase, foreign media such as Bloomberg have been continuously reporting stories of ordinary Americans suffering from vehicle repossessions. Recently, stories have emerged about a single mother raising funds on Twitter to avoid car repossession and a man in his 40s who woke up one morning to find his car repossessed overnight, leaving his garage empty. These cases illustrate the deep fear Americans feel toward Repo Men.

◆ Repossession Market Booms... An Industry That Thrives in Recession

Separate from the suffering of Americans, the car auction market has entered an unprecedented boom. Recently, a North American debt collection industry conference was held successfully in Orlando, Florida. One debt collection company representative attending the conference said, "As the economy slows down, our industry is entering an even more prosperous era," which is a rather bitter reality.

According to Bloomberg, fueled by the economic downturn, the U.S. repossessed goods auction market has grown to a scale of around 2 trillion KRW. In fact, the history of this debt collection market in the U.S. is long and harsh. During the Great Depression in the 1920s, as financial companies offering vehicle loans were established one after another, companies specializing in debt collection for customers who failed to repay also began to grow. The debt collection and auction markets have long thrived by feeding off U.S. recessions.

With the surge in loan delinquencies due to the economic downturn, problems caused by repossessions are likely to spread further. The tragedy in the U.S., caused by reckless lending combined with central bank tightening policies, offers many lessons for the Korean economy as well.