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.