Factoring Gas Prices into the Auction Equation

Lenders have been keenly focused on the recent unrest in the Middle East, wondering whether oil prices will spike like they did in the summer of 2008. One main consideration of higher gas prices is the ensuing shift in vehicle demand ― to compact cars from guzzlers. Yet a more subtle calculation that lenders have been making lately relates to remarketing.

You see, higher gas prices translate to heftier vehicle transportation costs. Though repossessed and off-lease vehicles have been commanding high prices at auction for a couple years now, rising rates at the pump will start to eat into those profits. Lenders may increasingly refrain from relocating cars to auctions that bring in higher prices, because the costs to transport those vehicles negate the gains.

Tags: auction, gas, transportation

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Comment by JJ Hornblass on March 16, 2011 at 1:47pm: There has been some easing of oil prices in recent days, as evidenced by the following graph:

We plan on addressing the impact of fuel prices on auto finance during next week's Auto Finance Risk Summit.

Comment by lou loquasto on March 30, 2011 at 1:52pm: Marcie,

For lenders, rising gas prices will eventually affect overall recovery rates. For the larger lenders, a 1% decrease in recovery rates translates into millions of dollars less to the bottom line. An interesting thing about the gas price / vehicle value correlation is that there are vehicles that actually increase in price as gas prices go up. So a lot depends on the make-up of a lender’s portfolio.