Anybody seen a green Jaguar? - Posted by John Behle
Posted by John Behle on December 19, 1998 at 12:05:45:
Real estate doesn’t have wheels. Cars drive away. Anyone making car loans either has to take possession of the car or be prepared to go get it.
Many of the “Cash for Title” places hold the car as well as the title. Others are experienced at Repossessions. They really aren’t much fun. You have to have a very low LTV on a car due to it’s constant “Devaluation”.
Most of the money made in car paper is through what they call “Lumpy lots”. Cars that are hard to finance in the normal market due to the age. The dealers usually take a downpayment that is large enough to cover their cost on the car. They are then financing only their profit.
When they sell the note to investors, the investors are financed way over the value of the car and dependent on the dealer.
Most of the money lost in car paper is also the same way. Dealers go belly up, use phoney car titles or do not back up the guarantees. In one case of a “Note” investor that was seduced into the car paper market, the dealer used phoney loans with phoney titles and the investor lost his shirt and the shirts of all the investors that had helped finance him. A skyrocketing note investor went up in flames.
In a local case, one of our car dealers just got out of prison for his lumpy lot operations. I’m sure his investors were burned bad. The cars were totaled by insurance companies and he straightened the frames and re-built them.
I’ve known several car paper investors that have made some great profits - - - for a while. It can be a dangerous game.