There is never a good time for your car to be repossessed. Suddenly, you find yourself without the means for transportation, and maybe at a loss as to how you can correct the situation. If the repo man hooks your vehicle, what should happen next?If You Have the Means to Act Quickly
After your car is repossessed, you will have a small window of time (before the lending bank sells the car) in which you may be able to reclaim the vehicle. You should get a notice regarding the selling of the car at least 10-15 days in advance (depending on your states laws).
- Redeem the car or reinstate the loan. If you can gather up the necessary funds, most states will allow you to redeem a repossessed car by paying the entire amount that is due on the loan. If youre unable to come up with this much cash at once, loan reinstatement may also be possible. This involves paying off any past due payments, including applicable fees and late charges in one lump sum.
- Negotiate with the creditor. Immediately after repossession, you should contact your lender to see if they may be willing to work with you. Whether or not you will be shown any lenience is entirely up to the particular bank that youre dealing with, but you wont know unless you try.
- Buy the car back at auction. The repossessing bank should tell you when and where your car will be auctioned off, and you have every right to attend that auction and bid on the vehicle.
If your car has already been sold, you will most likely find yourself in a tough financial situation. You wont have a car for your everyday needs, and you will still be responsible for paying off the auto loan to the lending bank. Will you be able to find a dealership that will work with you after repossession? What will happen to your credit?
- Pay the balance as quickly as possible. Your credit rating will take a huge hit from the repossession, but the damage will be less significant if youre able to pay the bank back in a timely manner. And not owing money on a repossessed car will increase your chances of buying a new vehicle faster.
- Try a Buy Here Pay Here lot. These dealerships dont check your credit when determining whether or not to finance a car purchase. As long as you can produce proof of a regular income, you should be able to purchase a vehicle from a buy here pay here dealer that will get you where you need to go on a daily basis.
- If you can, give it time. Repossession doesnt have to be the end of the world. Eventually, with responsible money management, your credit will heal, and you will be eligible for financing again. Even if you end up having to buy a cheap car that youre not crazy about driving just to get you by for a while, remember that it wont be for forever.
If youre currently trying to rebuild credit that has been damaged by repossession, Auto Credit Express can help. Were able to assist buyers who have less than perfect credit in getting the auto loans that they need to get reliable transportation, and on the way towards a brighter credit future. Just fill out our fast and secure application to start today.
Medallion Financial Corporation (NASDAQ:TAXI) is a specialty finance company that originates, acquires, and services loans that finance taxicab medallions and various types of commercial businesses. It also originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, trailers, and to finance small-scale home improvements.
The stock is down some 33% from its 52-week highs, yet represents an outstanding opportunity for value investors. I believe this sell-off is due entirely to a misunderstanding of Medallion Financials business model and uncertainty in the illiquid secondary market for medallions due to concerns over ride-share apps, and not because medallion value is going to zero.
This is a long thesis, but will address short-selling claims as appropriate.
The thesis outline is:
Market Forces - Leasing
- Driver experience
- Ubers poor treatment
Market Forces - Ownership
- Ownership benefits
- The immigrant factor
The Medallion Market
TAXIs Consumer Portfolio
TAXIs value proposition
The key underlying point with regards to medallion value is that the value of a taxi medallion is subjective, based on the cash flow it provides, not its objective market price.
Ride-share apps are not a material threat to the long-term value of taxi medallions in the markets that Medallion Financial operates in, and offer virtually no threat to the company.
There have always been two distinct transport industries that have co-existed: black cars and yellow taxis. Black cars, like Uber, have always had a different cost structure than yellow cabs since the 1970s, when yellow cabs could no longer be pre-arranged.
Taxi medallion prices have risen steadily despite this situation. In major markets like the ones Medallion Financial services (NY, Chicago, Boston), there is plenty of business for everyone. Taxi medallions will always perform anywhere a passenger can raise his hand, and be in a taxi in moments.
The stock has significant upside from current levels, as the current sell-off is based entirely on a flawed market perception of TAXIs risk. The company has reported consistently strong earnings over the last several years, even since ride-share apps appeared.
The companys operating profit is 70% due to consumer lending, 10% from commercial lending, and only 20% from medallion lending. Thus, over-reliance on medallion profit is yet another mistake made by the bears.Important Numbers
From the 10-K and Taxi License Commission:
- New York Citys 1937 Haas Act limited the number of taxi medallions (licenses) to 11,787.
- Limited supply amidst heavy demand drove medallion sale prices to $1.25 million in early 2014 auctions.
- There are 13,437 taxi medallions. 5,569 are owned by individuals, and 7,868 by corporate (fleet) entities.
- Approximately 1,600 new medallions will be auctioned in the coming years.
- TAXIs average LTV on medallion loans is about 50%.
The primary argument raised by those bearish on TAXI, such as SA author James Hickman, is that, If a ride-sharing vehicle can earn as much or more than any medallion-bearing taxi, why would any buyer pay more than the minimal startup cost of new ride-sharing vehicles for hire?
The evidence I find is that ride-share drivers do NOT earn as much or more, which causes the entire bearish argument to collapse.
Three ride-share companies have entered the market: Uber, Lyft, and Sidecar. As this unconstrained supply enters the market, we would expect fares to fall, pushing all services towards commoditization.
If fares are falling, how can a medallion driver earn more money via ride-share than with a medallion taxi? The only solutions are: 1) increased rider volume, which is unlikely given excess supply; 2) increased reliance on surge pricing, which is out of driver control (and which consumers complain about); and 3) working longer hours to make up the difference.
None of these situations improve a medallion drivers current position. They all rely on elements out of driver control, or make his life worse with longer work hours.
Thus, drivers have no incentive to abandon medallions to enter the ride-share market.
This is the theory. Is it reality? Apparently.
There are no academic studies yet, but Uber itself is claiming fares are cheaper.
I spoke to Guy Roberts of Tribeca Management, one of the largest fleet owners in NY. Guy is a former taxi driver who has run a taxi fleet for over 30 years in NYC. He tells me the average taxi driver earns $60,000 annually after costs. Uber drivers gross about the same amount; however, they must pay for their vehicle, maintain it, and insure it, reducing the annual revenue to around $45,000.
There is also a detailed, and scathing, report that Uber is pushing drivers to no/low-credit auto financing. Subprime auto loans like these can have interest rates as high as 29% APR. Worse, lease deals come with mileage caps, after which per-mile charges apply. The effect is to reduce the overall number of miles a Uber driver can rack up in a year, thereby reducing income even further.
All this runs contrary to the bearish claim that moving to ride-share requires minimal start-up cost. There is nothing minimal about these costs, and in fact, they could wipe out most driver income if the lease deal is onerous enough.
Income claims for Uber drivers have been investigated by other sources, including Felix Salmon. Another source confirms industry insider estimates. In addition, multiple scholarly sources have actual data on 23 instances of taxi de-regulation, and all concluded that the open market decreased driver income.
Finally, were ride-sharing as great as its hype, NYC fleet operators would see a steady stream of drivers leaving. Instead, Guy Roberts tells me that fleet operators lost drivers initially, but most returned within a few months because they werent making as much money. He says, In spite of Uber, medallion taxi driver bookings are still strong.
This is echoed in the comment stream of the above-referenced bearish article, where one commenter claims, Medallion fares and yellow driver incomes are NOT down 20%... they are down 3% to 5%... attributable in part to the TNCs and also the outer borough green cabs. How do I know this? My clients are major NYC fleet operators who can analyze trip/fare data easily via TLC TPEP information. The clients I work with represent about 20% of the entire NYC medallion market. The decline in fares you are citing stem from the existing black car and livery services.
I also spoke to Floren Peremen of White amp; Blue Management, one of the largest taxi brokers in NYC, who has been in business for over 30 years. He confirmed all of these facts.
Ubers poor driver treatment
So medallion drivers wont earn as much driving for ride-share. Theres also another disincentive for medallion drivers to move.
Uber apparently treats its drivers poorly, having apparently misrepresented annual driver income to hasten recruitment, and told drivers that the 20% discount to uberX fares would be temporary, but instead made it permanent.
This blistering report details additional egregious driver exploitation.
What medallion driver wants to deal with this kind of treatment?Market Forces: Ownership
So far, the scales are tipped in favor of medallion lease drivers staying put. What about medallion owners? For fleet owners, there remains no incentive to sell the medallions, since driver demand will continue to exceed medallion lease supply, because ride-share offers a worse deal.
That brings us to the individual taxi medallion owner. They have numerous incentives to continue making payments on their medallion loans, regardless of how good or bad the taxi business is.
TAXI bears do not appear to recognize a critical element of individual ownership. Owners have made a substantial investment in medallion operation. It begins with a 20%-30% down payment on most medallion purchases. For owners who have taken on a loan for the balance, there is disincentive to walk away from that loan and forfeit the huge down payment, no matter how bad business may be.
Instead, there is incentive to work that medallion, because 97% of yellow taxi rides either begin at airports or below 96th Street, and only yellow taxis can receive hails in lower Manhattan.
The regulated market gives taxi medallion drivers that advantage - an advantage that is not going to go away. Any suggestion that it will go away runs contrary to 77 years of NYC history, when the Haas Act instituted taxi regulation, which remains in place to this day.
The immigrant factor
The TLC reports that 94% of owners are immigrants. Most lack the education to obtain white-collar jobs, so they are entrepreneurial by necessity. They often start as drivers, save for a down payment on a medallion, and then own a piece of the American Dream.
The taxi medallion is how they support, feed, and educate their families. They must work it, otherwise their family goes hungry. They cannot let the lender foreclose on it, because then they have no livelihood.
Thats probably one reason for TAXIs historical loss rate of zero on medallion loans.
History bodes well
What if business got so catastrophic for yellow taxis in some other way, that drivers abandoned both ownership and leasing?
Historically, that has never happened, despite the oil embargoes of the 1970s, the 9/11 terror attacks, and the worst financial crisis since the Depression. Those are three black swans that didnt disrupt the market enough for permanent medallion damage. It didnt happen then, so why would it happen in the ride-share era?Market Forces Conclusion
Remember, the entire bearish thesis rests on the notion that medallion owners and lessors will abandon taxis for ride-share. That assertion fails, and therefore the conclusion that medallion prices will collapse, and TAXIs portfolio will be written off, fails with it.
Thus, the long thesis remains robust. Nothing material has changed.
For those that lease taxi medallions, the ride-share revenue proposition is no better than what they already earn, and it appears to be worse, with more downside on the way. Fleet medallion owners will thus continue to have excess driver capacity for the limited number of medallions, supporting the underlying value of the medallion itself.
Individual medallion owners have no incentive to default on loans, as they simultaneously forfeit their livelihood, as well as subject all personal assets to foreclosure as they sign personal guarantees with loans.
The key underlying point with regards to medallion value is that the value of a taxi medallion is subjective, based on the cash flow it provides, not its objective market price.Political Forces
With market-driven possibilities dismissed, I turn to bearish claims that political forces could remove the limit on NYC medallion supply.
The referenced bearish article cites other cities where the courts ruled against such caps, which drove the secondary medallion market to near-zero, as would be expected. Fair enough. However, that article fallaciously extrapolates these decisions to a hasty generalization - that because caps have been shot down in other cities, it will happen in New York and other major markets.
Yet, there is no evidence to support such a conclusion. Its pure speculation. Moreover, Greater NY Taxi Assn. vs. State of New York demonstrates why political forces wont align against this juggernaut.
The lawsuit regarded the 2012 HAIL Act, which authorized licenses for 18,000 black cars (livery) to accept street hails above 96th Street and in the outer boroughs, and for the sale of 2,000 new handicap-accessible yellow taxi medallions.
The law did not attack the sacred yellow-only hail zone below 96th Street. It could have, in order to put livery cars on the same playing field as yellow taxis. It didnt because Mayor Bloomberg, the TLC, the politicians, and Gov. Cuomo all knew that the HAIL Act wasnt about equalizing competition.
It was about the $1 billion in new livery license fees and proceeds from new medallion auctions that would go into NYCs coffers.
The city has a vested interest in keeping medallion prices high, but earns nothing from Uber, despite its multibillion-dollar valuation.
Which product ultimately wins this battle? Medallions.
Bears are mistaken if they believe any politician in left-wing New York is going to go up against a NYC Mayor defending a significant revenue stream.
The same logic extends to all of Medallion Financials territories.The Medallion Market
The only reason TAXI would care about average medallion prices is if there were a catastrophic decline. Lets suppose that medallion prices did crash, and even fell below the 50% average LTV ratio that TAXI lends at. Would borrowers cease making payments and walk away?
Defaulting on payment: 1) subjects them to forfeitures of their assets, since they sign personal guarantees, and 2) probably forces them into bankruptcy, screwing up their financial lives for seven years, and 3) they still need the cab to earn a living.
Since they have to maintain and insure their now-worthless medallion cab anyway to be a ride-share driver, its better to pay the loan on the medallion so as to avoid bankruptcy and hold onto their assets, and even hope that one day medallions become valuable again.
In that case, Medallion Financial still collects its loans with a few possible write-downs, but hardly the entire portfolio. Going forward, medallion loans only account for approximately 20% of the companys operating profit, so TAXI stock hardly goes to zero.
The bear thesis runs counter to numerous economic, psychological, and market realities. The threat to taxi medallion prices by ride-share seems minimal, at best. The secondary market is presently gripped by uncertainty, but values in Chicago will not require TAXI to write down any of its loan portfolio. Thus, the bearish articles notion of an impending write-down of $0.62 per share is groundless.
Indeed, the referenced bearish article claims that 58 bidders withdrew from an upcoming NYC taxi medallion auction, and intimates it happened because of market uncertainty. Yet, the source linked to specifies that NYCs Office of Budget amp; Management says bidders did not drop out of the recent auction because of market uncertainty, but for multiple other reasons.
There remains plenty of demand for medallions.Consumer Loans
I again begin with the bearish case to demonstrate where it is flawed.
The referenced bearish article cites numerous macroeconomic statistics to set up a broad, and false, generalization: that the consumer credit market is incredibly risky, and that TAXI is moving into these loans to compensate for deteriorating medallion prices.
The article states, We believe multiple factors point to the likelihood that Medallion Banks rapidly-expanding consumer loan portfolio bears significant credit risk.
Yet, it fails to quantify that risk or the rate of delinquency in any consumer credit market, much less the markets that Medallion Financial lends into.
It also compares Medallion Financials aggregate consumer loan interest rate to the rate of the 10-year Treasury Bond.
The article also claims that the US consumer is deleveraging, and that Medallion will have to work harder to seek out loans to make and therefore take on more risk.
TAXI is not moving into consumer loans. It has been making these loans for twenty years.
Take it from a specialty lender and broker: the specialty lending market bears little correlation to US bond rates. Specialty rates reflect the limited number of lenders in the space, and that few will lend tens of thousands (as opposed to millions) of dollars. Those that do lend charge between 12% and 18%, the market rate that Medallion Financial charges.
Sure, these loans bear greater risk than others, but investors rely on Medallion Financials proven underwriting skill. The loss rate in this segment is approximately 2%, which suggests that the rates Medallion collects are probably in excess of what is necessary to offset the loss risk. Furthermore, those loss rates have declined almost 50% from 2011, indicating more conservative underwriting, not less, as the bearish article claims.
Were talking about thousands of loans in the companys $350 million portfolio, providing it with broad diversification, lowering the chances of cascading defaults.
Nor is the US consumer de-leveraging. The 5-year period of consumer deleveraging came to an end last year. The NY Federal Reserves quarterly consumer credit report shows the continuing trend of consumers levering up again - with declining rates of delinquency. If anything, the demand for loans should increase.
That the consumer business is so robust, provides great cash flow, and has negligible losses are yet other reasons to be long TAXI.TAXIs Value Proposition
TAXI stock trades at $10.09 as I write, down 33% from its 52-week high of $15.35, and down 42% from $17.74 reached in December of 2013.
Why has the stock declined so much?
I believe this is because:
1) The secondary market for taxi medallions is undergoing a correction due to the uncertainty surrounding Uber, not the prospect of medallion value collapse. Uber is a new product. It is disrupting the market, but that doesnt mean it is killing the market. The market is still learning its cost and value propositions, even as Uber keeps altering driver compensation and its own business model.
2) The recent news that the TLC erred in calculating average medallion prices spooked the secondary market even more. They panicked, and thought, Maybe Uber is having a worse effect than we believed!
3) The secondary market is illiquid, and thus subject to greater volatility than other markets, making large changes in pricing the norm, further scaring observers.
4) A misunderstanding of all the issues described in this article.
5) The stock market has been convinced by the financial media that shorting TAXI is a way to go long on Uber.
Despite this, TAXI does not care about the secondary market. The company only cares about the loan contracts that it administers. I also expect the secondary market to recover this year as uncertainty wanes.
Meanwhile, the company continues to deliver earnings and revenue growth, with no losses on its taxi medallion portfolio, and less than 1% losses in the combined managed investment portfolio. It increased its dividend again in 2014 to $0.96 per share, which is sustainable.
Assuming no major writedown of loans, TAXIs book value is indeed over $11 per share, and there is no reason to assume it should be lower.
I have little to add regarding a target price that this SA article hasnt already discussed, which also provides other reasons why Uber is not a threat to Medallion Financial. I am in agreement with a conservative valuation of $13. I personally think there is no reason why the stock cant return to the $15-$17 levels, where it was before the negative publicity hit the stock.
Every quarter, there are rumors about how poorly the company is doing, and yet, robust earnings are reported, with zero losses in medallion lending. Perhaps when year-end numbers roll out, proving the short-sellers wrong, they will find another target at which to focus their misguided attacks.
General Motors Financial, a subsidiary of General Motors, purchased a 40 percent stake in a Chinese auto financing operation.
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