A Dreary Look Ahead

I have a mixed record of forecasting the future of recoveries.

On the positive side, I sat in a room of recovery executives from large credit issuing companies in November 2008 and said the unemployment rate would hit 10 percent in the next 12 months.  “No way,” was the general response.  Twelve months passed, and I was right.

On the negative side, I wrote in September 2007 that the debt buying industry would continue to grow at a rate of 11 percent in each of the coming years to $6.2 billion.  In December 2007, the recession began, and the debt buying market contracted.  Two years later, I was wrong.

So take what follows with a few grains of salt.

I think that 2010 will not be much better for the ARM industry than 2009.  We operate our businesses in a time of flat recovery curves that show little sign of bending upwards. GDP will continue to improve at a modest pace in the first part of next year, and unemployment will finally begin to wane.  Still, liquidations will remain poor by historical standards.  In my opinion, overall collection rates show no sign of improving.

In these conditions, our success will continue to be based on execution.  We experiment with lower settlement rates, try new technologies, change out vendors, collect data, analyze our performance, and try whatever else we can to improve operations.

Like U.S. corporations as a whole, which have cut costs in 2009 to maintain profits or contain losses, we await improvements on the top line to return our companies or operations to expectations that were defined before the recession began.

Yet, at least in certain respects, we are like mechanics tweaking engines that need gas.  Until the financial strength of lower middle class and middle class consumers improves, we can not expect as much from our businesses as we did before the turn.

In December 2008, I wrote:

"All marathoners understand what it means to ‘hit the wall.’  Around mile 20 of a 26.2 mile race, legs cramp, brains fog, spirits sag, and for many, the race ends.  Runners who have trained properly, conserved energy, and maintained a consistent pace throughout the race cross the finish line, sometimes better than expected.  So it will be with recoveries in 2009."

This is a dreary look ahead: as 2009 turns into 2010, the race continues.