When the biggest sellers of cars get together with the auctions, dealers and online marketplaces that sell them, it’s called the Conference of Automotive Remarketing (CAR). CAR, which took place at Caesar’s Palace last week, is ground zero to take stock of the issues and trends affecting the automotive remarketing industry.
Here are six takeaways from the seminars, meetings and networking scuttlebutt.
Buyers and sellers want greater transparency in the sales process, starting with condition reports.
A recurring theme during the conference was the need for uniformity in regards to vehicle condition reports. Condition reports can be issued by an auction or a third-party company, and there is a feeling that the condition report is often used politically to gain business, taking away from a fair assessment of the car.
But a uniform condition report is a tricky thing — what you see as frame damage is just cosmetic to the next guy, and a “previous repair” produces a different grade depending on the report system. A start would be consistency among the vehicle portfolio (manufacturer, off-lease, salvage, etc.) at a particular sale.
Technology is usurping the “art” of car buying and selling.
Car dealers price used vehicles with the traditional guidebooks such as Black Book and a knowledge of their local market. But new online tools go much deeper and scientific — one program can tell dealers which makes and models to stock and the exact price to sell them at. The program analyzes Auto Trader analytics by page views and time spent on page and then crunches it with units sold, market day’s supply and profitability based on the spread of the car’s auction price to retail price. The program spits out a score for each model and model year — and even engine type — specific to individual markets.
Many dealers aren’t so keen on the product, as it discounts dealers’ interpersonal intelligence gathering in their local markets. As well, there is an idea that if all dealers followed this advice, pricing would be much more commoditized, and thus harder to make a profit.
In reality, the world is now based on this type of market intelligence, and it can’t be ignored. In terms of pricing, the most commoditized of markets such as soybeans and gold still allow leeway for profits. Systems like these weed out inefficiency, and yes, that may cause even more dealers to get scared.
In other tech advances, automobile dealers can now use their smartphones to capture a VIN and instantly value a vehicle and receive a vehicle history report at the auction or on the lot.
Yes, there is still room for the “art,” but if you’re not taking advantage of the new technology-based tools, you’re going to be left behind.
Use every sales channel available to you.
The new buzz phrase in the auto auction world is “multi-platform selling.” Multi-platform programs such as Alliance Inspection Management’s MarketConnect and Liquid Motors’ One Click Wholesale allow a consignor to use a single launch point to all major online auctions, such as OVE.com, Openlane and Smart Auction, — at the same time. The program pulls the car down from the other sites when a bid is made on one.
Larger rental consignors are using online business-to-consumer platforms such as Hertz’s Rent2Buy and “Ultimate Test Drive,” Avis’s partnership with AutoNation. Meanwhile, dealers are starting their own online dealer-to-dealer trading portals.
The goal is to get the widest exposure possible for the vehicle and sell it in the shortest amount of time — understanding that reducing time to sale is just as important as getting the best price.
Be prepared for a used car price deflation this year.
This is no great shocker; but it was reconfirmed by the nation’s top auto market economists. It’s a supply thing. The number of new cars sold in 2013 is expected to top 15.8 million units as the market rebounds. Auction volume is predicted to increase by 300,000 units this year, on the back of new car trades and a predicted 14% increase in lease returns. After drying up in the recession, lease originations returned in force in 2010 and those units are turning into used cars now. Further increases in auction volume are expected in 2014, followed by a leveling off.
As a result, NADA predicts wholesale prices to be down about 2% this year, while Kelley Blue Book (KBB) sees prices down by as much as 4% by the end of 2013. However, as this had been forecasted for a while, consignors have already built the softening into their financial predictions.
The economy is gaining steam.
Ira Silver, the economist for the National Auto Auction Association, presented a fairly positive view of the U.S. economy as it relates to auto sales and remarketing. The housing recovery is leading to new vehicle sales. Low interest rates mean lower household debt and low car finance rates, which stimulate car sales as well. A record stock market is producing corporate profits that portend business investment.
Silver feels the deficit is manageable now but will really be a problem in the next decade when the influx of baby boomers burden entitlement programs such as Medicare and Social Security.
U.S. energy production is on the rise, mostly through fracking in shale reserves. Silver sees this as “a big game changer with the potential to solve a lot of economic problems.”
Looking back two years ago, the recovery in car sales is a lot stronger than predicted. Yes, the country’s economic recovery is taking its time gaining steam, but Silver’s point was that at the very least it is not putting us in a position to provoke the excesses that led to the last recession.
“Rental” isn’t a dirty word.
Eric Ibara, director of residual value consulting for KBB, presented an analysis of residual values based on model redesigns since the 2007 model year to understand how model changes affect residual values after 36 months. Not surprisingly, improved horsepower, fuel efficiency and design produced an increase in value, while an increase in MRSP was detrimental.
Higher rental fleet penetration hurt residual values, but not as much as you would think. If a car model incurred a 10% increase in rental penetration percentage (not overall volume), then the residual value experienced a .4% drop. Somewhat surprisingly, lease penetration held the same ratio of a 10% increase to a .4% drop.
Knowing that models have been traditionally shuffled into rental fleets when they had other issues such as overcapacity and a need for a redesign anyway, this should serve as ammunition that “rental” really isn’t a dirty word.