The remaking of remarketing
Online technology transforms auction lanes
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ORLANDO -- Buying and selling used vehicles at wholesale used to be pretty straightforward: You would just go to the local auto auction. If you couldn't find what you wanted, you would go to the next week's auction in another town. But now buyers and sellers have a range of nontraditional choices.
From 24/7 online remarketing channels to vehicle sales arranged within a single dealership group's sister stores, to private-label pop-up auctions, to possibly offering the same vehicles for sale to dealers on multiple auction companies' platforms, remarketing is being remade.
Technology made it possible; the recession made it a necessity.
Faced with a sluggish economy, low new-car sales and an industrywide shortage of used vehicles, dealers over the past few years were pressured to find and turn used vehicles quickly. They also needed to slash expenses associated with having used-car managers travel to traditional auctions.
Forced to do more of their business over the Internet, managers who had resisted buying and selling online found that improved technology had made that task easier. Today remarketers and dealers alike are increasingly comfortable with online auctions.
Still, there are bumps in the road. For example, vehicle condition reports vary so much, depending on the auction company or seller, that determining the condition -- and hence repair costs -- of vehicles offered for sale online is still often an iffy proposition.
That's one of the bumps that will need to be smoothed as part of the remaking of the remarketing industry.
"I believe in the physical auction, but I also think cars can be sold in a lot of different ways," Sandy Schwartz, president of Manheim, the nation's largest auto auction company, told Automotive News at the National Auto Auction Association conference here this month. "We need to be out there thinking of those different ways."
Multiple platforms
Take the possibility of selling on multiple platforms. Just as a retail dealer lists his inventory on multiple Web sites -- his own store's as well as third-party sites such as cars.com -- Manheim is studying the possibility of offering its customers' vehicles for sale on its Internet platforms as well as on the platforms of other auction companies at the same time.
"We believe strongly in multiplatform," Schwartz said. "Some people may look at me and say, 'You're welcoming your competitors to have those cars?' My answer is, 'Yes. The company that can provide the best technology and the best certainty of sales, the financing and everything else is going to win in the end.'"
A current example of Manheim's flexible approach to this changing market is its Dealer Trade Network, used by large public and private dealership groups. The dealership groups tap Manheim's online auction platform, ove.com, to conduct private internal auctions where a group's stores buy and sell vehicles from one another.
In the past, Joe at Store A in a large group might be willing to buy used vehicles from and sell them to Sam at Store B, but Joe wouldn't do business with Store C because he didn't know Phil, the used-car manager there. Dealer Trade Network allows dealership groups to get beyond the who-knows-who barriers and get valuable used vehicles to the stores that can sell them best.
Darcars Automotive Group has been using the program for about two years. The group ranks 25th on the Automotive News list of the top 125 dealership groups in the United States, with retail sales of 17,187 new vehicles in 2011. It also sold 9,596 used vehicles that year.
Other groups using the service include publicly traded Asbury Automotive Group, No. 7 on the list; privately held Hendrick Automotive Group, No. 6; and Swope Automotive Group, No. 71, Manheim says.
Manheim plans to roll out the trade network to other dealership groups "probably the first quarter of next year," said Susie Heins, Manheim vice president of dealer sales.
"That's very untraditional from the normal auction model, but it gives us insight into what their needs are," she said. It also "puts Manheim at the forefront because they are using our platform to do it."
Seeking more change
Toyota Financial Services, a leader in online vehicle sales to dealers, is an advocate for even more change.
Through September, Toyota Financial sold 87 percent of its off-lease vehicles to dealers online, up from 72 percent in 2011, said Mike Reid, Toyota Financial Services' national remarketing manager.
As Reid compares online and traditional, in-lane auctions, he has become increasingly aware of the shortcomings of each.
In conversations with the auction companies, for example, he is exploring how to incorporate the fast-paced excitement of the physical auction into online sales. After all, the more excitement and buzz at an auction, the more likely the prices will be bid up, which is what Reid as a seller wants.
Online auctions can be sterile affairs. But it doesn't have to stay that way, Reid believes. He likens the ideal experience to his son playing online games with his friends across town -- plenty of action and excitement, all on the Web.
On the other hand, Reid has embraced the wealth of data offered from online auctions and wishes physical auctions would give him similar data. Currently he knows how many buyers came to a physical auction but not how many were bidding in the lane selling his cars or who was bidding against whom. All he knows is the final purchase price.
If he knew, for instance, that the bidding for a 2010 Toyota RAV4 ended with buyers from two dealerships in the same city bidding aggressively against each other, he could contact the losing bidder and offer him a similar RAV4 from inventory elsewhere.
"This business has been the same for a long time -- until 2009," Reid said. Despite the recent changes, he's hungry for more. "We're underutilizing the power of the Internet," he said.
Condition reports
He says he would also like the industry to go to standardized condition reports to give dealers more accurate information about repair labor time and costs associated with vehicles listed for sale online.
Dan Heinrich, vice president of asset remarketing at General Motors Financial Co., agrees.
Heinrich, who also is chairman of the standards committee for the International Automotive Remarketers Alliance, said his group is working with the auction association's standards committee to add specifications to the association's current vehicle grading scale.
The remarketers alliance is an organization of professional remarketers of off-lease and retired fleet and commercial vehicles. Its members are from auto, finance, auction, transportation and fleet and lease companies.
"It's our next initiative," Heinrich said. "Both committees are on board and have decided this is a priority."
Manheim's Schwartz believes so strongly in standard condition reports that he "would be happy to share" his company's patented computer-assisted vehicle condition report writing system with the industry at no charge.
The system guides condition report writers through a series of questions about vehicle options, damages and other criteria and allows for the uploading of photographs of damaged areas.
An algorithm converts the data into a report that rates a vehicle's overall condition on a 1 to 5 scale consistent with National Auto Auction Association standards.
The association has introduced some uniformity to condition reports, but there's still a long way to go before online buyers are as comfortable relying on those reports as they are relying on their own eyes, ears and nose to judge a used car.
For that matter, different companies, whether sellers or buyers, differ in what they want.
Some want dents and dings shown on the top half of the first page of the report. Others want to give priority to other information.
Mercedes-Benz Financial Services USA uses auctions' condition reports but goes a step beyond. The company has its own full-time remarketing manager stationed at each of the 16 auctions that sell its vehicles. It is the remarketing manager's job to validate that each condition report done by an auction company is accurate, or make changes if necessary.
"The auctions do a very good job, but we are that second set of eyes," said Joe Bedwell, the company's national manager of auction operations. That a second set of eyes is necessary is a telling sign that the current condition reports don't fully meet Mercedes' needs.
Kevin Cullum, director of remarketing services at Nissan Motor Acceptance Corp., said his company will sell more than 130,000 vehicles this year across the country, just under half of them purchased by dealers online.
Technology helps his staff make sure the right vehicles are for sale at the right auction and auction channel at the right time.
"The online environment has really helped us as a consigner," Cullum said. "The days of everybody going to the auction, you having your vehicles there and whoever raises their hand last gets your car -- those days are over.''
You can reach Arlena Sawyers at asawyers@crain.com.
