INDIANAPOLIS -- Manheim COO Janet Barnard, bringing an outsider's perspective to the auction industry, is questioning why the conversion rate -- the percentage of cars offered at an auction that actually sell that day -- is stuck at roughly 60 to 65 percent industrywide.
Buyers and sellers come to auto auctions to buy and sell, she notes. "To think that actually doesn't happen half the time is ludicrous to me," she says.
Barnard joined Cox Enterprises, Manheim's parent, in 1988. Most of her jobs were in the cable business until she joined the auction company in November 2011. She says the current auto auction system is effective -- because every car eventually sells -- but it's not efficient.
Auction companies try to sell a used vehicle "one time, six times, 13 times. To be honest, a buyer at some point is going to give up, walk away and find a different way to transact. That's bad news for the industry if that happens," she says.
The main reason the conversion rate remains so low is that sellers hold out for a higher price. If a rental company thinks the bids on its cars are too low, it may choose to keep those cars in the fleet another week and hope for higher bids later. Wholesalers are loath to sell for anything less than top dollar.
Paul Seger, vice president of asset remarketing for GE Capital Fleet Services, said: "For a lot of sellers, it's not how close they are to market but how close they are to their book value. They just can't take the losses."
Jimmie Phillips, vice president of Auction Broadcasting Co., of Indianapolis, said a new-car manager might have priced a trade-in higher than he should have. When he takes it to the auction, he may "not be willing to take the loss in that week or that month."
But other variables apply, too, attendees at the National Auto Auction Association's annual convention here in September agreed.
For example, a good auctioneer can draw out higher bids, making it more likely that the bidding will reach the minimum set in advance by the seller. And Phillips said conversion rates are higher at ABC Auctions' Northern sales than its Southern ones, but he couldn't explain why.
Some sellers routinely have higher conversion rates than others. Rates can vary even within a selling company depending on the consigner's representative present at the auction.
Change is percolating. Dealers who have embraced inventory-management software for their used-car operations and are no longer willing to let used cars sit on the lot for 90 days may be more inclined to sell the car right away rather than holding out for a better price at the next auction a week later.
And online selling, enhanced by multiplatform listings, can put a car on the auction block immediately after a no-sale at the physical auction, eliminating that weeklong wait.
But those changes aren't enough to satisfy Barnard. She says Manheim is having "good conversations with our consigner partners in the rental side of the business to say, 'We've been stuck at this low conversion rate for many years. Is there something we can do about it together?'"
She says the current practice is "a waste of time for everyone."
The reasons for low conversion rates are complex, she knows. So will be the solution. "There isn't a silver bullet. It's 100 silver slivers," she says.
But she adds: "If there's one thing that I could ever impact in this industry in my time here, I hope that's it."