Auction Broadcasting Co., expecting to increase its sales at least 20 percent in 2015, will improve seven of its eight auction sites in various ways by year end.
Jason Hockett, president of the Indianapolis auction company, says the improvements include drive-thru photo booths and new or expanded reconditioning centers and body shops. One site is getting additional auction lanes.
The expansions and improvements are a clear signal that the auction industry, which rises and falls two to four years after retail sales do, is on the upswing. As Hockett notes, market dynamics have changed.
Off-lease vehicles have been in tight supply and largely sold through online wholesale channels since about 2011. That was the result of the Great Recession, during which new-vehicle sales plunged and leasing all but dried up.
But starting in the second half of this year, off-lease and repossessed vehicle volumes are expected to increase and spill over into the physical auction lanes, making the improvements necessary, Hockett predicts.
"Four years ago, we had our company right-sized," says Hockett. "With new-car sales way down, we had so few cars available that dealers were sourcing them however they could. It taught a lot of them to use the Internet.
"Now, with all the expected volume, it's going to go back to the traditional way of dealers buying cars" at physical auctions.
Auction Broadcasting has increased its sales volume 18 to 26 percent a year since 2008, Hockett says. About 15 to 18 percent of those sales are to online buyers. He doesn't expect that percentage to grow.
According to the National Auto Auction Association, vehicle volume at its member auctions grew 4 percent in the first half of the year from the year-earlier period.
Because vehicle volume was so tight in recent years, dealers who accepted off-lease vehicles on behalf of a lessor could, under most circumstances, buy the vehicles from the lessor for less than they could buy similar vehicles at auction.
That's because vehicles' residual values, set at the time they were leased, were typically lower than their current market prices. Much of the off-lease volume that showed up on manufacturers' online sales open only to that maker's dealers was snapped up and never made it to the market open to all dealers.
But that will change, Hockett predicts.
"I think we'll see these vehicles coming back, and the residuals will be oftentimes more than the wholesale value at auction, so the dealer is less likely to purchase that vehicle," he says. Instead, the dealer "will let it flow down to the physical auction."