Online auctions key to wholesalers' future

PHOENIX — While digital auction sales will continue to grow, it remains to be seen how much of the industry's wholesale auction volume eventually will go online and by how much that will pull sales from physical auctions.

The two largest players — Cox Automotive's Manheim unit and KAR Auction Services' ADESA arm — are not sitting idly by for the answers. Both are diving headlong into the digital space, offering new tools for wholesale buyers and sellers to more efficiently move vehicles. As such tools spread, digital auction volume will no doubt dominate the market, estimated to be about 10 million vehicles in 2018.

At Manheim, about 43 percent of transactions are now digital.

"We don't see the physical auctions going away," Nick Peluso, president of Manheim Digital Marketplace and RMS Automotive, said here during Used Car Week. But because of margin pressures, buyers and sellers are now "willing to accept and learn new ways of doing things."

At ADESA, more than half of sales are now online.

"In some cases, we intentionally are cannibalizing ourselves," ADESA President John Hammer said.

The overlap has been "very minor," Hammer said. "But frankly, we're looking at it as, we want to disrupt ourselves ... because if we don't, someone else will."

Both companies are seeing strong evidence that customers want to learn new ways to wholesale.

Manheim said its digital volume is up 17 percent year over year. Off-site transactions, including mobile, are up 72 percent year to date. The company is investing $100 million in digital efforts over the next two years.

At the forefront is Manheim Express, a platform meant to provide all of a dealer's auction needs. Using a mobile app, dealers can scan a VIN for market information, order an inspection, consign a vehicle to auction or instantly list it on Manheim Marketplace. As of October, more than 4,000 dealers have used Manheim Express, with more than 30,000 vehicles scanned since the app's launch in May.

Manheim is not concerned about sales being cannibalized from physical auctions, Peluso said.

"There's always some cannibalization, but there's a ton of white space out there that we haven't touched," he said, noting the millions of cars that go through both digital and physical auctions and that are sold at retail. "So we're going to go after both."

At ADESA, the shift to digital is not sudden, Hammer said. "It's been growing over time."

It began in earnest when the company acquired the Openlane online auction platform in 2011 and is now being further fueled with TradeRev, a dealer-to-dealer sales platform that can be used through a desktop or mobile application. TradeRev, which ADESA bought half of in 2014 and the rest last year, is the company's fastest-growing business, Hammer said.

Another company looking to play disrupter and grab market share is ACV Auctions.

The Buffalo, N.Y., company, which hosts online auctions, was founded just three and a half years ago but has grown by leaps and bounds. Last month, 10,000 vehicles were sold through its online auctions, compared with 3,000 in October 2017, according to CEO George Chamoun.

ACV uses 40 to 60 high-resolution photos for each vehicle listing and considers itself a third-party inspection service that can give confidence to buyers. It has 470 employees, and 170 are in the field doing inspections.

Greater transparency around pricing and images emerged on the consumer side of retail sales and now has made its way to the wholesale and business-to-business spaces, Chamoun said.

"Many industries go through these times where all the sudden the new sort of technology starts to really change and enhance the industry," Chamoun said. "We'll look back 10 years from now and go, 'Wow, we all saw that huge shift.' "

Customers just want things to be easier and faster, particularly in an atmosphere of shrinking margins, all three executives said.

Meanwhile, on any given weekday morning, thousands of vehicles shuttle through physical auction lanes as rapid-fire auctioneers call out prices and throngs of seasoned purchasers give subtle bids by slightly gesturing a hand or even just raising an eyebrow. It is often a collegial atmosphere with excitement and its own variety of sounds and smells.

For buyers and sellers who'd rather do things digitally, scent may be the final frontier.