Dealers compete for used-vehicle inventory with digital tools

With the used-vehicle market firing on all cylinders, dealers are fiercely competing for prime inventory. This comes even as a record number of vehicles roll out of leases and return to the market — buyer demand has kept pace with supply, industry analysts note.

And with no silver bullet for acquiring used cars and trucks, dealer approaches vary. That was apparent at Used Car Week in Las Vegas this month, where dealership executive James Boening told attendees that he went completely digital five years ago.

"We never go to an auction," said Boening, executive director of Ouris- man Lexus of Rockville in Maryland.

Instead, the dealership has "one guy" who is "looking at multiple screens," Boening said. Those screens could be tuned in to the digital auctions of major players Manheim or ADESA or to smaller sales outfits and automakers' closed auction sites. "And that's all he does," Boening said. "Every day."

Boening's decision to focus on digital acquisitions came as margin compression on used-vehicle sales, or lower profits on each vehicle sold, began to show up in earnest, he told Automotive News. It became "a huge waste of my time and my team's time" heading to physical auctions near and far and not always coming away with decent inventory, he said.

"So I was adding to the compression," said Boening, who has been with Ourisman for 10 months and previously employed the strategy at Nalley Lexus Roswell in Georgia.

Traditional auction companies such as Manheim and ADESA readily acknowledge that, for some dealers, it may not be convenient to go to physical wholesale auctions. Each company has launched several digital tools for acquiring vehicles. One of the latest is mobile trading platforms: Manheim's Manheim Express and ADESA's TradeRev each allow dealerships to trade vehicles using a mobile device while standing in their own lots.

Derek Hansen, vice president of digital at Manheim, said more than 17,000 individual stores have logged in to Manheim Express since it launched in July 2018, and about 70,000 individuals have created log-ins. Hansen said he foresees the potential store count could get three times larger, taking into account the size of Manheim's customer base.

There's no denying the advancement of digital wholesale purchasing in the last five years, Hansen said.

"As we poll dealers and we get their feedback on the tools and we get their perspective on where the market's going, more and more of them see their business continuing to be more and more digital," Hansen said, adding that 46 percent of Manheim's dealer clients responding to a poll told the company they expect to increase their digital transactions next year. About half of Manheim's sales are to digital buyers.

At KAR Global's ADESA unit, 59 percent of wholesale transactions were to digital buyers in the third quarter, the company said.

Paul Lips, ADESA's chief commercial officer, said digital purchasing is often linked to how some dealership groups structure their buying operations.

"What we've seen are the dealership groups that have moved more to a centralized model and using either internal or external analytical tools to tell them which vehicles to buy; they tend to be adopting the digital channels faster for acquisition," Lips said.

Of course, with the Internet, inventory from all corners of the country ends up in front of dealers' eyeballs and across multiple channels. One way ADESA has adapted to this is by centralizing its own inventory consulting group, which previously was focused on the company's individual digital channels or even its auctions.

Nick Johnson, used-vehicle director at Luther Automotive Group in Minneapolis, told attendees at Used Car Week that digitization of the wholesale market has evened the playing field between small and large dealers for access to nationwide inventory.

But, just as it does for consumers, remote inventory acquisition for dealers requires a measure of confidence in the seller, Johnson said, "because you only have so much margin of error."

"One or two $500 misses eats up your whole margin," he added.

Cavender Toyota, in San Antonio, is taking another approach to vehicle acquisition. It uses technology to help consolidate its choices, said Ray Sanabia, the store's general sales manager. Over the Internet, the store will locate vehicles quicker and sift through condition reports.

"But as far as actually buying, I prefer to just send our guys to market, have their hands on it, feel it, touch it and figure out what the right one is and bring it home with them," Sanabia said.

Part of his reasoning is the gut intuition that longtime used-car buyers can possess. "The way a car hits you is the way it's going to hit a customer," he said.

For Boening, it helps that about 85 percent of the used vehicles his store acquires are newer and lightly used certified pre-owned cars and trucks.

Because shipping costs from California have increased lately, Boening's store is more careful about how much inventory it buys from out West. But otherwise, Boening said, "We don't put any limitation on how we find inventory. I never want to do that."

He added, "So if it's a small auction that is online and we're able to get to it somehow, and it's in Idaho, I'm all about it."