Why dealership volumes at auctions are ‘No. 1 concern'

CARLETON, Mich. — National Auto Auction Association executives here said they are closely monitoring recoveries and downturns in volumes at wholesale vehicle auctions with a keen focus on where future dealer inventory comes from.

At its annual convention this fall, the group is expected to name Craig Amelung, general manager of Manheim Mid-Atlantic Market Center, as its president. Eddie Lafferty, general manager of Manheim Seattle, is expected to be the organization's president-elect.

Amelung, 57, and Lafferty, 59, spoke July 31 at Manheim Detroit with Staff Reporter C.J. Moore to discuss industry conditions. Larry Dixon, 51, National Auto Auction Association's vice president of auction data solutions, and Paul Lips, 56, the group's executive director, joined the conversation. Here are edited excerpts.

Q: What issues are of concern or interest to the association's member auctions?

Amelung: In general, I would say that probably the No. 1 concern for us right now is volumes — specifically dealer volumes.

A lot of the volume we sell that is classified as dealer volume in the lanes — a significant portion of that comes from the new-car [franchised dealerships] with trades or even from independents that take vehicles in as trades. When I got into the business, a new-car store may have averaged $500 [getting a used vehicle] ready for retail. You have dealers now willing to spend $2,500, $3,500 to make a car eligible, to get it up to standard so that they can retail it. Those were traditionally cars that all came to auctions that the independent dealers would buy for their businesses, and so we don't have as many of those vehicles in the lanes on the dealer side.

Dixon: Looking at AuctionNet data, dealer sales at auction are down 4 percent year-over-year. Commercial volumes were up by about 30 percent. Overall, AuctionNet volume's up by a little over 8 percent due to the increase in commercial volumes. New-vehicle sales are up by 2 percent year-over-year, but the number of vehicles coming with a trade-in is about flat. If you add used-vehicle retail sales in the equation, those are down. Trade-ins are down and used retail sales are down. So there are just fewer of those dealer vehicles available to come back to auction. What is coming in on trade — the vehicles that are retailable that they want to sell to consumers — they're hanging on to those because the dealers understand the late-model, vehicle-constrained environment they find themselves in. If you look back at new-vehicle sales in 2021, they increased over the first half of the year and fell off acutely over the second half of the year. That's when we started to run into semiconductor shortages, other production-related challenges. Because the vast majority of new-vehicle leases are written for a 36-month term, add three years to the back half of 2021. That brings you to the back half of 2024. Off-lease volume will decline precipitously. We've already started to see it a little bit at auction, but as the year progresses that's only going to exacerbate ... dealers holding on to vehicles they feel they can retail.

Lips: What we've always seen over time is displacement — as commercial volume drops, dealer volume picks up and vice versa. So if there's going to be a shortage of off-lease vehicles entering the market, that should be an opportunity for dealers to have a great marketplace for their unwanted trades or their aged inventory because the demand curve is still going to be there for those vehicles. That should be good for them.