Dealers take to auctions, streets, classifieds

More often these days, Bill Wallace finds himself watching folks fork over $20,000 at auction for a vehicle with 200,000 miles on it.

Though that might previously have been unheard of, some dealers are willing to go to extremes to replenish their lots amid the unrelenting shortage of new and late-model used cars and trucks.

In addition to paying big premiums at auction, dealers are resorting to searching inventory channels left and right for vehicles that can be made ready for the front line.

"We hold our own internal auctions, and I can tell you that kind of vehicle — even if it's one that won't pass our standards — we're shocked at what these wholesalers will pay for that," Wallace, CEO of Wallace Automotive Group in Stuart, Fla., told Automotive News. "Obviously, they're taking it somewhere and retailing it."

Today, a vehicle in the auction lane that's been driven more than 100,000 miles may not get an immediate "no, thanks" from a dealer. If they buy it and find that it runs well and passes safety inspections, they will offer it at retail — and it could net them a profit.
The number of dealers interested in the high-mileage vehicle segment at auction has certainly grown, according to Manheim, the largest network of physical wholesale auctions in the nation.

That's because inventory conditions in the last two years have forced dealers to look for vehicles in places they may not have in the past, said Matt Trapp, Manheim's regional vice president in the East.

"They're trying to find vehicles across any channel, any auctions, off the street, and they're looking into as many segments of vehicles as they can to find anything that they can put on their lots or sell to a retail customer," Trapp told Automotive News.

There's usually some demand for used vehicles with odometers that read 125,000 or more, Trapp said. In fact, the higher-mileage segment seems to be more resilient than newer-vehicle segments when it comes to pricing and demand data.

"For a dealer, there's a lot more opportunity for them to make profit on a percentage basis than there is on a higher-dollar vehicle," Trapp said.

That's if dealers can pick up a very used vehicle at a relatively cheap price, put a bit of work into it to make it roadworthy and get it onto the lot for the right client to see, he said.

Wallace sees firsthand the demand for higher-mileage wholesale vehicles each Monday, when his group runs auctions at its own locations. The auctions began 10 years ago, but he's seen demand for them leap since the onset of the inventory shortage.

"If we all of a sudden told those buyers we're only going to have these auctions half as often, or run half as many cars, they'd be very disappointed," Wallace said. "They need these cars."

Employees of Ed Morse Automotive Group, of Delray Beach, Fla., have also embraced seeking out and selling higher-mileage vehicles the group might not have retailed before.

"The price point on used vehicles has shot through the roof, but that doesn't mean customers' ability to pay has, and in most cases, people who are looking at that type of lower price point are on a fixed income," said Teddy Morse, the group's CEO.

Ed Morse sources higher-mileage vehicles from auctions and trade-ins, but employees have found them through Facebook or even the classifieds section of the newspaper, Morse said.

Sometimes the higher-mileage vehicles don't work out. For example, retailing a car with bad brakes is definitely a no-go, Wallace said. A couple of paint chips are one thing, but problems with airbags or antilock braking systems render a car unsellable, Morse said.

Higher-mileage vehicles with glaring safety issues can get the boot if they are too expensive to remedy or can't be fixed in the service shop.

And what works for some dealers doesn't work for all. Some firmly believe that a high odometer is a red flag.

Zeigler Auto Group, of Kalamazoo, Mich., dramatically increased its used-vehicle inventory last year, but that didn't include adding vehicles with 150,000 miles or more. If one such vehicle gets traded in, the group usually takes it to auction.

"The risk is that the vehicle breaks and customers are not happy," said Aaron Zeigler, the group's president.

Other dealers who obtain higher-mileage vehicles via trade-ins may opt to put them on their lots "as is" — without reconditioning — with a heads-up to potential buyers.

Said Allen Turner, owner of his namesake auto group based in Pensacola, Fla.: "We try to retail everything that we trade in, unless we know that it's got some major, major problem."