A Closer Look at the Digital Used Car Auction Movement

By Desiree Homer

Market Predictions & the Auction House Landscape Post COVID-19

Looking back at how dealers used to engage their auction partners and manage used car acquisitions, it can seem like a stark contrast to the current state of affairs. Even with the promise of economic rebounds on the horizon, there are some aspects of the vehicle auction process that may be here to stay for good. In recent weeks, many auction companies have streamlined their services for complete digital and remote access. Dealer managers may need to get comfortable with these types of engagements for the long term. But there’s another piece to consider as well. Acquiring the right vehicles means understanding what the consumer market will want and be able to buy in post-pandemic conditions.

A Digital Transformation of the Auction Process

With the mitigations in place for sheltering at home, and many dealerships required to shift their operations to a remote and digital strategy, many of the auction houses have done the same. Some of the industry’s leading partners confirmed plans for digital-only auctions at a majority of their facilities. KAR Global’s action division began simulcast-only sales at 45 of its Canadian and U.S. locations a few weeks ago. Manheim will be engaging simulcast sales at 63 out of its 76 various sites. CarMax began hosting 42 simulcasts as well and began helping retailers set up their virtual accounts. Both ADESA and Manheim are waiving their online fees as well. Others, including ServNet members of McConkey Auction Group and Greater Rockford Auto Auctions, are also moving to offer digital auctions. Dealers who are able to sell cars right now are also embracing the digital action options right now, in part because they have to do so. But for many, buying remotely is much different than how they’ve purchased used inventory in the past.

The Pros of the Digital Used Car Auction Movement

One of the biggest perks of engaging your auction partners online is the relative convenience in doing so. Bidding can start immediately, and there won’t be time-consuming waits, standing in the weather, or competing with the crowds. Being able to bid, without the intensity of a bidding crowd around you, can allow for a more relaxed and patient bidding process. Being physically present can be fiercely competitive and lead to overbidding in the moment. Sitting in the comfort of your office can allow you to take your time and be deliberate about each bid you make.

There Are Cost-Savings

Typically, the online bidding process can be managed with fewer fees. With many auction partners waiving online bidding fees now, buying digital can provide significant cost savings.

A Wider Range of Used Vehicles from Which to Choose

Visiting an auction house in person can be limiting in terms of browsing available vehicles. The online auctions can pull various models from a more extensive geographic range. Some popular auction sites can have hundreds and even thousands of new listings daily. Tapping into online bidding can help you cast a broader net in finding just the right used inventory you’re looking to buy. It can also help you offload any inventory you don’t need, to a wider audience of bidders.

Digital Bidding Can Offer a Better Value

When all the best features of online auctioning come together, dealers have increased potential for achieving better value with each purchase. Having so many selections at one time makes it easier to find the exact make and model year you’re looking to acquire. You also have the ability to bid at incredibly low starting prices. Dealers may be hard-pressed to find this kind of value proposition at the physical vehicle auctions.

The Downside to Simulcast-Only Auctions

Digital-only bidding with auction partners can present a few cons. For starters, the human and in-person interaction is absent in a remote bidding environment. Dealers often enjoy the physical engagement, in part because they get to meet new people, create new connections, and build friendships. There’s just something about convening with fellow bidders over a cup of coffee that can be replicated with online auctioning.

Nothing Beats Laying Eyes on a Vehicle First

There are inherent risks of being duped on a buy, either in overpaying for a vehicle or missing a blemish or fault. Of course, managers can miss flaws in person too. But digital formats can sometimes leave a wider margin for error. While most reliable auctions offer complete vehicle details and a myriad of supporting photos, there is still a chance you miss something. Many dealer managers, especially those who come from the ‘old school’ train of logic, will tell you nothing beats laying eyes on a car before bidding.

Online Account & Payment Risks

There are risks associated with managing an online profile and account, versus acquiring vehicles in person. Most sites are reputable, with top-notch securities in place to protect their bidding customers and private data. However, there are always opportunities for digital compromise, which could present pitfalls with payment, or the sharing of private information. With many of the smaller auction companies not used to conducting 100% of their business via simulcast, there could be increased digital risks.

Anticipating a New Need from Customers Post COVID-19

Lengthy factory shutdowns, a depressed new vehicle demand, and consumer income loss are painting a picture for some that things will be grim post-COVID-19 economic restrictions. Dealers don’t necessarily need to be reminded that the sales numbers are down, though. Instead, it may be best to try and interpret the shift in numbers to predict consumer preferences and industry temperament in the weeks to come. Vehicles are piling up, on the lots, and at the auction facilities. But remember, the impact is affecting everyone, so those dealers with a plan of attack, can emerge ahead of the curve.

Moving Unsold Used Inventory Predictions

CarStory has been tracking some of the used inventory numbers with dealerships nationwide. As expected, and due to the automakers shutting down production, used vehicles are “rising sharply” when compared to data at the beginning of the year. Used inventory in San Francisco, as an example, was close to 109.57% of what the data showed on Jan 1st. Chief product officer and president for CarStory, Chad Bockius, wrote in the analysis, “in a healthy market, the number of new vehicles coming onto a dealer’s lot tends to equal to the number being sold.” As a result, some leading experts are predicting that dealers will increasingly be leveraging their auction partner sales to move unsold inventory. With a potential influx of vehicles being offered at auction, presents the opportunity for an even broader range of selection for dealers to browse. Buying the precise used inventory for each market might become the preferred method for vehicle acquisition.

Conditions that May Impact Used Vehicle Sales

Consider examining your market to follow the local consumer conditions that will affect your sales in the coming months. Some areas were impacted harder than others economically. Many consumers have lost their income temporarily, others permanently. Families may be financially behind on bills, thus limiting potential credit approvals for car loans. Dealers should also bear in mind that automakers have been offering massive buying incentives for new vehicles. The result could be an influx of new vehicle purchases, with used trade-ins. The substantial growth of used cars, added to an already piling up lot of used vehicles, could have some dealers reminiscing to the Cash for Clunkers times of 2008.

Forbes shares a few market predictions as well, including the effects of current shutdowns on supply and demand. Oil prices may be a determining factor in the economy’s short-term return to health, too. Another key factor to consider is the overwhelming impact of the unemployment rate, and the projections of which that may last well into 2021. Bear markets can tend to lead to more layoffs, according to this report. Government strategies moving forward will play a huge part in all of the above, as we’re also knee-deep in an election year.

Staying Ready for Anything

Many of the politicians continue to remind the public that getting back to normal won’t be a light switch endeavor. Instead, it will be like the loosening of a faucet, authorizing a trickle first before the conditions are safe for a complete return to business. As a dealer, some of the best advice being offered right now is to stay ready for anything and prepare to adapt accordingly. This may mean online auctions become a dealer’s primary resource for managing used inventory. It may also mean a rush of new vehicle sales to come. Should the government launch another version of the Cash for Clunkers program, dealers can prepare for a similar rush of buyers. Listen to the podcast with the CEO of Boch Enterprises, Ernie Bock, Jr., as he discusses with Dave Cantin, his advice for being adaptable for change in the emerging, post-COVID market.