How much of the used car market remains for Traditional Auctions?

[ryan.gerardi]

By some estimates, there has been up to if not more than a 40% drop over the last 10 years in the volume of used cars that pass through traditional (physical) auctions. This of course is because auctions have moved online.

It's just more efficient to go online and target the cars you want and not have to spend all day at the auction.
In most cases, there is a guarantee and arbitration if there is a problem.

For contrast, of the 40 million plus used vehicles sold in the US each year, more than 10% of those purchases are performed online, mostly on eBay. But this percentage does not include online wholesale purchases.

A big part of sales at the traditional auction comes from wholesalers, who are seeing more difficulties. Many of them are realizing that they need to turn some of their business into retailing in order to stay in business. The reason for wholesalers to be doing bad is in the next point...

Higher interest rates, among other factors, lead to fewer new cars sold, increasing demand in the used vehicle market. New car sales are forecast to drop significantly over the next few years, again increasing used car sales.

We are already seeing an increase in used vehicle prices. Because of that dealers are becoming more aggressive in order to fill in used vehicle inventory and not allowing sellers to buy and resale as many vehicles at the auction.

Do you think we are at a tipping point with used cars and traditional auctions?

 

[Tallcool1]

I don't know if we are at a tipping point or not. I do however know that it is becoming much more difficult to obtain profitable inventory from traditional auctions.

The ratio of desirable inventory to registered bidders is simply not favorable for the dealer right now. We all hear the expression "we just can't get inventory right now". What these people mean is that they can't make any money on inventory that they can buy right now. We can all get inventory. We just have to raise our hands and keep them up.

I believe the new car business is the biggest factor here. When new car sales are strong, there is an abundance of used inventory in the pipeline. When new car sales slow down, the supply chain suffers because the new car dealer must sell more used than they traditionally would but more importantly there just aren't as many trade in vehicles in general. As auction volume goes down, auction fees go up. $500-$700 fees are not uncommon today. That takes a big bite when we are pricing to market.

Being an Independent dealer, I bump into more and more peers that simply won't go to the auction anymore. They are buying off the street, estate sales, craigslist, online sources like ACV TradeRev and Backlot, and pretty much anywhere else they can find inventory that isn't an auction.

There is another factor that has really soured many Independent dealers in terms of their past relationships with auctions. The auctions have become very loose with allowing retail buyers access to their sales. Anyone with a badge can walk right in. Some dealers just take their customer to the auction and allow them to pick out their car for a small fee, maybe $250. We wonder why auction inventory is bringing nearly retail book...it is because there are a lot of retail buyers standing around the lanes every week.

I believe the auctions will always exist, but I don't believe they will ever flourish the way they once did.

 

[Mike Rod]

....online sources like ACV TradeRev and Backlot...

I would like to say thank you for mentioning these. I signed up for ACV and Backlot last week, and I am going to look into TradeREv later today.

 

[Tallcool1]

I would like to say thank you for mentioning these. I signed up for ACV and Backlot last week, and I am going to look into TradeREv later today.

You're welcome. ACV is fantastic. Trade Rev is too complicated for me.