By Mark Gibson, Co-Founder, 1 Click Auto Auction
Many dealers are suffering from the lack of used vehicle inventory. Consumers are being forced to gravitate to used vehicles for multiple reasons: they are less expensive, plus the manufacturers aren’t pumping out nearly as many new vehicles as they are normally depleting available selection. To add insult to injury, even if the manufacturers WERE continuing to produce in quantity as they were pre-pandemic, margins are so low that dealers actually PREFER to sell pre-owned vehicles as they are more profitable.
Stair-step revenue from new vehicle sales has largely gone by the wayside so all dealerships are competing with large companies to acquire pre-owned vehicles. Even Carvana is being so aggressive at bidding for used cars at auction that they are literally bidding against themselves.
Why not just facilitate used inventory acquisition by bypassing the auctions that dealers have been relying on for decades? By doing so, you pay actual market value for the vehicle rather than get involved in a bidding war just to see that final price (which may be what the vehicle is worth) inflated through auction fees, etc?
Let’s take a look at a company that perfected a process and business model that has exploded – eBay. An entrepreneur, Pierre Omidyar, started an auction platform called AuctionWeb. The first sale that was made was for $14.83 for a broken laser pointer. Astonished, Pierre called the buyer and asked if he realized that the laser pointer was broken in which the buyer replied that he was aware but collected broken laser pointers and that led to the first auction site that allowed person-to-person transactions. Of course, while this started as a hobby for Pierre, we all know the powerhouse that (renamed) eBay has become.
The largest point is that one man’s garbage could easily be another man’s treasure. You could also equate this analogy to the individuals that buy abandoned storage units. Dealers who are on mass-auction sites are bidding on units that other dealers think that they can get top dollar for. The problem is that profitability decreases with every bid when considering all of the fees. In addition, there are many vehicles out there that another dealer would want – like that broken laser pointer – that the selling dealer doesn’t even know about.
Therein lies the beauty of person-to-person sales. The buying dealer gets to decide what is valuable for THEM. What if there is a person that went into a Ford dealership actually wanting a Ford Pinto (yeah, I know, low odds) but, if there were, a dealer would be hard pressed to find one of them at Manheim. However, the dealership with a customer for that vehicle may be interested in buying it.
Nobody knows what the market is out there except for the vehicles that either move quickly on their lots, are in condition to become a front-line ready CPO unit, or simply need used inventory on both the high end or low-end side.
Remember the days when dealers used to comb through the classified ads and contacting private parties with offers for their vehicles? Not much has changed. Rather than fighting other dealerships and overpaying for vehicles which may easily end up with low front end potential profits in order to simply have cars on the lot, investigate easier ways in which to acquire that inventory without this big “I have more money than you so I will win no matter what” scenarios that happen frequently.
The whole point of sales (especially in the auto industry) is to buy low and sell high. The trend nowadays seems to be the opposite for the simple reason that dealers don’t want empty lots and rely on back-end profits.
In these times, ALL businesses have had to change their business models to adapt to the state of the industry (and the world.) My guess is that any dealer who could acquire inventory faster, at a lower cost, and retail it with higher front-end profits while still having the opportunity for back-end profits would jump on that. It’s only logical and, at the end of the day, creates more revenue in sales which is what every dealership wants.
About the Author
Mark has been in the car business for over 30 years with the last 19 being in the digital space. He was one of three directors in the nation for the GM Advisory Board. He spent 5 years as part of FCA’s National Internet 20 group. Since 2016, he has worked with multiple automotive technology solution providers. He started 1 Click Auto Auction in 2017 which launched in June 2020.