Get out of the silos while you can before they implode into plumes of dust. What was once defined as segmented auctions, dealers, marketplaces, and wholesalers will blend this decade in ways never seen before.
Remarketing industry leaders and professionals learned more about that sobering prediction during a general session March 23 at the Conference of Automotive Remarketing. Industry analyst and forecaster Steven Greenfield, the CEO and founder of Automotive Ventures, led the presentation, held during the International Automotive Remarketers Alliance series.
“There will be more change in next five to 10 years than we’ve ever seen,” Greenfield told the audience in a sweeping overview of industry changes. “The silos are breaking down.”
Technology innovation now alters the vehicle lifecycle across the entire spectrum, he said, while entrepreneurs are innovating in every facet of that lifecycle. Among leading changes is the advance of artificial intelligence, which spurs an automated vehicle reporting-writing process used for condition reports.
Greenfield walked through a wave of industry acquisitions and partnerships in the AI, digital and sourcing tools space. Historical boundaries between auctions and third-party marketplaces are dissolving and shifting, he said.
KAR Global, for example, has invested in Ravin, an international provider of automated, mobile and CCTV-based artificial intelligence solutions for vehicle inspections. KAR Global is also investing heavily to consolidate larger B2B marketplaces, including the purchases of CarWave and Backlot Cars, Greenfield said.
That followed XLerate Group’s purchase earlier this year of America’s Auto Auction, creating a critical mass of independent auctions. Meanwhile, OEMs like General Motors are adding third party marketplaces.
“It’s only a matter of time before we see more consolidators,” he said. “More private equity money is coming into the space.”
As Greenfield explained: Buyers increasingly want access to inventory that will sell at solid values without paying burdensome fees. They also expect accurate prices, less uncertainty, and quicker sales in the auction lanes. Vehicle quality should be consistent and up to date while all transactors should be able to easily access arbitration and fund transfers.
Such tech-driven demand means the realms of dealers, auctions, marketplaces, and wholesalers are combining into new business models, he said. “These silos are being redefined before our eyes. We won’t see any more silos in each of those four categories.”
Greenfield underscored how Carvana’s recent $2.2 billion purchase of ADESA has shocked the remarketing sector more than any other deal. KAR Global was motivated to hold onto and grow its online assets and services while shedding physical ones, he said.
Carvana, facing supply constraints, was “ravenously buying” inventory, he said. Under this deal, it goes from operating facilities within in 200 miles of 56% of the population to 94% of the population. They now have 56 locations over 4,000 acres.
With two million dealer consignment cars running through ADESA, Carvana saw an opportunity to expand within a reasonable distance of much of the U.S. population so they can more efficiently park, prepare and deliver vehicles to customers, Greenfield said. Hertz, for example, plans to sell vehicles directly to consumers via Carvana.
“Why settle for wholesale prices when they can get retail prices?” Greenfield asked. “80% of Hertz cars could be sold to end retail consumers. Carvana will circle back to sellers for new value propositions with retail prices, changing the dynamics in the B2B marketplace entirely. . . Will there be dealer pushback? Things are changing very quickly.”
Larger remarketing operations will see more opportunities for managed fleet services, de-fleeting services, and more locations to park and maintain vehicles awaiting sales as more sales go online, he said. “They will be bringing fleet services to the fleets.”
Greenfield reminded the audience that without a healthy dealer base, none of the industry will be in business. With new business models emerging from consolidation, dealers operating margins face increased pressure.
Electric vehicles also will cramp dealer profits, since EVs tend to be more reliable and don’t need as much maintenance and servicing, Greenfield said. “They will get over-the- air software updates and billions in new subscription services will be generated.”
One key challenge is how dealers will participate in vehicle transactions when consumers embrace more options. “Running a car dealership is like squeezing a water filled balloon, with five to six different profit and loss components that can be balanced,” Greenfield said. Those include new and used cars, parts, service, finance and insurance, accessories, and collision repair. They can allocate resources and people around as areas face challenges. “It may look different in the future.”