In perhaps a first of its kind event, about 20 bright-eyed conference attendees kicked off their 2022 CAR Conference experience on March 22 with a hands-on, creative workshop focused on the age-old floor pricing process.
The modern remarketer usually has copious data inputs to the process, but not always the resources needed to put that data to best use as they attempt to gauge the wholesale value of their auto portfolios.
At AutoIMS, we’ve heard – and helped implement – every variation of approach on this critical process. Whether a hands-off approach: “That’s what the auction is for, the market sets the value”; or very granular, intense, home-grown algorithms with individual boots on the ground to ensure every vehicle quite literally passes the sniff test.
Enter our workshop..
What Were We Solving?
What better time than when vehicle values are soaring due to low volumes and high demand, to have a creative, low-stress conversation about what is important about floor pricing? As it turns out, many factors are important. Let’s start with why this problem matters:
1. Most remarketers are tasked with losing as little money as possible when selling cars. They can either cut costs or sell the vehicle for more to maximize returns, and they will all tell you they do both. Spoiler Alert: A great floor pricing process should help accomplish both through efficiency gains and higher returns.
2. The vehicle landscape has changed dramatically. Remember leaving money on the table when you failed to identify power windows? The amount of money easily left on the table through misidentification of the vehicle has accelerated dramatically, magnifying the cost of mistakes.
3. The geographical market boundaries have crumbled. The average transport distance for a vehicle bought at auction is significantly higher than ever before. Buying dealers are well-equipped with tools to optimize their inventory, and aren’t afraid to buy a car sight unseen hundreds of miles away. Remarketers are learning to optimize their marketing of vehicles in this environment, and pricing is a key component to moving cars quickly and for the most money.
4. Regulatory pressure is only building. Selling a vehicle to make the most (or lose the least) money for your company is one thing. What about to satisfy the demands of the CFPB and other regulators? Many in the lending community are working hard to not only find the right price, but document their journey in setting it.
A Cereal Solution to a Serial Problem
So what did we learn at the conference? It depends on which team you were on, but I’ll do my best to summarize the great work of all participants.
The Exercise: Five teams of four to five people each were given a blank “cereal box” which would serve as the “product package” for their idea for the killer floor pricing app. They were to decorate the box with the features, attributes, benefits, and any other creative ideas they had with no limits holding them back. If the tool could do anything, what would they have it do? After about 45 minutes, a team spokesperson was to ‘sell’ their product to the room.
Armed with a bevy of arts and crafts supplies that would make any pre-school teacher envious, the teams each started with healthy discussions and occasional debate over what constitutes the ideal floor pricing product, why it’s important, and a theme for their box. One consistent element across all teams was to determine the data inputs to a good floor price, and there were many.
Common required elements across all the teams included:
- Accurately decoded VIN down to the trim & package
- Condition / Grade and repair costs
- Guidebook values including MMR, Black Book, Kelley Blue Book, and NADA
- Vehicle history inputs from CARFAX and AutoCheck
- Geography / Vehicle location
- Internally meaningful numbers like depreciated asset values, profit margins, and insurance opportunities
Some of the more creative input elements included:
- New car build data
- Oil prices
- TCO (Total Cost of Ownership)
- Rebates & Subvention
I left these in “The Data” since they absolutely could be boiled down to individual data points for each vehicle. The source of that data and how best to use inputs like oil prices begin to speak to the process or unique formula used by each remarketer.
Unique Ideas Emerge
Scissors and glue sticks in hand, our participants brought to life fresh, new thinking about accurate wholesale appraisal value at the vehicle level. Here is our humble interpretation of some of the unique ideas that emerged in the process:
1. A little luck helps. Casting a wide net to capture data and input from multiple perspectives, including macroeconomic can help take the guesswork out. Still, all the greatest data and algorithms in the world may still miss the market. It’s never too late to take a second shot and start over if needed. (Wheels of Fortune)
2. Build a model to stand by. One of our groups went as far as to include a patent number on their product. This theme is consistent when we talk to top remarketers – their floor pricing process is something they’ve worked hard on and are typically not willing to share. (Remarkable App)
3. Remember your partners. If you sell at auctions, find a way to capture the unique market insights that auction management has from their vantage point. This could come in the form of data, subjective commentary, or likely some combination of both. Maintaining trusted partnerships has a way of increasing luck. (Lucky Cars)
4. Evaluate your own performance against not only your own goals, but also the market. Sale percentage and days to sell are great examples of metrics where each seller should find their own balance relative to their own performance and that of other similar sellers. After all, there is risk in selling too fast, just as in selling too slow. (The Whole Floor)
5. Know the wiggle room. The concept by our winning team is age-old, but may be ripe for innovation given the growing availability of real-time data. The Wiggle Room acknowledges there is a decision to be made on each car in the moment. It poses the idea that the range of acceptable values on any given vehicle – from “give it away” to “crazy money” – continues to vary as time goes by right up to time of sale (and even after the sale, but we’ll assume a time machine is not coming any time soon). (The Wiggle Room)
And The Winner Is
After a public vote at the conference, the winning team from the workshop was “The Wiggle Room” with team members:
- Jim Maule (MotorLease)
- Mike Wilson (C&F Finance)
- Rachel Ballard (CarLotz)
- Kim Waterman (AuctionEdge)
- Katie Rushing Polk (Southeastern Auto Auction of Savannah)
Many thanks to all the participants in our unconventional workshop. We understand that sourcing the right data and inputs, creating a valuation process, and then executing on that process all represent unique challenges.
“We hope you gained some new and different perspectives from your peers as a result of this exercise,” said Venkat Krishnamoorthy, AutoIMS CEO. “Engagement is a key component of our BET (Bill of Rights, Engagement, and Training) initiative this year, and we were excited to engage with our clients in this unique way."
About The Author: Joe Miller is the executive vice president of client success for AutoIMS and an IARA Certified Automotive Remarketer.