Online vehicle auctions, sales to lessees, and other upstream remarketing activities are becoming critical components of consignors’ remarketing strategies, according to a new industry survey.
But to what extent will Internet auctions capture buyers from the decades-old tradition of physical used-car auctions?
“Over the last two years we have seen a steady shift in the way vehicles are remarketed,” said Bob Gear, vice president for Emercent Solutions, which conducted the Upstream Remarketing Trends 2003 Survey with the International Automotive Remarketers Alliance (IARA).
“This is significant, as the physical auction process has not changed dramatically for the past 60 years. The survey clearly underscores what most of us in the industry have been seeing in recent years — a shift in the use of upstream and downstream remarketing channels,” said Gear.
The survey of captive lenders, banks, and fleet and lease companies examined the use of different remarketing channels and their results. In addition, respondents’ levels of satisfaction with and future intentions to use each channel type were profiled.
For consistency and clarity throughout the survey, upstream remarketing was defined as the sale of a vehicle prior to consignment/sale at a physical auction. More specifically, upstream remarketing is the process of offering vehicles for sale through various remarketing channels, prior to incurring incremental expenses associated with the transport and consignment to a physical auction. These upstream remarketing channels include direct sales to lessees, dealer direct, online sales, and other avenues identified in the survey.
Auction-based online sales, such as Online Ringman and Simulcast, which offer vehicles for sale online while they remain at the physical auction, are included as a subset of the online auction group. These online sales, however, are not included in the upstream remarketing results because these activities enhance the traditional physical auction process and are not considered to be true upstream activities as defined by the survey.
For captive lenders, upstream remarketing activities now account for more than 40 percent of sales. Of this, online auctions account for about a quarter of sales. Sales to grounding dealers and lessees comprise nearly 17 percent of the transactions.
“Online auctions and other forms of upstream transactions are definitely having a big impact on the way this group is remarketing their vehicles today,” said Matt Marks, executive director of the IARA. “Most captive lenders, for example, are now using some form of online auction. While physical auctions are certainly not going away, upstream channels are becoming increasingly important.”
Banks now use upstream channels to complete nearly 43 percent of wholesale transactions. Sales to lessees make up approximately 28 percent of this activity, and sales to grounding dealers account for another 8 percent.
Fleet and lease companies now employ upstream remarketing activities to dispose of about 50 percent of inventories. Of this, almost 25 percent are sold to employees who have driven the vehicles. Fleet and lease companies use the wholesaler market to dispose of nearly 13 percent of vehicles.
Across the board, most survey respondents felt that upstream remarketing activities have helped their bottom line. Captive lenders report that upstream channels have reduced turn time on vehicles by an average of more than 20 days, resulting in millions of dollars in savings.
The survey results also reveal that more than half of captive lenders now spend less than they had in the past on upstream remarketing activities. The survey respondents from banks and fleet and lease companies say they spend more, but are still increasing profits.
Based on survey results, consignors are satisfied with their upstream remarketing strategies. Captives seem most satisfied with online auction sales. Banks appear almost equally satisfied with sales to the grounding dealer and online auctions. Both groups have favorable views of online auctions and Online Ringman and Simulcast. All consignors surveyed report good satisfaction with physical auctions.
Both banks and captive lenders intend to increase use of sales to grounding dealers, as well as online auctions, including Online Ringman and Simulcast. The newest channels, as expected, have the largest increase potential.
“Consignors have been relying on auto auctions since the 1930s, so changing the mindset and the business practice of vehicle remarketing takes time,” said Julie Andersen, vice president of strategy and delivery for Emercent Solutions. “It’s clear, however, that upstream remarketing is on the rise and quickly being adopted, based on its practicality and profitability.”
IARA and Emercent will unveil the full results of the survey at IARA’s Remarketing Roundtable Series Jan. 21, in Las Vegas. Information about the event is available at www.iaraonline.org.
IARA exists to assist, educate, and share knowledge about the remarketing industry, both with members and industry partners. Emercent Solutions provides business and technology consulting services for the vehicle remarketing industry.
The survey consisted of approximately 10 to 15 questions administered via telephone interviews performed by an Emercent Solutions research specialist. Target respondents were senior-level remarketing management from 25 captive automotive finance organizations, fleet and lease companies, and banks providing automotive leasing. The questions were in both open- and closed-end formats. The survey was conducted in November 2003.