Manheim's first digital sale was made in 1996 through a platform it had just released that year called CyberLot.
Manheim had partnered with Toyota for its first sale involving an online platform, so all of the vehicles that were sold that day were Toyota vehicles.
Counting the vehicles sold that day, and through the rest of 1996, Manheim sold a total of 65 cars that year.
Fast forward a little over 20 years, to 2017, and digital sales accounted for 40% of Manheim's overall sales. A year later, digital sales accounted for 44% of the more than 2 million cars that Manheim sold that year. Looking at digital sales through the first three months of 2019 — 3% year-over-year growth — indicates that digital sales should climb even higher this year.
The more than 600,000 digital sales that Manheim saw last year is representative of an industry that has drastically evolved and grown since it's humble beginnings, posting fewer than 100 digital sales a year.
What pushed Manheim, and other companies within the auction industry, to dip its toes into the digital marketplace 20 years ago were companies like eBay and Amazon proclaiming that a fledgling technology called the Internet was where the future was heading.
This was a bit of a leap of faith because the Internet at the time wasn't anywhere close to what we know now. Most U.S. households at this time were connecting to the Internet through a dial-up modem that used the same physical line that connected their landline telephone to their home; one person picking up a phone call in another room could disconnect another person attempting to dial into the Internet in another room. Data transmission speeds were so slow that sharing high-resolutions photos or videos would take so long that it was more common for people to share digital catalogs of cars to interested parties because it was more reliable to do so.
To talk about the birth of digital sales during those years, and to talk about how Manheim sees the digital sales space evolving, Nick Peluso, president of Manheim Digital Marketplace + RMS Automotive at Cox Automotive and the winner of the 2019 Ed Bobit Industry Icon award, sat down to speak with Vehicle Remarketing.
How Physical Auctions May Change
Peluso believes that in the next five years, digital sales could account for up to 70% of Manheim's business, with physical auctions accounting for 30%.
When asked if he sees a future further than five years down the line where digital sales hold such a large portion of Manheim's sales that the need for physical auctions goes away, Peluso flatly rejected the notion.
"We strongly believe that physical auctions aren't going to go away," said Peluso. "They may change to serve local markets, or serve a marketplace looking for certain types of cars. We don't have any feel for what percentage digital sales should account for our business; it's going to be whatever it ends up being. We'll continue to serve however how our customers want to do business."
One big reason why Peluso stated that physical auctions won't go away is because the industry is going to continue to need a place to physically store vehicles.
Physical auctions may also change to where the bulk of their business is comprised of reconditioning and body work, he added.
"It's not physical or digital, it's physical and digital," Peluso said. "What percentage each role plays will evolve, but it's an 'and,' not an 'or.'"
Some auction workers may fear that their jobs could be eliminated as digital sales continue to grow and physical sales continue to decline, Peluso noted. But, they shouldn't fear this change, he added. Similar to how physical auctions may change, so too will the role of the people at those auctions. The jobs of these people may be different going forward, but they are still very much needed.
Early Technology that Grew Digital Sales and the New Tech Entering the Market
Since its inception, simulcast has been a catalyst of digital sales growth for Manheim, and the industry, noted Peluso.
Simulcast technology — which at this point is about 17 years old — allows buyers from a remote location to bid on a vehicle running through a physical lane, and bid against buyers who are at the physical auction location with no latency.
When simulcast was rolled out, it was a game changer for auction buyers because it eliminated the need for its representatives to fly out to seven different physical locations in order to attend the various sales that had vehicles they were interested in. Instead, one person could bid on vehicles from seven different sales from the comfort of their office.
Some of the earliest adopters of simulcast were commercial customers, noted Peluso. Dealer use developed, and is continuing to grow today, but commercial buyers were quicker to adopt the technology.
Today, simulcast is an established and well known technology in the industry.
While simulcast began with vehicles running through a physical lane as well as through an online platform, some auctions today aren't running vehicles through lanes anymore. The vehicles are being parked out on the auction lot so buyers can still go out and kick the tires, but in the barn, some auctions are mainly broadcasting images of the vehicles on a screen. At these locations, the amount of buyers physically attending can vary from only a few to none.
Newer technology that Manheim is now embracing is artificial intelligence and machine learning, which is being driven by the cornucopia of data that the company has on its customer base.
Ben Flusberg, associate vice president, decision support, is leading Manheim's charge in implementing these new technologies into its operations, noted Peluso.
Through machine learning, Manheim will be able to get to a point where it will analyze individual customers and determine — based on transportation costs, day supply, market supply, and sales trends in an individual's geographic area — whether it will be better to buy or sell a vehicle, or even if it should be shipped to a different auction for sale.
"Our goal will be to personalize our services to specific dealers," said Peluso. "Today, if a dealer signs into a website, I like to say that that website has amnesia. You sign in, do something, and then come back tomorrow, and it doesn’t remember what you did yesterday."
How Digital Auction Sales are Helping Combat Dealers' Margin Compression
As dealers face margin compression, they're looking for methods to squeeze more profitability out of their operations, and digital sales are helping to facilitate this goal.
"If you think about a dealer for a moment, let's say they take a car off their lot and send it to a physical auction," said Peluso. "Well, once that car is sent out, it's no longer available for retail. A physical auction may run one day a week, so that dealer is losing seven days or so of depreciation. That car is probably floor planned somewhere, so it's probably costing between $15 and $50 a day in depreciation and holding cost, and the cost to transport their cars to auction."
What dealers are starting to do more often, in order to reduce these costs, is list their cars for wholesale while it's still at their dealership. While that vehicle is on their lot, it may be simultaneously listed on platforms such as AutoTrader and on Manheim Express in order to open up that vehicle to the broadest buyer base, in both the retail and wholesale market.
An offer on one platform may give the dealer more control over the sale of that vehicle. That dealer can choose the first offer, or wait for an offer on the other platform.
"The question they need to answer for themselves is which one is the better option," said Peluso. "If I'm out of it wholesale and I can free up money to buy another car, and I've had that car for 15-20 days in inventory, then why not. The dynamics are starting to move where there might no longer be the need to send everything to physical auction."
Digital platforms not only provide dealers with a way to combat their compressing margins, they also provide dealers with a way to more efficiently use their time, and to more safely purchase vehicles.
Bidding on vehicles online, especially when vehicle imaging and condition report technology is continually evolving, is simply more convenient and a more efficient use of a dealer's time than physically attending an auction.
The excitement of attending a physical sale has still not been replicated on the digital front, but even this aspect of the auction experience is being looked at by Manheim. There are no formal plans, but technology like virtual reality is being explored by the company.
On the matter of safety, fewer vehicles running through lanes means there are fewer opportunities for an accident to occur. Apart from the possibility of being hit by the car, a reduction in cars running through lanes means there will be less exhaust fumes in the barn, which will have a positive effect to people's health.