While wholesale auctions are still the primary channel for commercial vehicle owners to remarket end-of-cycle vehicles, a growing trend among progressive vehicle remarketing professionals has been to sell vehicles through the emerging retail channel, either through their own dealerships, online service providers, or retail consignment.
What’s driving this trend?
1. Growth in off-lease volume
First is the recent growth in off-lease volume, which is placing downward pricing pressure on used vehicles. Over the past two years, thousands of vehicles have come off-lease and entered the wholesale market, outstripping wholesale demand to the detriment of vehicle prices. Growth in off-lease volume is expected to continue in the foreseeable future.
Progressive remarketers do a great job optimizing among their wholesale options, but general price declines and reduced sell-through success at the auctions have led them to look at alternatives to auction in the search for additional return for their portfolios.
2. Rise of retail remarketing options
Second, new remarketing options have entered the market over the past several years. Certain large remarketers have built or expanded their own retail store network, while online remarketing options like Shift and retail remarketers such as CarLotz have built successful retail remarketing models that are providing remarketers an alternative to auction for a portion of their units.
3. Auction/retail mix driving higher returns
Third, with the search for higher returns and the growing presence of retail remarketers, progressive remarketers have realized that a mix of wholesale and retail remarketing can drive higher returns on their portfolios while optimizing speed to sale. Certain vehicles being remarketed at auction today enter the lane in front-line or close-to-front-line retail condition, and those vehicles can generate significantly higher proceeds for the remarketer at retail.
How does retail remarketing work?
At auction, auto remarketers sell vehicles to dealers at a wholesale price. While some auction purchases are retail-ready, others will be reconditioned to the dealer’s standard, and the dealer will subsequently sell to the end consumer at a retail price, ideally capturing a hefty profit margin along the way.
Commercial remarketers have historically operated with the mindset that “I can only sell a car at the wholesale price” because their only viable remarketing option was the wholesale auction. With the rise of retail remarketing options, units in remarketing portfolios can bypass the auction and go through the retail remarketing channel at a retail price, which equates to higher net proceeds for the remarketer.
Remarketers are approaching retail sales in three different ways:
1.Owned retail stores. Certain remarketers like the large rental car operations, including Enterprise and Hertz, as well as several fleet management and leasing companies, have established their own retail stores to remarket retail-ready vehicles directly to the consumer as an alternative to auction. Hertz, for example, operates more than 80 retail sales locations throughout the U.S. and Canada. These companies only resell their own vehicles, however, and do not remarket vehicles for other businesses.
2. Online remarketing. Emerging venture-backed business like Beepi, which recently closed its doors, and Shift, have expanded their online peer-to-peer car selling services to commercial remarketers. Shift, for example, announced a partnership with Hertz to remarket certain off-cycle rentals through its online selling platform in California.
3. Retail consignment. CarLotz, which launched initially as a new way for consumers to sell their vehicles, expanded its services several years ago to commercial remarketers such as leasing companies, fleet management companies, financial institutions, and other dealership groups. CarLotz operates retail sales locations and has partnered with several of the top commercial remarketers to remarket off-lease, repossessed, and trade-in units. Retail consignment operations advertise to consumer buyers nationwide, manage buyer inquiries and test drives, offer financing and trade-in options, handle negotiations and paperwork, and then remit payment to the seller. These retail activities yield retail proceeds, which benefits the remarketers in the way of enhanced returns.
4.Hybrid. Some commercial remarketers take a hybrid approach to remarketing. Leasing companies like Merchants Fleet Management and Mike Albert Fleet Solutions have vehicles operating throughout the country. For off-lease vehicles near their home markets, remarketing through their company-owned retail sales locations makes sense. For vehicles deployed outside their home markets, however, they outsource remarketing to retail consignment operations as well as traditional wholesale channels.
How does retail remarketing compare to auction?
The three things that are most important to an auto remarketer are proceeds, speed, and ease of administration. The wholesale and retail channels each offer pros and cons for the remarketer, which is why many remarketers are selectively mixing the two to optimize portfolio returns and remarketing speed and efficiency.
Auction companies typically charge $200-$300 per vehicle and return wholesale pricing less these fees to the seller. Remarketing at retail carries slightly higher selling fees, typically around $1,000, due to the additional work and cost associated with selling directly to the end consumer but also delivers a retail price, which after fees is typically $1,000 higher or more per vehicle than wholesale channels.
Commercial remarketers generally receive proceeds from vehicle sales at auction within 15 to 25 days after scheduling for sale. This timeline factors in transport, inspection, reconditioning, one or several runs at auction, and title clearing. The retail sales process can be as fast or take a bit longer on average since vehicles don’t sell on a pre-defined schedule but rather whenever a retail buyer emerges. That can be within 24 hours of listing a vehicle for sale or 60-plus days, but on average, commercial remarketers should sell and receive vehicle proceeds in the 30 to 40 day range.
Ease of administration
Ease of administration refers to the “hassle factor” for a remarketer, or the specific process they must go through to get a vehicle sold. In the wholesale market, commercial remarketers work with several auctions throughout the country, each of which has its own contact and process. Optimizing returns across a large network like this can be a time-consuming process. With retail remarketing, remarketers will typically deal with a single relationship manager regardless of where the vehicle sells, which can reduce the amount of time the remarketer must invest in each sale.
The concept of auto retail remarketing is still new, but it has a growing presence in the minds of remarketers throughout the country.
Wholesale auctions remain the dominant remarketing method for commercial sellers, largely due to their ability to move large quantities of vehicles. But progressive remarketers are increasingly integrating retail remarketing into their program to optimize their objectives of maximizing sales proceeds, increasing turnaround time, and reducing administrative hassle.
With the number of off-lease vehicles continuing to rise in the coming years, placing additional pricing pressure on remarketing portfolios, it will be interesting to see how the mix between wholesale and retail remarketing channels shifts in years ahead.
Michael Bor is co-founder and chief executive officer of CarLotz.