In the dealer group’s third-quarter earnings call, AutoNation chief executive Mike Jackson addressed not only how AutoNation is going to procure inventory to fill its AutoNation USA standalone used-car store locations, the dealer group boss also touched on why the company is delving deeper into the auction business.

First, AutoNation explained how it will find the inventory that will turn at these new stores.

“Obviously, we’re going to need a lot more inventory. And we’ve worked very hard to build a central acquisition team to do that. Then we can supply incremental product both to our existing AutoNation franchise business and the AutoNation USA stores,” Jackson said during the October call.

“It’s the reason we’re building an auction system for what we do acquire in trade. That we have a very good way to balance inventories, and I’m not worried about supply. I think we have that pretty well thought through,” he said.

AutoNation chief operating officer Bill Berman then joined the conversation.

“What I would add is, once again because of our centralized capabilities, we have access to inventories that not everybody else has,” Berman said. “We will be buying from auctions to a limited extent. There’ll definitely be the ‘We’ll buy your car component,’ which is to sit here and attract inventory from consumers that are not looking necessarily to purchase a vehicle. Plus, we have our current source of inventory which comes from trade-ins from our existing stores.

“Plus, with the influx of cars coming off of lease over the next 12 to 18 months, there’ll be additional inventory that’s going to come in at the existing new car franchise. Of course we’ll not be able to handle all of it, and we’ll be able to use that inventory to help supply our USA stores,” he added.

AutoNation owns and operates a successful wholesale auto auction in southern California, which processes more than 25,000 vehicles annually. With an opportunity to leverage its expertise and expand in an attractive growth market, the company plans to open four additional AutoNation-branded auto auctions over the next two years, starting in Orlando, Fla., and Houston during the first half of 2017.

“We’re finding the auction system that we have in California gives us outstanding market information and gives us the highest value for the vehicle that is not appropriate for us to retail, so that auction is very profitable for us,” Jackson said.

“I think building an auction system across the enterprise to run this integrated AutoNation pre-owned one-price system is a key component. And we think, yes, it will be profitable in and of itself,” he went on to say.

Meanwhile, another major player in the space is CarMax. It has sold 4 million wholesale units in its history, and moves over 400,000 wholesale units a year, according to an analyst day presentation the company made available on its website.

“This one is near to me, because this is where I started my CarMax career,” president and chief executive officer Bill Nash said during the January presentation. “When I came here, my job was to run the auction business. And I can remember when we sold 5,000 cars in one year, and we thought it was a big day.

“Today, we’re selling more than 400,000 cars a year. We’re the third-largest auction company in the U.S. when you look at just physical auction locations,” he said. “It’s a huge competitive advantage.”

In its most recently completed fiscal quarter (Q3 of fiscal 2017, which ended Nov. 30), CarMax said it wholesaled 91,973 units. This was down 2.2 percent year-over-year, “as contributions from the growth in our store base and an improved appraisal buy rate were more than offset by a reduction in appraisal traffic,” the company said in a news release.

Year-to-date, CarMax had wholesaled 300,543 units, down 0.6 percent year-over-year.