Amid a used-car market being impacted by stronger pre-owned supply and continued gains in new-car sales — plus rapidly advancing buying and selling technology in the wholesale space — Black Book has noticed a trend sprouting up, one which it aims to assist through its recently enhanced digital offering. The trend? Direct-to-retail-customer sales from the auction lanes.
Consider these numbers Black Book shared, citing data from Fitch and Ward’s Auto: last year ended with used-car days’ supply at 63, compared to 59 days’ supply at the end of 2012.
“I think you’re within the same growth rate this year,” Black Book’s Mike Williams told Auto Remarketing in a recent interview. “I think it’s going to get more expedited the following (year), because I think we’re in a transition time, and I think most people will say that now.”
Williams, who is vice president of mobile and direct sales at Black Book, added: “It’s really a market of transition right now: the new platforms, a new way of selling. But again, some of those drivers, with that virtual inventory and things like that, they’re (dealers) going to be able to keep a much bigger supply for much less cost. I think that (supply) number is going to hold steady a little bit, but then it’s going to ramp up as the year goes on.”
Not to mention, new-car sales are pinpointed at 16.1 million this year, Black Book noted, and off-lease volumes are expected to rise. In fact, a recent Edmunds.com analysis projected that there will likely be just a shade under 3 million lease terminations in 2014, and this this would be a four-year high.
Or, put a different way, “Car shoppers coming off lease will account for some additional 300,000 in new car sales over 2013, or about 40 percent of the expected 2014 auto sales growth,” Edmunds chief economist Lacey Plache said in the analysis posted to the company’s website.
Given these supply changes, the mobile technology available for dealers makes it a ripe environment, Black Book says, for a concept it describes as “wholetailing” — or, selling directly to a retail customer from the auction lane.
Once they have found a car at auction, the kind of technology that dealers have at their disposal lets them take information from the lanes — including things like pricing, pictures and history — and then share it with a retail buyer, Black Book noted. This also can lead lower days-to-turn on the wholesale side since the buyer at auction can already have a customer lined up on the retail side, the company added.
“You’re already starting to see some of this. As the technology gets better and better and more tools are added, they’re able to make these decisions quicker but they’re also able to rely on the concept that they’re going to make these decisions quicker,” Williams said. “So, virtual inventory starts to pop up, and you’re already seeing some guys do that now, where they already have customers in mind.
“They’re running the numbers and figuring out on the fly at the auction,” Williams said. “For us, one of the upcoming parts of the new mobile app is the Profit Calculator, which is designed just for that notion. So while they’re in the lane they can scan a car; they can do their homework; but they can also see — based on their costs and inherent processes — how much they’re going to make on that car.
“Now that allows them to make that decision much faster,” he continued. “So I think you’re going to see more and more of the virtual inventories, but you’re also going to see more and more of them merging virtual inventories with other people, and platforms are going to allow that.”
Although franchised and independents would likely find this this concept of wholetailing useful, Williams said it’s more likely that independents will gravitate toward it first.
“I think it’s ideal for both, but I think you’re going to see independents jumping on it quicker. And they’re going to be, kind of, the proof of concept for everyone else,” he said. “The independents don’t have the option and the luxury of selling those new cars, so they’re much more aggressive when it comes to new ideas. They’re also less confined in what they can provide, whereas a franchised dealer is trying to stay within his general category, an independent can go across the board.”
When asked about risks or challenges that dealers should perhaps keep in mind when applying the concept of wholetailing, Williams said that stronger new-car sales and significantly higher lease returns will likely “throw the whole depreciation curve for a little bit of a loop.”
He added: “Margins are going to keep getting a little slimmer and slimmer, so that’s going to be a big part of it. Deprecation is expected to be 13.5 percent versus 12.5 or so last year.”
In the same vein, Williams honed in on the impact of “virtual supply.”
“Once these dealer-to-dealer trade networks and (similar) things start to gain more and more traction, they’re going to be trading inventories virtually. They’re going to allow each other to start showing cars from each other’s inventories. And in that case, they have no holding cost or things like that,” he said. “Some of the platforms already allow for that concept, that it’s a retail view. So they’ll be able to show other cars. Some of the things we’re looking at with Black Book Digital product is just that: how can we aid in those places?”
For example, Williams points out the profit calculator and tools for managing virtual inventory of Black Book Digital.
He also mentioned the “cornerstones” of the app like the Quick List, history reports, vehicle specifications, video/picture functionality, noting: “These are all tools that really give you the opportunity to A) build your virtual inventory in the app, but then also B) send it off from the field. So, in this case, they’re able to actually take all of these components into one and send it back to somebody who’s actually talking to a potential buyer.”