Jon Hart is general manager of Escondido Auto Super Center, an independent dealership in Escondido, Calif., that’s been in business since 1994 in the city that’s about 30 miles north of San Diego. The store lists more than 200 vehicles in inventory mostly from domestic and Asian automakers with a few high-line units sprinkled in, too.
Hart acknowledged during a phone conversation with Auto Remarketing that it’s been at least two years since he walked the lanes at a physical auction to find Chevrolets, Toyotas and the occasional Land Rover or Volvo to fill his wide-ranging inventory
“I can’t do it anymore now that I buy online. It just wouldn’t work for me anymore,” Hart said.
Hart also acknowledged physical auctions contain plenty of vehicles to choose, but the struggles came when searching and securing units at a particular price point and condition.
It’s how Escondido Auto Super Center became a source of information for online wholesale companies like CarWave to develop its platform.
The owners of Escondido Auto Super Center actually are siblings of CarWave co-founder John Lauer, a former vice president at Microsoft (More on that sibliing connection later).
But Hart and Escondido Auto Super Center purchase inventory from an array of online sources. He shared several reasons why.
“It’s been much easier to buy online. There’s a lot bigger selection,” Hart said. “You can view so many more cars during the same time that it would take you at a brick and mortar auction because of the convenience.
“When you go to a brick-and-mortar auction, you have to look through the list, find the cars the day before, filter through them. You’re up early in the morning,” he said. “You’ve got to physically inspect them on the lot before you bid. That whole process takes a while.
“If you’re looking at time per car, it might take 10 minutes or more. Whereas online, you can go through a car in a minute, two at the most, and put in a bid. You can probably look at five times the inventory, if not more, in the same amount of time,” Hart continued.
“You end getting better deals because you can look at five times more cars in the same period of time. You can be more selective in the cars you’re purchasing,” he added.
And along with convenience, Hart pointed out that condition reports and buy-back guarantees now available through online inventory acquisition channels make being at a desk or using a mobile device much more productive when completing wholesale chores than going through the auction gates and walking the lots and lanes.
To any dealership or manager who still is uneasy about using online buying resources to secure inventory, Hart said, “It’s so much better that it’s night and day. That’s why we don’t go anymore. If someone is apprehensive, they’ve just got to try it. Once they try it, they’re not going to go back.”
The emergence of CarWave
Granted, not all dealers have the same preferences as Hart. Many are still going to physical auctions, to put it lightly.
According to statistics the National Auto Auction Association provided in spring 2018, just over 10 million vehicles were sold at NAAA-member auctions in 2017, which was up 2.5 percent over 2016 and represented $105.6 billion in sales, according to the association’s annual survey shared last year.
That $105.6 billion in gross value of units sold was up from $100 billion in 2016.
There were 17.32 million vehicles that entered the auction in 2017, compared to 17.74 million a year earlier. The percent sold climbed from 55.1 percent to 57.8 percent. Average price per unit was up 3 percent at $10,544.
But, still, alternative options have emerged, including the online wholesale platform CarWave, referenced above.
It was on a 2009 trip to California, where Lauer was visiting one of his brothers, that the wheels starting turning for an idea that eventually became what is now known as CarWave.
Lauer’s youngest brothers, Joe and Bill, had founded the independent dealership known as Escondido Auto Super Center in 1994.
In looking for resources to buy inventory, his brothers had built relationships with franchise dealerships, eventually doing some of the wholesaling work for those stores, John Lauer said.
“So, they were just a middleman in the whole process,” he said. “We got to talking, and they realized, ‘Hey, you know the Internet displaces middlemen. In industry after industry, it squeezes out middlemen. And so that’s how we got started.”
The company began by tackling the problem of aged frontline inventory for franchised dealerships in California, Lauer said. That beget the TheDealersForum.com, a network for franchised dealers to transact.
“They really need other used-car managers who might need to fill a hole in their inventory, and therefore, they’ll buy it from another reputable franchised dealership, knowing that they can just bring the car to their lot, change the stickers on the outside, and the car should be pretty much ready for sale,” he said.
“So that was a real pain point. They were having difficulty doing that,” Lauer said.
The focus for the company became selling that aged frontline inventory for the next three-and-a-half years. But they recognized the difficulty that scaling nationally could bring, given that some areas might not have as much aged frontline inventory as California, Lauer said.
Wanting to find another way to help franchised dealers, the company began to look at helping franchised dealers sell trade-ins. Thus, the emergence of MyFreshTrades.com, an online auction where franchised dealers sold trade-ins to independent dealers.
It launched its first online auction on the trade-in side in 2014.
Fast forward to February, and those two tentacles of the business — MyFreshTrades.com and TheDealersForum.com — were rebranded as one: CarWave.
In online wholesale, a ‘wave is hitting’
All the vehicles in the CarWave platform are from franchised dealers and are bought by either other franchised dealers or independent dealers.
With plans to expand elsewhere in the West, CarWave has been operating in California, where it works with 1,000 franchised dealership and sold 35,000 vehicles last year.
“Now the wave is hitting, so it’s going to be a big battle right now,” he said, later adding: “I was kind of in stealth mode trying to run below the radar, and now everyone has really come out very vocally. And so now we’re pumping up our efforts to get our story out there, as well.”
There are numerous and quite successful players in the online wholesale segment of the market, a segment that appears to be growing. Asked what he thinks is driving the growth, Lauer pointed to margin compression, at least on the buyer side.
Because of the growth of the automotive Internet in the last 15 years, especially the last six to eight years, “There’s so much more transparency in buying vehicles on the consumer side,” including pricing, he said.
That level of transparency driven by the Internet, as in many other sectors outside of auto, has pushed down margins for car dealers.
The second factor Lauer noted was just the convenience of online shopping, which began in other industries but has “finally moved into the wholesaling of automobiles” — a movement that has been spurred in part strong condition reports.
Additionally, for dealers on the buying side, it can be “costly” for them to be away from their stores, he said, for a number of reasons.
As far as next steps for CarWave, it has recently rolled out into Arizona, hiring inspectors and a sales team there. It is currently hiring in Nevada and likely will be launching there by the end of March. Moving to the Pacific Northwest, CarWave plans on launching in Oregon and Washington in the second half of 2019.
Lauer recently joined the Auto Remarketing Podcast. That episode can be found below.