There has been a fundamental shift in consumer behavior as a result of COVID-19. It is changing both the retail and wholesale sides of the automotive business. Take used vehicle auctions. While physical auctions will be here for a while longer, an ever-larger number of wholesale auctions will occur digitally in the future. It is creating a space ripe for innovation.
Auction giant Manheim has gotten a more positive reaction to digital auctions than it anticipated, Zach Hallowell, Vice President of Manheim Digital Marketplace and RMS Automotive told The Presidio Group.
“Dealers have said they really didn’t think they would like (digital), but they do,” said Hallowell. Now, “the discussion is less about which (auctions) to take digital than what the right balance is” between digital and physical auctions.
Because of COVID-19, beginning March 16 Manheim shifted all 76 of its U.S. auction sites to digital-only sales. But the auction giant already was heading down the digital path. Manheim offered digital options with Simulcast and the Manheim Express app. Its Tucson auction site went all digital in May 2019. Houston and Flint joined Tucson on March 10, 2020.
Comfort with Manheim’s digital auction technology has been growing for the past several years, Hallowell told Presidio. In 2017, 37% of vehicles sold were to digital buyers. Before COVID-19 that had risen to 52%. That was a “key inflection point” for digital engagement, said Hallowell. Manheim had been improving the digital auction experience, including adding the ability to sort through a vast inventory for specific makes and models.
As it moved auction sites to all-digital, it was able to do so with “no negative impact to values,” said Hallowell. Even before March 16, some in-lane bidders were using their mobile devices to place a bid, he added.
When Manheim went all-digital on March 16, some 30% of its buyers were new to digital auctions. It quickly doubled the rate of sellers managing vehicles online and use of its remote seller tool spiked by 97% in the first week of digital-only sales.
Sales that week nearly doubled, though they came “crashing down” the week of March 23 due to broader economic factors, said Hallowell. They recovered quickly, however. By mid-April, Simulcast participation nearly tripled with approximately 20,000 attendees daily starting mid-June.
Online pioneer Carvana is also getting into the digital auction game. On June 25, it launched CarvanaACCESS, a “timed-bid” platform from Manheim Digital allowing registered dealers and other wholesalers access to Carvana’s inventory.
Consumer-to-consumer online auctions are appearing, offering the kind of transparency that the internet has brought to the in-dealership retail vehicle buying experience.
PowerBand Solutions Inc., an automotive retail technology company based in Toronto, has created a virtual transaction platform that allows consumers to buy, sell, lease, and finance vehicles from their smart phone or other digital devices. Part of that platform includes access to virtual auctions through its Driveaway app, created with its 50-50 partner D2D Auto Auctions, owned by Arkansas financier Bryan Hunt. Driveaway already has been introduced in key markets, Kelly Jennings, President and CEO of PowerBand, told The Presidio Group.
Driveaway is both a consumer-to-dealer and consumer-to-consumer platform, “A consumer will be able to buy a vehicle through our system from the dealer, a rental company, or another consumer,” said Jennings. A consumer uploads a car and Driveaway buys it then resells it at a weekly online auction. Or, it can be bought immediately by a dealer if the consumer chooses. The seller can set a price floor.
PowerBand facilitates the deal and only charges a flat fee when a transaction is successful. “We get paid if we do something,” said Jennings, adding “we are making buying a car as simple as buying something on Amazon. Better still, you don’t have the cost of transporting a vehicle to a physical auction.”
Digital auctions would not be feasible without a growing stable of sophisticated digital tools allowing potential buyers to value and thoroughly examine a vehicle online. PowerBand’s online Dynamic Appraisal system allows buyers and sellers to know the value of a vehicle, creating transparency. Sellers complete disclosure questions and receive an estimated value based on vehicles in the PowerBand database and other web-based sources.
Manheim is using technology that allows a 360-degree walk around of a vehicle’s interior and exterior. It includes a recording of the engine running, some undercarriage scanning, and can capture the OBD2 codes, said Hallowell.
Manheim also is investing in automated detection of damages, though that capability is “further out,” he said. “We would like to take that human subjectivity out of the assessment.”
One drawback to digital auctions is they lack the social aspect of physical ones, said Hallowell. “We try to provide an environment online that provides that,” he said. Other perks of a physical auction include concentrating dealer demand in one place at one time and efficiently disposing of a lot of cars all at once.
With ever-more-sophisticated digital tools, some buyers are comfortable with an all-digital experience. Others still want to attend an auction. “It is not digital or physical,” said Hallowell. “It is digital and physical.”
Manheim is gradually resuming in-lane auctions, with COVID-19-related modifications.
But digital auction advantages are apparent, including allowing supply and demand to meet “as perfectly as possible,” said Hallowell.
“It is overall a much more efficient market for buyers and sellers,” he added. “The future is likely continued growth in digital on the retail and wholesale side.”
More dealers are discovering that buying vehicles from online auctions works for them, and new technology is making those auctions ever more efficient and convenient. The arrival of the day when in-lane auctions are the exception rather than the rule has been hastened by COVID-19.
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The Presidio Group provides M&A advisory services through its wholly-owned investment bank, Presidio Merchant Partners LLC, Member FINRA and SIPC.