Vehicle Auctions Make Their Bid To Fill Dealer Lots With Affordable Stock

One person called it a bit of “controlled chaos.” That became quite apparent to a group of reporters led through the regular Thursday sale at Manheim’s Detroit location, technically located in suburban Carleton, Mich. Inattentiveness would easily result in being bumped by a big pickup truck or SUV or sedan or some other vehicle moving in and out of one of the 12 lanes as it was auctioned off to dealers both on-site and bidding remotely online. Adding to the high-energy environment is the constant cadence of auctioneers, at times, simultaneously pitching their patter to drive up the price then move onto the next vehicle. 

The Thursday sale is one of two each week at this location and when the last “sold” is declared about 2,500 cars, trucks, or SUVs will have gone to the highest bidders—all dealers, many of whom are counting on them to sell at a profit on their lots as used vehicles.

Those used vehicles have become important and lucrative inventory for dealers who are desperate for something to sell to consumers who simply can’t handle the rising sticker prices of new vehicles. The average transaction price for a new vehicle in the U.S. was $37,590 in September according to Kelley Blue Book—$262 higher than it was the year before. 

Further illustrating the point, Charlie Chesbrough, Senior Economist at Manheim parent company Cox Automotive, pointed out the rising premium consumers are paying to drive a new leased vehicle compared with a used unit. In 2014, that premium was $35 a month higher for a new leased vehicle over a used one. Today, that premium is $75.

“That’s a bridge too far for many folks and that makes that used market that much more attractive relative to shopping in the new market,” said Chesbrough.

While several automakers have all but abandoned passenger cars as consumer tastes turn to high-profit pickup trucks, SUVs and crossovers, shoppers who are looking for something more affordable, or who prefer a traditional car, are finding values on used car lots.

Especially attractive to them are what Chesbrough calls “gently used” vehicles three years older or newer that have been traded in or returned at the end of a lease. They’re generally in excellent condition with some of the latest technology and features selling at a 30% to 50% discount from a new one. Chesbrough estimates about 4.1 million gently used off-lease vehicles will end up at auctions like those conducted at any of Manheim’s 78 U.S. locations by the end of this year with a similar number expected in 2020. 

Indeed, used cars represent a $760 billion market, said Manheim President Grace Huang. Manheim alone, has 300-thousand vehicles on its lots across the U.S. The company is making it easier, and, said Huang, safer, for dealers to stock their lots through its auctions by ramping its digital operation. Dealers can bid remotely without having to be physically present at an auction since many of the auctions are also carried online. The goal, said Huang is to eventually conduct all auctions digitally. Right now, of a total of 720 auction lanes 20% can handle the sale digitally. 

The importance of the value used cars present to consumers is likely to grow, said Chesbrough as signs start to hint of a slowing new vehicle market. Those signs include consumers and fleet owners coming down from the “sugar high” of tax reform and the fact that over the past five years 85 million new vehicles have been sold. 

“How many folks are left out there that haven’t bought a new vehicle?” said Chesbrough. “We think market saturation is starting to have an impact as well.”

He also warns a great number of those big ticket vehicles now flying off dealer lots will end up on used car lots, many via auctions, before too long. When that happens suddenly the game changes again.

“These crossovers, selling at a massive discount to the new product,” said Chesbrough, “there’s gonna be more and more of them coming to auction so we see that as a real threat as we look forward in 2020 and 2021.”