The evolution of online auctions has been driven by two converging economic forces: the ever-expanding online marketplace and a demand for efficiency in an increasingly sophisticated industry. Every day it takes to sell an out-of-service unit is a day in which that vehicle is not only depreciating in value, but no longer earning money for its RAC. For rental agencies, online auction sites offer the opportunity to begin selling units “upstream,” while they’re still on rent. Whereas the traditional vehicle remarketing process—from end of service to the sold vehicle at the new buyer—could take 24-45 days, an online sale can be completed in one to 10 days. “You can sell the car and get the proceeds while the engine oil is still warm,” says Steve Kapusta, director of operations for GMAC’s SmartAuction. Further, units sold online don’t incur the cost of transportation to an auction site. And, just as important, the Internet allows sellers to reach out to an exponentially larger pool of potential customers. Each week, millions of buyers log on to online auction sites such as OPENLANE, SmartAuction and Manheim’s OVE.com. They’re joined by transportation companies, many of which have partnered directly with the auctions to bid for new business. Auction sites can give shipping quotes from competing transportation companies instantly. They are becoming more sophisticated as well, arranging shipments of sold cars together for multiple buyers and moving beyond their traditional range. This makes it economical for sellers to move smaller batches of cars to a greater number of locations, and farther away. David Pilcher is the executive vice president of Indianapolis-based Arelco Inc., the U.S.’ second-largest National/Alamo franchise, and has been with the company since 1975. Of all the changes to the rental car industry he has witnessed, online remarketing stands out as a game changer. “We could see early on that Internet sales would have as big an impact on the wholesale market as on retail,” Pilcher says. “We’ve seen the evolution and we have not been surprised.” For those new to the concept, here’s a step-by-step guide:

1. Pick Your Provider

Objective: Find the site and price structure that works for you. Strategy: Weigh your options. Listings are free, in most cases, but each of the sites listed earlier differs in fees charged to seller or buyer when a deal is closed. Some are online only; others have evolved out of brick-and-mortar auctions. Pilcher’s Take: “We maintain a balance between our direct sales team, physical auctions and online auctions. It’s the same for the various sites. We want to be actively involved wherever we can. You can have the same vehicle in more than one place online, but you’d better make sure you’ve got the control and structure to support that strategy.”

[PAGEBREAK] 2. Inspection and Certification

Objective: Determine whether to rely on an auction site’s third-party inspection provider or take the do-it-yourself approach. Strategy: Eliminate the element of surprise. A third-party inspection can minimize your arbitration rate by cutting down on unexpected objections from buyers. This is especially important if you’re going online to break into new markets. Nagi Palle, vice president of analytics for OPENLANE, says his company offers sellers the option of ordering an inspection through the site or using their own service. “Every seller has their own expectations,” Palle says. “If they want to use the service of their choosing, we can accept data from just about any inspection company.” Pilcher’s Take: “You’re reaching more potential buyers, but they don’t know you and they can’t reach out and touch the car. There’s less of a comfort level. The third-party inspection process can alleviate that.”

3. Photography

Objective: Showcase each vehicle — and every imperfection. Strategy: Many rental fleet managers will say that all their buyers need to know is the vehicle’s color, options and mileage band. In such cases, once the inspection is complete, using an OEM stock photo or no photo at all won’t be a deal breaker. However, photographing each vehicle can go a long way toward establishing trust between buyer and seller. That includes close-ups of any dents, dings or scrapes. Pilcher’s Take: “Let’s say your inspection shows a $500 dent. Some buyers will know just by looking at the photo that their guy can fix it for $50 or $75. Visuals are important because they can help make the online auction experience closer to the physical auction experience.”

4. Determining Values and Setting Reserve

Objective: Set a price that works for the online marketplace. Strategy: Price guides are hardly a thing of the past, but auction sites offer increasingly sophisticated tools to match your vehicles to an up-to-the-minute value. OVE.com offers current Black Book and Manheim Market Report data online. SmartAuction offers a tool that allows a user to enter a VIN number and mileage to pull a vehicle sales history report. Kapusta says his sellers set a list price and a “buy it now” price — but no reserve. “A lot of consignors put a vehicle out there for $10,000 and a ‘buy it now’ of $10,300 or $10,500. If your floor price is $10,000 and only one person bids on it for $10,000, it’s sold,” Kapusta says. “You can’t put it on there for $8,000 when you want $10,000. First bid can buy it.” Pilcher’s Take: “Online or in person, the valuation hasn’t changed. It’s the new channels you’re reaching that help you sell more quickly, such as selling to a state that needs more four wheel drives.”

5. Monitor Your Progress

Objective: Use analytics to maximize savings. Strategy: Online remarketing sites offer a number of tools to help sellers determine which markets and vehicles are performing best. This is especially helpful with the migration to risk vehicles. “Rental agencies have commodity cars, and they have to stay ahead of pricing,” Palle says. “We do a lot of pricing analytics to help them understand their performance. That includes custom reporting and detailed, monthly reviews.” Pilcher’s Take: “When you post a car, you’ve got to have a game plan, whether it’s the traditional way or online.”

[PAGEBREAK] 6. Salvage What You Can

Objective: Make the best of a bad situation by taking your salvage units online. Strategy: Online remarketing has changed the game for salvage vehicles as well. Wrecked rental cars can now travel just as far as an off-fleet unit as rebuilders and used parts suppliers expand their reach.

7. Arbitration

Objective: Adapt to the new rules of the game. Strategy: Remember that building trust in new markets sometimes requires a new approach. It’s easier to rectify the situation when a problem surfaces with a sold vehicle at a physical auction. Purchasing that same vehicle online means the buyer may not have the opportunity to personally inspect it for several days. With that in mind, the auction sites have policies and procedures in place to satisfy both parties. “We have an arbitration team that works that out between buyer and seller,” says SmartAuction’s Kapusta. “Our arbitration rate is slightly less than what we see at physical auctions. When you deal in this b-to-b marketplace, you’re usually a pretty stout seller and you stand by your vehicles because you want someone to buy from you next time around. It’s that loyalty factor.” Pilcher’s Take: “You can’t burn people. At a physical auction, they’ve got time to go back and reject the vehicle. Going online, the buyers are more careful. The good thing is, that puts more pressure to bear on the sellers to get it right the first time.”

Market Forces

As part of his duties as vice president of analytics at OPENLANE, Nagi Palle produces Inside Lane, a monthly e-newsletter that tracks movement in the wholesale sector and offers analysis to help rental fleet managers and other customers set prices. “2009 was an unprecedented year, and that will affect starting dynamics for the first quarter of 2010,” Palle says. “The fourth quarter of 2009 did not see the typical erosion of prices, so 2010 will not see the usual increase.” Other Inside Lane predictions for 2010 include: - New-car retail sales will increase from 2009 levels, but will still be muted to pre-2009 levels. Headwinds from diminished vehicles per household and a lower pent-up demand going into 2010 will create resistance to the new car market breaking free. Used-car retail sales, however, are expected to remain robust in 2010 — much like 2009.
- Reduced trade-ins from a slow new-car retail market and a strong used-car retail market is expected to drive strong demand for wholesale used cars.
- The wholesale vehicle supply chain will continue to evolve to provide inventory at the right time, place and price. Consignors will look to redistribute inventory where there is greatest demand (and hence healthiest pricing) without moving the vehicle from its location.
- Overall wholesale supply will remain strong in the first three quarters of 2010 with supply constraints in off-lease volumes manifesting themselves in the fourth quarter. Overall lower new car volumes will lead to lower supply of rentals/fleets and repossession units in general.
- Online auctions will continue to grow — estimated by the Boston Consulting Group to reach 15 percent by 2013 — and will continue to incorporate physical auction attributes into their sales models, such as pre- and post-sale inspections, multiple floorplanning options, end-to end-transportation solutions and GPS tracking.

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