Automotive Remarketers Pivot To A Third Decade

The International Automotive Remarketers Alliance marked its 20^th anniversary conference last week, as well as their first live face-to-face event in two years coming out of a global pandemic.

While the IARA has reached membership and financial heights after two decades, and the 230+ attendees enjoyed their reunion, the active conference agenda ensured no resting on laurels. In fact, this year’s event could be deemed a pivot instead of a retrospective given the emerging trends and changes redefining the consignment and auction industries.

The two-day event Aug. 25-26 in San Antonio, Texas spanned the leading top-of-mind industry topics: the volatility in new and used vehicle prices, values, and supply; the permanent growth of digital auction marketplaces; the advent of the used electric vehicle market and need for common standards to ensure long-term auction activity; and the ever-present push to adjust and ensure common professional standards.

Recent Numbers Bring Some Drama

One of the most memorable quotes during the conference came during the session, Guidebooks: Keeping Your Finger on the Pulse of the Market. The session, moderated by Joe Miller, vice president of client experience at AutoIMS, included Kevin Chartier, vice president of Manheim Consulting, and Rene Abdalah, senior vice president of business development for Black Book.

“COVID opened a wide door that all the black swans swam through,” said Chartier, in describing the behavior of automotive markets since March 2020. “Predictable annual buying cycles are gone. You have to get your arms around leading indicators to see what’s happening, today, tomorrow, and in the months ahead.”

The bottom line on all the leading industry numbers now is they can accurately look back, signal what’s likely ahead near term, but vary widely in suggesting what will happen down the road, the panelists concluded.

Among several examples of fluctuating data: Retail used days’ supply is back to normal on dealer lots; all commercial inventory is down 55% and hitting record lows; new car supply is the worst, but retail used supply is balanced relative to demand; but that supply is still under 30 days whereas 60 days was considered tight supply a year and a half ago; there’s a 60% decline in new vehicle inventory, but the used vehicle level is 10% down since January.

“Unfortunately, leading indicators are not predictive beyond a few months,” Chartier said. “The range of possible outcomes is so wide in 2022 that forecast confidence is removed. You can frame a series of scenarios that have wide outcomes and assign 33% to any of them.”

In describing such a statistical atmosphere, the panelists used the apt terms “yo-yo, wild roller coasters, seat belts, and throwing darts,” when evaluating vehicle prices and supplies. Supply chain issues and OEM chip shortages are stirring the industry. "The short term is most uncertain; we’re throwing darts on what will happen in the next month,” Abdalah said. “Indicators are key to understanding the short-term balancing out of supply.

“We are seeing the beginning of what the chip shortage will cost,” he added. “When there is no or low supply, there are no sales.” He called the decline in new vehicle inventory “a drastic situation” playing out across very specific regional markets.

“Demand is tougher to measure; demand is measured by how willing consumers are to go out and buy a car, not just sales,” Abdalah said. “The rates are low, inflation is going up, and consumers are paying too much. When free money goes away, what will be the reaction from consumers?” he asked, citing the resumption of evictions and repossessions. Meanwhile, the withdrawal of many incentives has raised the bar on new and used vehicle prices.

OEMs are unlikely to right-size inventory and production any time soon, Chartier said. Because the pandemic shocks are “an extremely unusual event unlikely to be repeated,” it would be a big mistake to adjust MMR based on an unprecedented variance in values because of the tentacles that run throughout the industry, he added.

In tracking the wholesale vehicle market, the industry is seeing “a Rubik’s cube of inventory,” Chartier said. “We can track how many off-lease vehicles work their way into the auction markets, how many repo vehicles, and how many are coming out of rental car. We have all the models for that. The hard part is I can’t predict the key drivers and variables going forward with any confidence because of volatility.”

Legacy Outlooks Across the Generations

If the current state of vehicle markets is all about disruption, then the story of the major auction powerhouses is one of stability and continuity. In the closing keynote session and highlight of the conference, Closing Keynote: Passing the Baton: The Legacy and Beyond, incoming and former CEOs of Cox Automotive and KAR Global engaged the audience with their industry observations.

Hosted by longtime remarketing industry executive and editor Charlie Vogelheim, the roster of leading executives included: Former KAR Global CEO and current Executive Chairman and Chairman of the Board Jim Hallett, former Cox Automotive CEO and current CEO of the Cox Family Office Sandy Schwartz, new KAR Global CEO Peter Kelly, and new Cox Automotive CEO Steve Rowley.

The session was appropriate to the backdrop 20^th anniversary theme, as the two generations of executives talked amiably across the bridges of legacy competition and shared industry experiences. They spoke as mentors, colleagues, and friends. Among their advice and insights:

Schwartz: COVID was frightful to everyone, but ultimately people drive technology. Cox has amazing people who built great teams and care about the company and employees. In dealing with the pandemic, he recounted their approach: “This is the time to suck it up. What can we do? How do we keep our employees and customers safe? Safety and health first come first. We won’t stop commerce. A lot of metal has to move. We put plans in place immediately.” He summed up the approach to sudden disruptions: “Don’t panic. We have great businesses. You have customers who want to work with you. Empower your people. Trust your people. Let them do their jobs.”

Hallett: “You have to move quick and act fast. Every time you delay a decision, that makes it all the more difficult.” In recounting 9/11, the Great Recession, and the pandemic, he said, “This thing snapped our necks. 90% of our revenue was gone. The country shutdown. With layoffs and furloughs, you don’t have a choice. You want to make sure you have a company to come back to. You put the company in a position so it succeeds at end of day.”

Rowley: The biggest a-ha moment in this (auction) space is the importance of technology. “It’s a big part of our future in this business. We have to make tech seamless and make it digital. We’ve got work to do.” Companies have to focus on customer communications. That drives the enterprise and marketplace and results in advances that make customers happy.

Kelly: "When you take on something, how do you make it better? Listen to your customers and pay attention to them. Our success is customers’ success. This is a challenging period in the industry, and we have to get through the current time. Be prudent in your decisions. How does tech enable a better experience? Keep it invisible. How do you better sell a vehicle and appeal to the customer? At end of day you are trying to enable a talented team to maximize what they can do.”

Schwartz: “Years ago cars were beaters; now they are better quality with more miles. I think we will see an amazing adoption of EVs. I see the inside of this with people getting introduced to EVs. It will explode in the next five years with EVs among people and places you never thought of before. The batteries will get to 500 miles on a charge and it will skyrocket.”

Electric Vehicles Ready to Surge

As Schwartz made clear, the EVs are coming. How can the industry prepare? That was the angle on a session about electric vehicles. Moderated by Steve Greenfield, CEO and Founder Automotive Ventures, the panel included: Tom Kontos, chief economist for KAR Global, Jennifer Costabile, general director of rental and fleet management company sales, marketing, and used vehicle remarketing at General Motors Fleet, Ehren Korshus, manager of EV pilot programs for Element Fleet Management, and Stephanie Valdez Streaty, director of mobility research and development for Cox Automotive Mobility.

While EVs have received a lot of media attention, they have yet to hit auctions and remarketing channels, Greenfield said. “If EVs are not driven by consumer demand, then it will be hard to convince dealers to step up and bid on vehicles. Greenfield outlined other questions and challenges:

• While new car incentives exist for EVs, they are questionable for used.
• Will consumers put chargers in their garages or be able to go to local charger easily?
• Fleets don’t want to buy chargers that could be redundant or obsolete in a few years.
• How can auction inspection reports assess driver behavior and battery capacity?
• Will there be different depreciation curves for vehicles than for batteries?
• Could batteries be pulled out to be recycled for different uses?
• How can auctions and dealers accurately determine residual values and depreciation curves?

“There’s a lot of learning curve to go out on before we get a better grasp of used EV values,” Kontos said.

Fleet markets, however, will behave differently from consumer ones. Costabile said the fleet sector will tip first. “Fleet customers have to start planning the journey so they can meet sustainability goals.”

GM plans to sell one million EVs globally by 2025, and light duty vehicles in North America will be all EVs by 2035, Costabile said. “Fleet customers are very anxious to start. They ask about infrastructure and charging more than residual values. We want to set them up and ready to go.”

Battery health is critical to buying and reselling, she said. GM has a group looking at battery health and secondary life as the technology grows. They can identify areas where you can manufacture and replace pieces of a battery, she said.

Korshus pointed out the cost to build batteries will likely fall, citing $1,000 per kw/h to build a lithium-ion battery in 2010 versus $130-140 now.

Batteries also will need accurate metrics that are easy to comprehend on the auction lot when determining value, Kontos said. The IARA also needs to focus on charging infrastructure on auction lots to properly handle the EVs, he added. “So many EVs will still go back to dealers. The wave is coming and we need to gear up for it.”

In addition to helping fleet customers figure out how to build charging infrastructure, the industry also needs to start thinking about how long term data in connected vehicles can evaluate their health, Costabile said. “You have to ingest data and understand it and give it a benchmark."

Summing up the end goal, Costabile said, “The second life value is critical to first life value. It’s important to set standards and create the market.”

IARA Committees Consider EV Pressing Questions

To that end, the IARA’s Technology and Standards Committees both discussed the advent of the EV used market during their meetings on Aug. 25.

Standards Committee Co-Chair Matt Arias said the committee is working with the National Auto Auction Association (NAAA) to develop common standards and benchmarks for EVs. "Should the battery be part of a required disclosure for an EV? If it’s two bars on the battery and we say four, what then?”

How CRs can properly document battery health and condition will be one important topic to address since batteries naturally degrade. It also brings up the issue of testing — who tests batteries and where, and does that conflict with CR procedures which are based observation? Arias asked.

One hour later at the Technology Committee meeting, Co-Chairs Venkat Krishnamoorthy and John Mathiowetz led a discussion on forming a strategy for EV adoption and the IARA’s role in bringing about viable procedures. The used vehicle market generally averages four-to-six-year-old cars. One reality everyone agrees on is this: Used vehicles need to be able to get into the wholesale/used market, or new sales will decline.

Participants made the following points during a freewheeling roundtable discussion:

• How do auctions announce electric vehicles, gauge battery life, and assess wear and tear?
• EVs can last longer because of fewer parts that sustain wear and tear. Some major components can hold up for hundreds of thousands of miles.
• Not all cars have the same capacity and quality of batteries. How do you then ask the right questions about battery capacity?
• What are the most relevant ratings and metrics to determine battery value — range, mileage, power, components, remaining capacity?
• Do batteries outlast vehicles? Could the battery be removed from the vehicle frame/body and each be sold separately?
• So far, OEMs do not offer common benchmarks yet that can be applied to condition reports. No arbitration policies exist yet for EVs. So what information would be considered acceptable to greenlight a car?
• How will large auctions and independents differ in their approaches to EV valuations and how can those be reconciled?
• The IARA should ask to join and participate in OEM committees that will be choosing approaches and standards to create a viable used vehicle market for EVs.

Dealers Seek Simple and Clear Information, Images

The session, Navigating Customer Experience and Finding What Works Best for Dealerships Today, brainstormed how auctions and dealerships can work more closely and efficiently. Moderated by Scott Kolb, managing director and founder of Scott Kolb and Associates LLCT, the panel included Brenna Stansberry, owner of Park Marina Motors of Redding, CA, Craig Stickler, used car manager of Audi South Austin, and Joe Mok, general manager of GMotor Cars of Arlington Heights, IL.

Stansberry said the industry should learn how to buy cars online now that she has used the digital marketplace during the pandemic. “I wouldn’t do it any other way.” Her dealership has saved time driving around Northern California to evaluate and browse vehicles. “Online is the only way I buy.”

The panelists talked about wanting more uniformity and clarity in condition reports to avoid the confusion of varying formats and checklists. “What do I have to spend on that car to certify it or put it on the front line for sale?” Stickler asked.

Stansberry lamented the lack of consistency in CRs and the poor quality of many photos, comparing the situation to dating on Match.com. “The photos are 20 years old. Show me if the entire hood needs to be repainted. Don’t make something up that’s not true. We all know what that date looks like at end of night.”

More uniform reports and sharper photos would help simplify vehicle transactions, Mok said. He critiqued the common methods of photo tunnels and 360 cameras. “I want to know the important things, not sweat the little things. What will cost me $600 or more to repair? Good photos are very important.”

Mok and Stickler pointed out how the consistency in vehicle transportation varies too much and is difficult to gauge. “Transporting is a nightmare for us. We have local drivers retired and I’m like a full-time travel agent,” Mok said. “I have to fly someone out there to pick up a vehicle. We’re driving vehicles in daily. We have three drivers on road bringing units back.”

Stickler recommend a “one-stop shop” for acquiring vehicles from a remarketer that includes the transport.

Data-Driven Decisions Streamline Auctions

The session on Emerging Marketplaces provided an overview for auctions to make their operations more efficient and boost retention values as digital marketplaces gain larger shares of sales. 

Moderated by Bill Zadeits, CEO of Cherokee Media Group, the panel included: Becca Polak, chief commercial officer and general counsel for CarLotz, John Brasher, COO of Eblock, George Chamoun, CEO of ACV Auctions, Josh Parsons, co-founder and CEO of Backlot Cars, and Robert Vannuccini, chief sales officer at Copart.

Wholesale and used vehicle prices have hit historic highs, but since June have been declining slowly. Given the lessons of the past year and a half, the demand for precision in evaluating the value and condition of vehicles is more vital than ever. The industry needs to leverage technology to gain insights from when you first touch the vehicle.

“Data will be the key driver,” Parsons said. “What can we measure on customer behavior that is unique to status quo auctions? Digital tells you everything about customer interaction and behavior with the car. How do you share data with buyers and sellers?”

Cumulative data can yield more accurate metrics over time resulting in more specifics about the conditions of vehicles, Chamoun said. That will help auctions separate out those vehicles more likely to sell quickly online and those better suited to physical in-lane sales.

IARA Keynote Delivers Innovation Tools

The common thread to all of the lessons and insights at the IARA Summer Roundtable boils down to innovating and applying them to specific businesses and operations. To that end, keynoter Josh Linker boiled the process down to five core mindsets to find everyday innovations.

Linker can best be summed up as a creative troublemaker. As founding partner of Detroit Venture Partners, he has also been the founder and CEO of five technology companies which sold for a combined value of more than $200 million. He has authored four books, including New York Times bestsellers Disciplined Dreaming and The Road to Reinvention. He encouraged attendees to help develop the habits of the most creative billionaires, CEOs, entrepreneurs, and business problem solvers on the planet:

NO 1: Apply your ideas immediately. You don’t need money or years of study: “Start before you are ready. Human nature is to wait. You can miss an opportunity altogether or give up your head start. Innovators see opportunity and start anyway but with no idea how to finish. Adapt in real time. Shift and course correct. Experiment. See which ideas work. Don’t pick best idea upfront because it may not be. Instead of a to-do list, have a to-test list.

NO. 2: Break it to fix it. Don’t wait until system is broken. Find a better, more durable version. “If you don’t like change, you’re going to like irrelevance even less." – Gen. Shinesk, a retired United States Army general who served as the seventh United States Secretary of Veterans Affairs (2009–2014). Do the judo flip and then look for the opposite.

NO. 3: Squeeze every drop of toothpaste; be resourceful and scrappy. Use internal set of resources. Use creativity to make a difference.

NO. 4: Reach for weird, go out on a limb with oddball and mischievous solutions. Try role-storming, which is brainstorming as if in character. Put on a new role to be liberated.

NO. 5: Fall seven times, stand eight, Linker said, quoting a Japanese proverb. You will stumble and hit speed bumps, but failures play a role in progress. Try creative change and learn how to pivot. No inventor never screwed anything up. Tolerate some stumbles.

Innovation Tool Kit: BigLittleBreakthroughs.com; code: IARA. “See if you can think of one little breakthrough in seven days,” Linker advised.

Originally posted on Vehicle Remarketing