A Wholesale Market Experience Brings A Ray of Hope
I’m writing to share an encouraging sign for dealers in the current market.
The encouragement comes from Manheim’s Online Vehicle Exchange (OVE).
I’ll get to the encouraging sign in a moment.
But first, it’s important to set the stage for why I find the sign encouraging.
Anyone remember where we were just a few short days ago as the week came to an end?
If you were a car dealer, and you had used vehicle inventory, you were probably biting your nails.
We found ourselves in an unprecedented situation where it was difficult to properly value a used vehicle.
If you were able to work deals, and you had to appraise a trade-in, you probably realized that all the valuation guides were out of whack. It felt almost impossible to put a number on a car that reflected the current market conditions.
If you were unable to work deals, and you were looking for ways to wholesale your inventory, you probably didn’t make a move because it was difficult to determine how much of a loss you might take. You probably opted to wait and see.
If you were looking to buy auction vehicles, you may not have purchased any inventory because of your uncertainty about how much you should pay.
All this uncertainty had another effect: It meant that both the wholesale and retail markets weren’t moving—a stasis that brings even more uncertainty, which feeds on itself, and no one makes a move.
Well, this past weekend, someone made a big move in the wholesale market.
Specifically, Manheim’s OVE, which has remained open through the current crisis, saw an influx of more than 700 vehicles from a large independent retailer.
A vAuto Stockwave Performance Consultant, Scott Sadler, spotted the influx and found it striking: The retailer placed the vehicles on the market asking roughly 50 percent of the MMR as a starting point, and did not require a reserve.
Basically, the retailer was telling the market: “Here are my cars, I’ll take what you give me for them.”
To be sure, the retailer’s move isn’t a new entry in the auction-buying playbook. Smart sellers often start low to generate interest.
But it’s rare to someone put upwards of $15 million in inventory for sale at auction without a reserve on a single car.
When I heard about this, I made a few calls. I knew it would be worth knowing how these vehicles fared in the wholesale market when they ran yesterday on OVE at 2 p.m. EST.
I figured the sales would help dealers get some much-needed information and insight as to how vehicles will perform in the current crisis-affected market.
I thought that these transactions could undo some of the uncertainty that has so far kept many dealers on the sidelines.
I asked Ben Flusberg, associate vice president of Manheim’s M LOGIC, to provide some data about the retailer’s apparent liquidation strategy.
The data tells us that of the 700-plus cars, there were roughly 640 that we considered solid representative examples of the types of vehicles most dealers would purchase if they deemed them right for their inventories and markets. The other 60-plus units either had frame damage or some other problem that we considered too edgy for analysis.
Here are other key take-aways from these vehicle sales:
Nearly every vehicle received a bid and sold.
The buyers represented roughly 260 different dealers (two-thirds were independent, one-third franchised dealers).
Each vehicle had an average of 20 bids and seven unique bidders; 80 percent of the vehicles had proxy bids; 20 percent of the vehicles sold through proxy bids.
The overall average purchase price was 90 percent of MMR—a discount that left some auction buyers that I talked to thinking they should have bid more to get the cars they wanted.
This snapshot of one retailer’s wholesale experience is significant because it suggests a few positive take-aways for dealers and the car business itself:
Manheim’s MMR Retention metric really works. The metric measures the difference between daily wholesale transaction and MMR values for vehicles. For example, if a vehicle transacts at 8 percent lower than its MMR, the transaction would reflect an MMR Retention of 92 percent.
For the past several days, MMR Retention has been running about 90 percent—which is exactly where the retailer’s average vehicle selling price landed at yesterday’s auction.
In my mind, the experience validates Manheim’s recommendation for dealers to use MMR in conjunction with MMR Retention to determine vehicle values that are more in line with today’s actual cash value.
While the retailer got what might be considered a haircut, it wasn’t a buzz cut. I wondered, and even worried, if the retailer’s move would mean a big loss. Given the current circumstances, and the need for liquidity, the retailer’s move seems to have paid off.
As Flusberg notes, “the retailer won some and lost some. But they got exactly what the market thinks their vehicles are worth.”
Markets are gold mines of intelligence when they’re working. It should be noted that today’s wholesale experience would not have occurred but for the decision by Manheim’s executive leaders to keep at least some aspect of the wholesale market in operation. When markets go dark or dim, participants lose visibility, and tend to halt or pause transactions, which restricts liquidity.
To its credit, Manheim has kept the market moving, and we’re now getting some credible visibility into vehicle valuations.
I recognize every dealer may not find much encouragement from this wholesale experience.
But, at the least, it’s a sign that market is moving and not standing still. Any movement, in this moment, is a good thing for everyone.