LAS VEGAS –Changes in the market – from vehicle supply to increased competition to credit availability – offer independent dealers both challenges and opportunities.
Tom Kontos, chief economist for KAR Auction Services, partnered with Joe Keadle, CEO for Automotive Finance Corp., to present an analysis of the market at the recent National Independent Automobile dealers Association conference.
“In the U.S., the retail market for used cars is about 30 million,” Kontos said. “It’s roughly split evenly between independent dealers and franchise dealers.
Independent dealers sold 574,000 more used cars in 2016 than in 2015, a 4.3 percent increase.”
Year-to-date, used-car sales still favor franchise dealers. New-car stores use more inventory management tools to seek out the higher grosses that come from the used-car side of the business, Kontos said.
They benefit form the trades they take in new-car sales. About 50 percent of all new-car sales involve a trade-in.
“They are increasingly trying to hold on to those trades,” Kontos said.
Keadle said those are cars that independents used to buy at auction, presenting a challenge for independents to find alternate sources, like upstream wholesale channels.
Independent dealers should explore upstream opportunities, Keadle said.
“So much of the inventory liquidation from the manufacturers off-lease vehicles are in that upstream channel,” he said. “You do have access to upstream, but you have to make sure you can dig it out.”
There are more off-lease vehicles coming back than franchise dealers can handle, Kontos said.
“Prices are going to be softening,” he said.
One threat independents face is that, despite so many cars coming into the wholesale stream, they may not be the ones in demand.
Kontos said during the last cycle’s leasing boom, many of those vehicles were cars and smaller vehicles because of the concerns over gas prices.
That trend will eventually reverse itself a few years from now as new-vehicles sales today are falling mainly within the truck classes.
Repossessions are another big source of inventory for independents Kontos said.
“Typically, the repos we get at the auctions are vehicles that were financed as used vehicles to begin with,” he said. “They were maybe sold as a three-year old vehicle, now they are four- or five-year old vehicle brought back as a repo.”
Kontos is seeing more of those vehicles showing up in the Southeast.
In terms of repos, he doesn’t see a steep rise in delinquency and default rates, but even that can be misleading if dealers look at supply.
But there are over $1 trillion of outstanding auto loans and leases –the highest it’s ever been.
“So a 1-percent default rate results in more repos (because of the larger number of outstanding loans),” Kontos said.
Keadle said the used-car business is coming out of a period where inventory was scarce and independents had to fight for it. It caused some poor habits, he said. A dealer could keep that car for a longer time on the lot, knowing that he could always wholesale out of it and get a good price.
“That’s about to change,” Keadle said. “That vehicle you have on the lot now? There’s about 500 more coming down the pipeline.”
Dealers can afford to be more selective to find a car with leather, navigation and a sunroof, instead of buying one without those features.
“We just encourage you to be dialed into the market,” Keadle said, “so that you know what you should be stocking and how long you should be keeping it.”
The credit market also poses both threats and opportunities for independents.
In the fourth quarter of 2016, the non-prime, subprime and deep subprime numbers dropped compared to the prior year, Kontos said.
“That’s an indication that lenders are backing away from the subprime tiers,” Kontos said. “I think they identified that they were a little overexposed in those areas.”
Of course, this creates an opportunity for buy-here, pay-here dealers to actually get a better buyer, Keadle said.
The average price of a used vehicle for model years 2012-16 decreased in value 1.3 percent in June, slightly more than the 1.2 percent change in May, Black Book reports.
Cars overall dropped 1.8 percent and trucks dropped 0.8 percent in value during June. All vehicles are averaging a 12-month depreciation of 16.7 percent.
In June, small pickups had the lowest monthly depreciation at 0.1 percent. Vehicles in this segment finished June with an average price of $21,328.
Subcompact cars saw the largest depreciation during the month at 2.8 percent. Vehicles in this segment finished June with an average price of $6,554.
KASP Auto Auction named Michele Pierog as vice president of national sales.
An industry veteran with over 15 years of experience, Pierog started her career running dealer registration at Auto Auction of New England. She was promoted to the sales and marketing department where she spent over a decade in various roles ranging from sales support to director of sales and marketing.
During the latter part of her career, Pierog has served as director of national sales working with both dealer consignment and commercial accounts.
She became a certified automotive remarketer in 2015 and has been active in several committees including the certification committee with the International Alliance of Automotive Remarketers.
KASP is the largest independent auto auction in Kentucky and is part of the Auction Management Solutions affiliated group of independent auctions.
Average wholesale prices in June were down versus May but up on a year-over-year basis.
According to ADESA Analytical Services’ monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class, wholesale used vehicle prices in June averaged $11,067. That is down 0.7 percent compared to May and up 4.7 percent relative to June 2016.
Compact and full-size pick-up trucks and minivans showed significant average price gains for the month, while most other model classes registered month-over-month declines or modest increases.
Average wholesale prices for used vehicles remarketed by manufacturers were down 1 percent month-over-month and down 1.9 percent year-over-year. Prices for fleet-lease consignors were down 1.1 percent month-over-month and up 3.2 percent year-over-year.
Average prices for dealer consignors were up 0.9 percent month-over-month and up 7.7 percent year-over-year.
Cox Automotive, in partnership with the National Association of Minority Automotive Dealers, is awarding its Rising Star Award to Wadette H. Bradford of Martin Kia Bowling Green, Ky.
In a release, Cox said Bradford was recognized for her strong leadership and commitment to the automotive industry and her community. Nicole Ashe, senior vice president for talent, diversity and culture at Cox Automotive, was to present the award to Bradford at the NAMAD annual meeting awards dinner in Miami.
Martin Kia’s parent company, Martin Automotive Group, was founded by Cornelius A. Martin in 1985 with the purchase of an Oldsmobile-Cadillac dealership.
The family-owned company operates dealerships in Kentucky, Ohio, South Carolina, Tennessee and West Virginia. In addition to Kia, Martin Automotive Group sells Audi, Chevrolet, Dodge Jeep Chrysler, Ford, Honda, Hyundai, Mitsubishi, Subaru and Volkswagen.
Bradford's work has been instrumental in growing and expanding brand recognition and profit margins for both new and well-established dealerships. As general manager of Martin Kia, Bradford has increased inventory turns, developed digital marketing campaigns and increased service gross profit.
The McConkey Auction Group has formed an executive team to oversee the strategy, operations, national sales, finance and marketing of its auctions in the Spokane, Wash., Kansas City, Kan., and Seattle markets.
The new team includes auction general managers David Pendergraft of DAA Northwest, Doug Doll of KCI Kansas City, and Dave Blake of DAA Seattle. Additionally, Greg Mahugh has been named senior vice president of operations; Jennifer Leocardi, vice president of national sales; Jerome Rauen, vice president of finance, and Mitzi VanVoorhis, vice president of marketing.
The EXECUTIVE TEAM will be charged with instituting best practices, nurturing and growing the group’s unique culture, vision casting, goal setting and mentoring the organization’s next generation of leaders.
Auction Management Solutions (AMS) announced that the firm had partnered with Rea Brothers’ Mid-South Auction (RBMSA) for business development consulting.
The Rea family has been in the auction business in Mississippi since 1972.
In 2010 the Rea Brothers auction was purchased by the American Auto Auction Group, later becoming part of the XLerate Group in 2014. Last year, the Rea family decided to once again become participants in the wholesale independent auction industry and repurchased the auction, making it a family business.
RBMSA is a full-service auction featuring full reconditioning, light mechanical services and in-house transportation.
A year ago, industry veterans Tom Stewart and Richard Curtis launched Auction Management Solutions Inc (AMS) to provide consulting services to the automotive industry.
This past year AMS has seen explosive growth in its core business, adding independent auto auctions, service providers, and vendors.
“Richard and I are humbled by the success we have achieved in such a short period of time”, Stewart said. “We started this firm to deepen relationships between consignors and our clients, and to illustrate that independent auctions can and will continue to provide all the services consignors have come to expect”.
AMS currently represents 17 auctions across 14 states, with new locations being added steadily. The latest addition is Rea Brothers’ Mid-South Auction in Pearl, Miss.
“We are confident that our new working relationship with AMS is going to provide real dividends for our auction,” , John Rea, the auction’s managing partner.
The main focus of AMS is to provide strategic business development services, with an emphasis on processes, profitability and exposure that aid in the growth and success of the client/partners. “It is our intent to keep our clients on the forefront of the automotive remarketing industry by maintaining a comprehensive and competitive suite of services”, Curtis said.
AMS recently announced the addition of two additions to their staff.
Jamye Carpenter was brought on board in April as vice president of business development.
More recently, Shelly Frank came on board. Frank birngs more than 25 years of experience in the auto finance and wholesale auto auction industry.
Frank previously served as loss mitigation operation manager of Fireside Bank, and as vice president of business development with North Bay Auto Auction. She continues to work with North Bay on projects as a consultant.
Frank has also been active in the Western Chapter of the National Auto Auction Association.
“Both of these women bring years of experience, a wealth of industry knowledge, and contribute diverse areas of expertise to the team, allowing AMS to provide all manners of service to our partners”, Stewart said.
“AMS looks forward to many successful years of working with our clients and providing services to, and for, the entire industry.”
Manheim announced the opening of six new auctions.
The sales are located in Alabama, Georgia, Illinois, North Carolina, West Texas and Utah. The new, smaller Manheim auction sites offer multi-consignor auctions as well as Simulcast, inspection and reconditioning services. Financing options through NextGear Capital and assurance packages through DealShield are also available.
Black Book’s Used Vehicle Retention Index rose in June to 113 from 112.3 in May.
This is the second increase in the past three months. The Index also rose in April.
On a 12-month basis, the index has dropped 4.5 percent from last June.
The Black Book Used Vehicle Retention Index is calculated using Black Book’s published Wholesale Average value on two- to six-year-old used vehicles, as a percent of original typically equipped MSRP.