Selling used vehicles is increasingly moving towards digital, which is poised to dominate in the future. Dealers looking to stay in the game will need to get their digital strategy in order and consider some new approaches.
The used vehicle market has taken a turn this year, as car dealers face new challenges on the wholesale and retail side of the business.
It’s a situation that has pushed many dealers to seek more clarity to better identify their customers’ needs, while also looking for alternative solutions to both buy and sell these vehicles.
Market Situation
“I think the number one change that we’re seeing right now at Canadian Black Book is the record high wholesale prices,” said Cole Reiken, Vice President of Digital Strategy and Product Management at Canadian Black Book.
In an interview with Canadian auto dealer, Reiken said the monthly CBB index reveals that prices are currently at record and near-record levels.
In April, the CBB Wholesale Used Vehicle Retention Index jumped two points to reach 105.2, representing a 1.7 per cent increase year-over-year. The company has been tracking market performance via the index for more than 14 years, and in that time prices have never been as strong as they were in April — so far, that is.
“That kind of leads into my second point that I hear frequently from dealers these days, which is that they have to get more creative, as well as spend more time in acquiring inventory — and I would probably add acquiring the right inventory,” said Reiken. “And then that leads into challenges.”
He said it’s slightly more difficult to source vehicles now — acquire more vehicles, good quality vehicles, and vehicles that are just right for a specific dealer’s market. There are several challenges retailers face on this front, one of them being the loonie.
Physical auctions like Adesa and Manheim are also offering increasingly sophisticated online tools and apps to help buyers and sellers connect more seamlessly in real-time.
The dollar is still low enough that the export market for trucks and SUVs is still “very strong” going into the U.S. But if that dynamic changes, if either more or less vehicles are exported, there’s a risk to what can happen to the supply and demand equilibrium in the market moving forward, and in the future.
“That’s always a risk to what happens if the dynamic changes with the number of vehicles being exported, and driven off the dollar that could change what the market looks like overall,” said Reiken.
The second issue he mentioned, and which CBB is following closely, is the gas price trend: as prices rise, dealers may begin to see a corresponding demand of sedans and small sedans from consumers. The impact of that demand could also potentially lead to a decrease in supply and demand in trucks and SUVs. That’s one risk.
Another risk in the industry, this one ongoing, is related to negative equity. “In some cases we’re in the second or third round of consumers transferring debt from one car loan to another car loan,” said Reiken. “There is an ongoing issue around what happens to that — to the marketplace going forward. And if that continues to roll, what happens to the affordability issue as it impacts them at the retail level for the number of cars that can be sold at that point?”
Wholesale Solutions
Within these challenges there are solutions.
On the wholesale side, Reiken has observed a need to crack the online auction code and figure out the right strategy for posting vehicles and receiving the best return on them, while also discovering the best bidding strategy. “That’s a whole new area of learning that’s taking place in the retail operations at the moment.”
This has led dealers to inquire about the type of data companies are offering, along with any products that can help them understand what is going on in their marketplace. What does the demand look like, which vehicles are turning, and which ones should be stocked based on your market demographics?
Reiken said CBB is in the process of producing a new product that would help dealers with these questions. It will be part of the company’s “Connect” phone app and online syncing product that communicates with each other.
“We’re enhancing it to provide dealers with market insights, so that they can better understand what assets they should be putting on their lot based on what’s turning, along with the demand side of the marketplace that they’re in,” said Reiken. “That’s been a lot of what we’re dealing with.”
Physical auctions like Adesa and Manheim are also offering increasingly sophisticated online tools and apps to help buyers and sellers connect more seamlessly in real-time.
Wholesale to Retail
One company that is tackling the online auction aspect of the re-marketing business is TradeRev, a company acquired by KAR Auction Services (which owns Adesa). They are starting from the beginning of the process, prior to embarking on the auction site.
The company launched an Artificial Intelligence image capture feature that they say “fully automates a condition report visualization,” according to Steve Langdon, Vice President of Sales.
Since the re-marketing process begins with taking a condition report, the company wants to make it easy for its dealerships to take the information, launch it, and make it available to a large audience — essentially accelerating the entire process.
“This platform also leverages data and technology from across the car auction services platform,” said Langdon. “TradeRev is a car auction services company, so the technology itself has learned from over half a million pictures — it’s actually learned to recognize vehicles, damages, and various features of vehicles. Plus millions of data sets from all of our condition reports that we’ve had at car auction services.”
In terms of digital, TradeRev is also launching a consumer trade-in tool, which can be embedded in dealer websites and is meant to help drive more traffic to their stores. The point, said Langdon, is to improve the customer experience — particularly as Canadian consumers want to know how a wholesale value or trade-in value is established. TradeRev’s tool is meant to help dealerships set “proper” expectations.
This in turn can help enable a strong lead generation strategy, which should be transparent and easy enough for the customer that they will want to do business with your dealership. Langdon said the first step in this strategy, at least from a digital perspective, is to put your best foot forward.
“Put the best offer out there first to attract the customers into your dealerships,” said Langdon. “You want to make sure that that value is appropriate for you as a dealership, that you are prepared to pay that dollar amount. That you’re comfortable that you’re not going to lose money on that trade.”
Another company immersed in the online auction game is Winfooz; the e-platform launched in May 2019, and caters to dealers looking to sell vehicles wholesale.
They also focus on things like the inspection report and image-capture process. For example, Winfooz inspectors will visit a dealer’s lot and prepare a condition report that is posted on the company’s platform. This allows dealers to simply log in and view the vehicles, make offers, or place bids.
Winfooz also has a 360-degree image service that captures exterior images but also the less common interior 360-image.
“We do this by using a special 360-degree camera that sits in the middle of the vehicle and it captures an image all the way around,” said Harry Bhathal, Operations Manager at Winfooz. “With those 360-imaging, we also have what we call damage hot spots. So the inspector notes if there is some physical damage, or something of note that needs to be highlighted. They can take an extra image of it and attach it to that spot on the 360-image.”
For the customer viewing that vehicle, they can simply click on an icon in the image that will indicate whether it’s a damage or a feature. If they click on the icon, the image expands and offers them a close-up view.
Bhathal said it’s worth it for dealers to consider hiring someone full-time — an in-house condition report writer that can take care of their re-marketing, retail lead generation, and image postings.
Separately, he also said it’s important for dealers to be transparent with the declaration of their vehicles, and to make sure they are giving the “full and proper” information about the cars. If there is a temptation to leave something out, the dealer could risk discouraging a consumer from buying the vehicle and that can impact the retailer’s reputation down the road.
“My advice would be, whether you’re selling your vehicle wholesale or retail, in the digital space you have to make sure that you’re honest, upfront, transparent, and that you disclose everything correctly.”
Bhathal has been in the re-marketing business for more than a decade and notes that the industry is quickly changing. He said there has been an influx of companies in recent years looking to break into this market, and as more and more businesses move online due to technology, online-sales are poised to dominate.
“The balance is shifting,” said Bhathal. “If you look at the ratio of online-only sales versus physical auction sales, the ratio is creeping up and is very close to being 50-50 in the next year or two. And then, as that ratio is going to shift towards online-only sales, online-only sales will dominate.”
Alternative solutions
On the digital front, the online auction solution is not the only path for dealers; there are options. They may wish to consider the idea of a closed network that they can join, such as a peer-to-peer wholesale network.
One example of this is RoadDealer.ca: a product that launched in the U.S., but that also offers a Canadian version of the service — one that is essentially a dealer-to-dealer inventory storage centre. Dealers must first become a member, and once the membership is confirmed they can begin uploading their vehicles online.
According to Michael Cirillo, CEO of FlexDealer, and host of The Dealer Playbook podcast, Road Dealer has created a closed network that is exclusive to vetted, licensed dealers.
“You can’t just be a random vehicle wholesaler, you have to be a licensed dealer, and there is a vetting process,” said Cirillo. “You join this closed network, and what does it do? It bypasses the auction. So now, all of a sudden, for a flat rate per month you can buy and sell peer-to-peer however many vehicles you want, and bypass the buyer fee, the seller fee, the agent fee, the auction fee.”
Where the auction creates this second step for the wholesale to happen, Cirillo said this concept now creates the furthest upstream lead a dealer can get, and that is that they are generating their own lead for wholesale. In many instances, they are also able to sell their vehicles before they end up rotting on the lot.
When asked what dealers can do to boost the retail-side of their used car business, Cirillo said they should start exploring Facebook Marketplace.
“It’s like anything in commerce, you need to follow the attention. You need eyeballs. And what we see right now as far as attribution is concerned, being able to attribute whether the ad dollars are spending appropriately to the number of units sold or however they want to measure that, is Facebook Marketplace,” said Cirillo.
He said more and more consumers are going to Facebook, and as a marketer that needs to persuade, dealers need to position themselves where the users are. And while some dealers may have already chosen to advertise on Facebook, simultaneously feeding live inventory to Facebook Marketplace is equally, if not more importantly, something they need to focus on.
What they should not be focused on is the “be everywhere” approach.
“I’m not necessarily in favour of ‘be everywhere’ if everywhere isn’t where the customer is,” said Cirillo, adding that dealers should not be on a bunch of sites (third-party buy-sell or social media) just for the sake of being there. “You’re wasting your ad dollars, you are diluting your cost per units sold,” said Cirillo. “And then of course on the backend you are diluting your net revenue. And your gross.”
But for dealers to pull back on the “be everywhere” concept they also need to understand the role that each site plays, and understand that not all of these platforms will be the last click attribution.
The reality of the situation is that the consumer, who connects with so many touch-points in their path-to-purchase, may have first been exposed to a dealer’s vehicle on one website, whether it is Kijiji, CarGurus, AutoTrader, or another. Then they may have moved on to Facebook and hopped over to Marketplace to see what is available,” said Cirillo.
“And lo and behold, they saw that first exact vehicle that they were exposed to on that first touchpoint. So if I had to pick one, I would start exploring Facebook Marketplace.”
With digital taking on a larger piece of the remarketing pie, dealers, more than ever, will need to get their digital strategy in order and consider all their options to help improve their used car business for tomorrow, and for the future.
