Every transaction between a buyer and seller has pitted the interest of one against the other. From the cave man on, win-win is seldom the actual result.
The lack of transaction history, or what the last buyer paid, historically has put the buyer at a disadvantage compared to the seller. The consolidation of wholesale platforms, the transparency and ease of access of raw market data, especially in the automotive remarketing industry, should be a game-change event.
However, every day we see dealers and their buyers ignoring this information, because they won’t, can’t or don’t know how to, look at the free price data available to them.
These same people probably would not dream of investing their retirement portfolio based only on what they read in a 2-week-old USA Today and then put in a “market” order committing to buy at whatever the current asking price is. Only the most novice investor wouldn’t look at price charts, trends and volume before he pulls the trigger.
Yet every day we see this happen in the wholesale car market, and it costs those dealers and every other dealer a lot of money. Price transaction transparency is why TrueCar, AutoTrader, Cars.com and others are making fortunes soothing retail buyers’ fears of paying too much for vehicles.
Why so many dealers don’t take advantage of the same sort of price information on the wholesale side is hard to understand. The information they need is available, it’s free and it doesn’t take long to understand it.
What We Had
When some of us old guys started, the only original-source transaction data available to an individual dealer or wholesale buyer came from actually being at the sale and remembering or taking notes on a run list of what was observed, the floor price (when it could be determined) and the change from past sales.
If it was a multilane sale you could share notes and anecdotal information with cohorts and make phone calls to peers WHO attended other sales. That was it, and that’s what you relied on.
Some will remember filling out the weekly green-paper reports with retail and wholesale transaction prices and mailing them in to guide publishers to compile and massage into “guide” prices. A few may recall getting incentives from manufacturers to “fluff” the prices on their brand of used vehicles reported sold to help keep the values up.
Another practice was studying the market report mailed out by the auction operator. This was interesting reading if nothing else, and I am sure it led to some creative numbers generation by a poor back-office wonk trying to make their auction look like the place to sell.
After factory repurchase-program remarketing took off, some of the factory remarketing groups started publishing their own guide books with high/low average values by model and auctions from all over the country.
The guide opened the eyes of many dealers to the large price spreads by location and season that heretofore only had been observed by the very small number of dealers that subscribed to guide books for multiple regions or happened to own multiple stores in different markets.
The latter was exceptionally rare, as most manufacturers limited franchised dealers to a maximum of three points. They didn’t want the tail wagging the big dog.
Then the fog lifted and the smoke cleared. Manheim came out with its MMR report. For the first time dealers could do an overnight download of a complete data set of sales you could access on your computer that had not been adjusted by any algorithm or editing.
Voila, real timely data, unfiltered, unedited or tweaked. It showed immediately how thin or nonexistent transactions were on some models, where they sold and where they hadn’t. It basically was the same as the Internet MMR still supported with extra reports that some used and some didn’t.
Today, ADESA’s market report and the current MMR and PAR price reports, as well as many others, provide this original source data for free if a dealer will just take time to look. And even more is available from NADA for a modest fee.
So What’s the Point?
There are a large number of dealer buyers that either won’t look at the data available, don’t understand it or don’t care if they pay more than everyone else for the same thing. Their actions cost themselves and the dealers that do have knowledge of current market values income and thereby subsidize the sellers.
Their action is what an economist would call irrational behavior. Or, as my old aunt used to tell me, “If you can’t buy it right, there is no need to try to sell it.”
I hope to show the reader a little basic statistics that easily can be applied to save them money or at least not lose any more than they need to.
Here are some real world examples:
If you go to the ADESA market report tab and look at the ’12 Chevrolet Impala, which I picked for no reason other than there have been a lot of them remarketed lately and it is a 1-click function to download the data, you will see that between Oct. 1 and early December 2013 there were a little more than 325 LTs sold through ADESA locations.
Sale prices ran from $3,900 for a 67,000-mile (108,000-km) black one in Los Angeles to a $14,000 one sold in Cincinnati with 18,563 miles (29,873 km) on it. In this group of more than 300 units, the average unit was a 41,375-mile (66,585-km) car that sold for $10,794.
However, no unit with those miles sold at that price. The modal unit, or the most typical occurring unit from a statistical point of view, was a 32,625-mile (52,526-km) car that brought $11,500.
If you look at the scatter graph below, you will see clearly that a large number of dealers paid a lot more money than others did for the same make model of car with close to or identical mileage.
To make this a little more manageable, let’s take the units in the list that had actual transaction prices between $10,000 and $10,500. There are 35 of them in this sample. If we plot them on a graph a quick glance will show that at $10,500, purchasers paid the same for under 30,000-mile (48,000-km) units and 58,000-mile (93,000-km) units.
It certainly makes one wonder if the dealer with the 40,000-mile (64,000-km) units purchased at $8,500-$9,000 is going to have an advantage over the dealer that paid $12,000. I am well aware that condition will have an impact, but 50% seems like quite a stretch.
How would the sellers respond to this? Look at the prices in the first chart at the 30,000-mile grid. You will see some sales at $12,300 and $10,000. Is it any wonder they will ratchet up their floor prices to $12,300 and try that for a while, especially with hard data that some dealers in some places actually paid that for 40,000-mile units, even though others paid the same for units with mileage in the high teens?
You can bet your last dollar on it.
A little homework will go a long way. The market always will win over time, but in a situation like we see now, with a handful of sophisticated sellers currently sitting on nearly 100,000 units that need to be remarketed, it may be worthwhile to pay attention to what really is going on.
John Schmid is an industry veteran, former General Motors and Mazda dealer and economic developer. He is a past chairman of the Kansas Auto Dealers Assn. and served for a number of years as its legislative chairman. A graduate of the University of Kansas School of Business and the Chevrolet School of Merchandising, he can be reached at [email protected]
