‘Back to Normal’ for the Used Vehicle Market

Q&A with BOB GRAHAM, VICE PRESIDENT OF VEHICLE REMARKETING, ARI

We have had an excep­tion­al­ly buoy­ant used car mar­ket over the last few years. What do you see ahead?

We have had a great mar­ket for the last four or five years, arguably the best mar­ket in our his­to­ry. You almost couldn’t make a mis­take sell­ing a used vehi­cle. Unfor­tu­nate­ly, that ride is com­ing to an end because there is an increased sup­ply of used vehi­cles com­ing back into the mar­ket­place which is putting a down­ward pres­sure on price. Luck­i­ly, we have good retail demand which is keep­ing that down­ward pres­sure fair­ly mod­er­ate, so prices are good but sta­ble.

In gen­er­al, I would say we are back to the nor­mal, sea­son­al mar­ket – in oth­er words, a good mar­ket in the fall and again in the spring with tax sea­son. Fac­tors that had an effect on the mar­ket years ago – things we were used to and had come to expect – didn’t real­ly have an effect dur­ing the past four or five years, but those things will begin to come into play again.

What are you advis­ing your clients now about set­ting depre­ci­a­tion on their new vehi­cles?

When we talk to our clients about depre­ci­a­tion, we advise them to be real­is­tic. We rec­om­mend that they set it for what the mar­ket is like­ly going to be in 2016/2017, rather than what it has been over the past sev­er­al years. We don’t want to find them in the trap of  hav­ing depre­ci­a­tion cal­cu­la­tions based on the tremen­dous gains we have been expe­ri­enc­ing for the last four or five years only to be sur­prised in the future when that doesn’t work out.

What are you see­ing ahead for work trucks?

This is the one seg­ment that is stay­ing strong. The econ­o­my has helped a lot and indus­tries that use trucks are more active. As we look down the road, I think that is going to con­tin­ue. I think the econ­o­my in gen­er­al and hous­ing in par­tic­u­lar are still going to be grow­ing for the next few years and I think, as a result, pick­ups and the work truck mar­ket will stay very strong.

What are your clients’ chief con­cerns about vehi­cle remar­ket­ing?

The chief con­cerns deal most­ly with bench­mark­ing, espe­cial­ly for our voca­tion­al clients with medi­um duty trucks and equip­ment and things of that nature. To be very hon­est, there are no good bench­marks out there for that seg­ment. When we talk about light trucks and cars, there are a lot of bench­marks – the Black Book’s Com­mer­cial Index or any num­ber of guide books – but there are no good bench­marks for medi­um duty trucks. We help our clients by using things like the aver­age per­cent­age of cap cost, or we work with them to do bench­mark­ing for their own fleet year-over-year ver­sus try­ing to bench­mark against the mar­ket­place because get­ting like-vehi­cle com­par­isons is vir­tu­al­ly impos­si­ble.

How does ARI help its clients max­i­mize their resid­u­als?

It is all about expo­sure. It is using every piece of the mar­ket­place and all of the mar­ket­place at the same time. For exam­ple, there is upstream remar­ket­ing. Upstream remar­ket­ing typ­i­cal­ly means sales to the client’s dri­ver and employ­ee base, and in the case of voca­tion­al fleets, to their ven­dors and sub­con­trac­tors who are a nat­ur­al fit for their prod­uct when they are fin­ished with it. There is also mid­stream remar­ket­ing. That is where you would sell the vehi­cle from a cour­tesy deliv­ery deal­er before it ever goes down­stream to the auc­tions. Both upstream and mid­stream save all of the expens­es of sale – there are no trans­porta­tion costs, no auc­tion fees, none of those things – so the client gets a much bet­ter net. If it is not sold either upstream or mid­stream, you move to the down­stream chan­nels – typ­i­cal­ly auc­tions, sal­vage pools, truck and equip­ment facil­i­ties and online sales.

The impor­tant thing when it comes to down­stream is to pick the right chan­nel for each vehi­cle. Every remar­ket­ing chan­nel has a niche that they are best with. None of them are the best with every­thing, so you have to get the vehi­cle to the right place. That is real­ly job num­ber one. Once it is there you have to rep­re­sent it per­son­al­ly. That can either be live or online with today’s tech­nol­o­gy. We use a prod­uct called Remote Rep where we han­dle every vehi­cle per­son­al­ly but it is from our office here in Mount Lau­rel. We have a live view of the auc­tion and we are com­mu­ni­cat­ing in real time to the auc­tion­eer. We get to tell them yes or no on every sale. The buy­ers know we are online and they love it because they are get­ting a guar­an­teed answer on every vehi­cle.

The oth­er thing that we do is expose the vehi­cle online 24/7 in a num­ber of vir­tu­al mar­kets at the same time. The goal, of course, is to reach every pos­si­ble buy­er. You hear a lot today in the indus­try about mul­ti­plat­form. Mul­ti­plat­form is just that –hav­ing a vehi­cle on three or four dif­fer­ent web­sites at the same time with­out dou­ble sell­ing it to max­i­mize your expo­sure. But, where­as most peo­ple are refer­ring to the deal­er plat­forms when they dis­cuss mul­ti­plat­form – OVE.com, ADESA.com, Smart Auc­tion, Auc­tion Edge, things of that nature – we take it a step fur­ther. We use those same plat­forms but we also have our own ARI AutoDi­rect which opens the mar­ket to indi­vid­u­als, employ­ees, friends and fam­i­ly. We have inter­na­tion­al web­sites, we have truck­ing equip­ment web­sites, we have recy­cle and sal­vage web­sites. We are try­ing to get to as many dif­fer­ent buy­er bases as we can – all simul­ta­ne­ous­ly. If you can expose vehi­cles to all of those places at the same time you will get a bet­ter net sale price and you will sell your vehi­cle more quick­ly – and in our view that is the best way to max­i­mize the price for a client.

Has tech­nol­o­gy and expand­ed mar­ket chan­nels affect­ed depre­ci­a­tion?

Over the years, with all of the tech­nol­o­gy and improve­ments that have been made in the indus­try, I think depre­ci­a­tion has gone down. It is sort of hard to judge though, to be hon­est, because clients are keep­ing their vehi­cles so much longer. If you keep your vehi­cle for­ev­er, your depre­ci­a­tion num­bers come out great.

It used to be that the aver­age car came out of ser­vice after about 60–65 thou­sand miles and trucks came out after about 85–90. In the last few years, cars are aver­ag­ing 100 thou­sand miles or more and trucks are aver­ag­ing even high­er, espe­cial­ly voca­tion­al trucks. The aver­age voca­tion­al truck is typ­i­cal­ly being kept in ser­vice for approx­i­mate­ly 150–250 miles. Fleets and com­pa­nies are keep­ing them in ser­vice pret­ty much as long as they can.

But I believe that with the tech­nol­o­gy today, as well as the dif­fer­ent buy­er bases, you not only can get to more buy­ers, the buy­ers you reach are much more well informed about the vehi­cle and can make bet­ter deci­sions. That is all because of tech­nol­o­gy. And as a result, depre­ci­a­tion is low­er at least in part because of tech­nol­o­gy.

What is the state of the sal­vage indus­try?

Sal­vage is actu­al­ly a very big indus­try. It is as big if not big­ger than the auc­tion indus­try. One mis­nomer about sal­vage – the sal­vage buy­ers real­ly led the charge to the Inter­net well before the deal­ers in the auc­tion busi­ness did. They were buy­ing vehi­cles online first. They have a dif­fer­ent take on buy­ing a vehi­cle online. They don’t care about con­di­tion reports or inspec­tion reports. They just want pic­tures because they don’t care what is wrong with the vehi­cle; they just want to see what is left because they are buy­ing it for parts and recy­cling. .

The sal­vage buy­ers also have a very good mar­ket­place online for inter­na­tion­al buy­ers. There is a lot of sal­vage that goes over­seas.  In the U.S., if a vehi­cle is sal­vaged or wrecked, legal­ly it is very hard to put it back togeth­er and sell it. But you can take it off­shore and you can put that vehi­cle togeth­er with much low­er labor costs and sell it for a nice prof­it, so sal­vage has led the way into the inter­na­tion­al mar­ket­place. Because they have very robust web­sites, we like to put some of our heavy duty trucks and equip­ment on those same sal­vage sites even though they are whole vehi­cles – not sal­vage vehi­cles – because it pro­vides access to those same buy­ers that are off­shore. A lot of those trucks go out of the coun­try – espe­cial­ly to South Amer­i­ca, Cen­tral Amer­i­ca and Mex­i­co – but we don’t have to move them, we just sell them online.

You have been in the remar­ket­ing busi­ness for a long time. What makes it excit­ing for you?

I have been in the remar­ket­ing busi­ness for most of my career. What makes it excit­ing for me is that it stays fresh. It is always chang­ing and I have the lux­u­ry of being able to change how we remar­ket or how we do things for our clients as the indus­try changes. When I first start­ed remar­ket­ing, we sold to deal­ers and we took vehi­cles to auc­tions. There were no dri­ver sales, there was no Inter­net – none of that. Today, the abil­i­ty to get the prod­uct in front of more and more peo­ple via dif­fer­ent avenues is very chal­leng­ing and very excit­ing.

What do you see as the next trend?

We are always find­ing a new or dif­fer­ent way to sell vehi­cles. For exam­ple, we are work­ing on get­ting bid­ding across all of the var­i­ous web­sites, so that a buy­er on one on-line plat­form is in com­pe­ti­tion with a buy­er on anoth­er on-line plat­form. In oth­er words, true, live, glob­al bid­ding. That could be as close as a cou­ple of months away, or pushed out towards the end of the year as – the indus­try is still wrestling with it. But I know that is the next big break­through in our indus­try and that is what I am work­ing towards.

BIO

Bob joined ARI in 1973. Through­out his career, he has been involved in most phas­es of the leas­ing busi­ness. He start­ed in the new vehi­cle order­ing area, moved to the main­te­nance man­age­ment depart­ment, then to vehi­cle remar­ket­ing, where he became man­ag­er and then direc­tor.

Bob was instru­men­tal in mov­ing ARI’s remar­ket­ing pro­gram to a web-based envi­ron­ment, which led to ARI­Au­toDi­rect®, ARIBuy­Di­rect, ARI’s Vir­tu­al Mar­ket and oth­er indus­try-lead­ing pro­grams. Bob is active in the indus­try and in 2009 was named pres­i­dent of the Inter­na­tion­al Auto­mo­tive Remar­keters Alliance (IARA) and cur­rent­ly holds the posi­tion of Chair­man.

Pro­mot­ed to his cur­rent posi­tion in 2010, Vice Pres­i­dent of Vehi­cle Remar­ket­ing, Bob con­tin­ues to keep ARI on the cut­ting edge of remar­ket­ing tech­nol­o­gy to achieve the best pos­si­ble results for cus­tomers. Bob attend­ed LaSalle Uni­ver­si­ty in Philadel­phia, PA, major­ing in eco­nom­ics.

bgraham@arifleet.com

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