‘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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