Continuing the theme of my last blog post (the automotive industry has to start embracing better technology and data tools) I couldn’t help but reflect back on an early observation from my time in the wholesale auction industry. In some ways the industry has come so far, and in some ways it has hardly progressed at all.
About 15 years ago, when I was at Manheim, I had a chance to work closely with the BMW account. BMW was (and still is) a dedicated user of the wholesale auction channel to dispose of their off-lease and executive vehicles.
As I attended more BMW auction sales, I was fascinated to get to know some of the dedicated buyers who bought cars at auction as their full-time job. I still remember one particular buyer for a San Francisco-area BMW store who would be in Atlanta and Florida each month, buying truckloads of vehicles to ship back to this one BMW store in Northern California.
As I got to know this guy, I immediately appreciated that he had been in the automotive industry for decades, had been immersed in the BMW brand specifically, and had developed a particular eye and gut-feel for the quality and pricing of BMW product. He also had very strong intuition around which specific vehicles would be in high demand in the Northern California market.
The BMW store in northern California compensated him $300 per car that he successfully purchased at auction. He made quite a nice living off this revenue stream. And it’s worth noting that this store in California, in addition to the $300 fee, still had to incur approximately $1,000 in transportation per unit, all while waiting about 2 weeks for these units to be “frontline ready” for retail on their lot.
Why is this happening?
Let’s pause here and explore why a BMW store in San Francisco would source auction cars 2,500 miles away in Atlanta, while outsourcing this key function of vehicle acquisition to this professional buyer.
Clearly this buyer had decades of experience. He had great gut feel, and was very good at picking out cars that would do well back in his home market.
But through years of experience, hadn’t he just hard-wired decision-making “algorithms” in his brain that translated into his perception of intuition and gut feel? Wasn’t he simply parallel-processing a bunch of different decisions and equations in his head? Shouldn’t computers, with sufficient training from experts, be able to replicate and even beat gut feel? Wouldn’t professional buyers be that much more powerful if they could train software systems to enhance their decision-making skills?
The challenges continue
Fast-forward 15 years to today, and things really haven’t changed much at all. We still see professional buyers in the auction lanes who carry “bidder badges” for multiple dealerships. I was speaking last week with an executive from one of the large online wholesale vehicle auction platforms, and I was surprised to hear that a large proportion of their buyers (especially those high-volume buyers) are acquiring units for multiple stores. Which means that in many cases, dealers continue to outsource their used vehicle acquisition to specialists.
In addition, there’s a trend for bigger stores to increasingly centralize vehicle acquisition, both for trade-ins and for auction vehicles. The advantages of having the scale of spreading this competency across multiple stores is that dealers can dedicate full-time, competent employees to the function, but also gain efficiently sharing learning and best practices, sharing the same software tools, and generally getting smarter from collective intelligence.
I’m going to continue to build an argument that the automotive industry is behind in its adoption of advanced decision-making analytical tools. It’s amazing that an industry as large and important as automotive is still craving better tools and efficiencies to help dealers make more money. As an industry, we must do better.