Four years ago, used car auctions went virtual. Many haven’t gone back.
Four years ago, used car auctions went virtual. Many haven’t gone back.
If you buy a used car off a dealership lot, it might have gotten there as a trade-in. But there’s about a 50% chance it got there by way of a wholesale auction, according to the industry tracking company Cox Automotive.
Cox reports that over 10 million used vehicles were sold at auction last year, and — for a long time — the only way for dealers to buy at auction was to go to one in person.
But, like so much else in this economy, used car auctions completely changed nearly four years ago when the pandemic started, and a lot of the changes have stuck.
Buying at auction used to mean a lot of long days with early starts, as Scott Politte learned when he was stocking his family’s used car lot near Des Moines, Iowa, back in the ’90s.
“You get up at 3 o’clock in the morning, you get to the airport, hopefully your plane’s on time,” Politte recalled.
He’d fly all over the country — Buffalo, Orlando, Salt Lake City — where he and other used car dealers would usually get picked up by a shuttle from the auction company.
“They would shuttle you to the auction, you can get there before [it starts] and inspect the vehicles,” he said.
All kinds of cars were there, from newer models coming off a lease to former rental cars and junkers. They ran through what were known as “lanes” — each with its own auctioneer, about one car per minute. That allowed Politte and other dealers to touch, smell and inspect each vehicle. Then, they’d bid using subtle gestures.
“Wink an eye, or nod your head, or just raise your hand,” Politte said.
All of this took place in a building that looked something like a huge auto shop, with anywhere from two to 20 or more lanes. “It’s full of carbon monoxide fumes and very loud auctioneers,” he said.
But, despite the noise, fumes and long travel days, there were benefits too. For one, Politte could take advantage of regional price variations. His dealership sold a lot of Lincoln Town Cars back then, and as he flew around to different auctions, he noticed something:
“The markets in Buffalo, New York, and Minneapolis, Minnesota, had $4,000 more incentive on a new Town Car at that time than any other market did in the country.”
That meant those Town Cars were cheaper when they hit the auction block. So, he’d make the trek to those cities — the snow often deterred some of his competition — buy Town Cars on the cheap, and then sell them at a discount, while still making a profit.
But his trips didn’t always work out like that.
“There were many times we’d go home without buying a vehicle, which meant the whole day was wasted,” he said.
But even then, there was some value in showing up.
“If you’re physically standing in the lane with hundreds of other dealers, there’s a lot of conversations going on about the industry,” said Joe Wilson, the chief operating officer of CarMax, which sells directly to consumers and hosts wholesale auctions.
“You kind of get a sense of, what is the market? What are people selling really well? What are people not selling really well?”
Those conversations are still possible at some auctions. And their structure — including the loud, babbling sound of their auctioneers — is still pretty much the same. What’s different now is a lot of dealers hear that auctioneer babble funneled through an online simulcast.
That’s the case for auctions hosted by the company Manheim, which is owned by Cox Automotive and auctions off millions of cars every year.
Leading up to 2020, about half of the vehicles at Manheim auctions were sold to dealers standing next to their lanes, like Scott Politte used to. But then, that abruptly changed.
“If we think back to COVID, there was a real turning point in our industry,” said Jennifer Heizer, a vice president of Manheim.
Heizer said all of the company’s auctions moved online when the pandemic hit. CarMax did the same and never went back. But as restrictions loosened, Manheim let dealers into the auctions again. Some came back — you can see them pacing around in the video feed of the simulcast — but many didn’t return. Now, Heizer said that over 70% of vehicles that pass through Manheim auctions are sold online.
“The dealers realized that they no longer have to … spend the entire day, you know, going and looking and bidding on cars,” Heizer said.
And they realized they can be in many places at once.
“I was in Dallas today, I was in central Florida today, and I was in Chicago today,” said Jesse Lore, the owner of a used electric vehicle dealership in New Hampshire. He tried an in-person auction once and didn’t really like it. When he bids online, he can look at a car’s history report and compare it to other vehicles on the market.
“So, I have a lot more data and information at my fingertips when I’m sitting in my office shopping for cars on these digital platforms,” Lore said.
But, so does everyone else bidding online, and that’s killed a lot of the regional price variations dealers used to find. So, it’s a lot harder to find a cheap Lincoln Town Car in Buffalo. Though for Scott Politte’s team in Iowa, that’s not necessarily a bad thing.
“Now our guys sign on, if things are too high, they sign off,” Politte said. “They’ll sign on to another auction, and they can still continue to work their current job.”
Plus, they don’t have to catch an early flight out of Des Moines.
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