US Automotive Auction Sector – Q2 2020 Update

Car auction industry slows down during COVID-19

Among the Interview takeaways, depressed prices could trickle down to residual values as well as new cars’ seasonally adjusted rates (Sar). “If the recovery is quick, the pundits in that space are saying that Sar will be down about 0.5 million units, or about 3%, to about 16.5 million cars,” the expert said. However, if Sar dips to circa 10 million units like it did during the financial crisis, the car auction business could be in trouble. 

The Interview also explored the cost controls that could be implemented by the various auction companies to cushion the COVID-19 slowdown, with factors such as land leasing and personnel expenses at play. 

The regional impact of the increasing “glut” of used cars was also discussed in the context of a “very dynamic” wholesale market, where dealers shop around for lucrative opportunities. Several factors will also determine how quickly the market will be able to clear the backlog, the specialist said. For example, “the big auction houses have most of the share of off-lease vehicles and if new car sales suffer for a longer period of time, you’ll see that impact on the big auction houses in a few years’ time.”

Another angle considered during the Interview was a potential shake-out in the D2D space, as these players are driven by trade-in. “The big three, which are ACV, TradeRev and Manheim Express, may be okay, the smaller ones, I don’t know,” the expert said. 

The Interview also noted that margins may take a hit because of a slowdown in physical auctions and an uptick in digital auctions. “The internet is the great disintermediator,” the expert said. “It likes to take out middle men and those physical auction providers are classic middle men.”

To access all the human insights from Third Bridge Forum’s US Automotive Auction Sector – Q2 2020 Update Interview, click here to view the full transcript.