Please note: This commentary was originally published by Automotive News and can be found on their website here.
The used-vehicle auction business learned one overarching lesson in 2020 — in-person auto auctions are not going away anytime soon.
As the COVID-19 pandemic swept the nation, used-car auctions were often forced to change the way business was conducted and, in many states, auctions had to temporarily halt in-person sales. Even as some companies tried to switch entirely to online-only auctions, the industry learned what we at XLerate Group knew all along — the dealers who buy and sell cars from our sales prefer to buy and sell their vehicles on-site.
Online auto auctions play an important role in our industry. At XLerate Group, online buyers typically account for more than 30 percent of our sales.
Online vs. In-Person Auctions
Many dealer and commercial consignors were very eager for our industry to resume selling cars live during the early stages of the pandemic. So, when we reached out to the dealers and commercial consignors for feedback on online vs. in-person auctions, we weren’t at all surprised when an overwhelming majority of our customers said they still strongly prefer transacting in-person over digital-only auctions. They thanked us for listening to them.
- On-site assessments beat condition reports: Dealers say they can make a much better assessment of the vehicle’s condition when they are on-site. As one customer told us, “We can see it, touch it, feel it, smell it. With buying online, we’re trusting an hourly employee to do that for us and have only 5-10 pictures to look at. Condition reports and pictures taken by auctions … miss all kinds of things and cost us tons of money.”
- Diamond in the rough: When dealers walk through the inventory before a sale, they often spot cars and trucks that were not on their initial shopping list that they view as unexpected opportunities. This is much harder to do online.
- It’s a relationship business: Dealers say they build relationships with the staff and other regular sellers that cannot be developed through online-only auctions. They also like to see what their competitors are up to in real-time. Many dealers find comfort in seeing other people bid.
- Closing the deal: When a price gap remains between the buyer’s asking price and the seller’s ceiling, an auctioneer can prompt a quick side discussion — fostering a quick close.
- Delivery/pickup surprises: Vehicles purchased online must still be assessed in person and are more likely to have unexpected flaws or surprises not adequately addressed by the condition report.
- Arbitration is more likely: Inaccurate condition reports lead to a heightened risk of time-consuming and costly arbitration over the vehicle price.
- Overall risk is higher: The above factors heighten the risk that an online purchase could wind up costing the dealer more because better purchasing decisions are made with the up-close and personal benefits of being on-site rather than looking at a vehicle on a computer screen.
Some wrongly predicted that 2020 would be the year that put an end to physical auto auctions. What we discovered was the opposite. This year put the effectiveness of in-person automotive auctions through a stress test that was far more difficult than anything we could have imagined.
Over the past year, we have worked even more closely with local law enforcement and health authorities at each of our locations to ensure that we were complying with all health protocols and keeping our customers and employees safe — this is always our first priority. Auction sales increased by 30 percent or more at some of our locations as we navigated the pandemic. In certain states, such as Michigan and California, we had to quickly transition to predominantly online-only auctions as required by local governmental orders and mandates. But in-person sales remained robust where we could continue to operate.
As the year came to a close, it became clearer than ever that the dealers who preferred to buy vehicles online before COVID-19 hit still prefer to buy vehicles online, while dealers who preferred to buy vehicles in person at our auction sites still prefer to buy vehicles in person. And, there is a large group of buyers and sellers that will continue to use both methods effectively to optimize their buy-sell activities.
As the COVID-19 pandemic recedes, we predict the industry will remain a stable marketplace comprising robust in-lane sales supplemented by online activity. We expect to continue to benefit from this healthy offering mix this year and beyond.