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How Wholesale Auctions Power The Used Car Industry

George Kennedy
27 June 2013

When we go to a dealership to purchase a pre-owned vehicle, the common assumption is that the car has been traded in to that particular dealership. While that may be the case for some vehicles (especially those that are of the same brand as the actual dealer) a great deal more come from other dealers all over the country. There is a vast, complex network that supports this industry.

Manheim is one of several national used vehicle wholesale auction companies. Their auctions, and the dealers that move cars to and from these massive facilities essentially drive the used car market, and have helped it grow to a place previously unseen. Allow me to explain.

When I was in college, I spent a week helping out at an animal shelter. I helped build a structure that would house medical equipment and got to play with some puppies. It was a great time. While there, I learned that the shelter had a network of vans, transporting animals in their care to locations where they would be the most likely to be adopted. If it was found that Boston was a huge market for terriers (get it?), then more terriers would go to Massachusetts, while more lapdogs would be transported to shelters in Manhattan. It was very advanced and matched supply to localized demand.

Manheim 02
Manheim 02

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This is the way that Manheim’s national and international network of facilities are operated. Manheim has 69 facilities in North America and another 37 around the world, and they represent the channel by which used cars make their way into used dealership storefronts. These cars from new and used car dealers, manufacturers and company vehicle fleets, bank lease companies and rental companies. Other companies like this include ADESA, Interstate Auto Auction and Car-Tech Auctions.

On average, once or twice a week, local dealers come down to the massive Manheim facilities to bid on cars for their own dealer fleets. But before they can go across the auction block, they are inspected, an online profile is created, and the seller determines the amount of attention the car requires before going to auction.

Manheim 03
Manheim 03

Manheim has a very intricate system to determine how to handle a car when it comes into their possession. If it is determined that detailing the vehicle will significantly improve its value at auction, it will get the attention. If such attention will not affect the price, it will cross the block as-is.

Vehicles are documented, photographed, and vehicle profiles are placed online. Dealers can take the old fashioned route and check out cars in person, but they can also examine vehicles online. According to Tim Hoegler, general manager of Manheim New England, dealers are coming to auction more prepared than ever. “When we first started this,” says Hoegler, “there were no computers. Now dealers spend the whole week researching cars, and they come to auction fully researched and ready to go.”

Dealers may take their time researching vehicles either online or in person, but when auction day comes, it’s another beast entirely. “We call it sensory overload,” says Hoegler, “Our MA facility has 12 lanes with 100 to 200 cars coming down each lane throughout the day.” On average 40 to 45 cars cross the auction block per hour, and Manheim says the general industry average is about 60 seconds per vehicle.

Mahneim 01
Mahneim 01

Once cars are purchased, they may be moved that afternoon, or several days later. It is on the dealer to arrange for travel once the cars are purchased, though Manheim does offer services to connect dealers with transport services. If a dealer is moving cars across the country, he may wait for the next auction so that his vehicle transport will be completely full when it’s time to move.

I asked how the industry would be different if an entity like Manheim were not there to facilitate these transactions. “The used car market would bottle up,” says Hoegler, “manufacturers need a way to distribute their vehicles. The franchise dealers would stick to their own brands, but as you can see, dealers have branched out to take on any brand, to make sales.”

Would the auction facility be inclined to say that? Sure, but they have a point. Just as I watched the dogs and cats leave the animal shelter, off to a location where they have the best chance for adoption, national networks like these offer used vehicles the best opportunity to be purchased. Why would a dealer try to sell the inventory they have if it’s not moving, and they know another type of car can sell better at their location? Dealers even sometimes change out their inventory for a whole new lineup, and it helps the customer get closer to the car they are looking for. Next time you Car Fax a used vehicle and see that it is from another state, you now know why.

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