In my previous column, I highlighted the three core prongs of a strategy for “Provisioning” used vehicle inventory — knowing what to buy, what to pay and where to find the vehicles you need.
I made the case that technology and tools are essential to a) operate with greater certainty that your vehicles are right for your dealership and b) maximize your efficiency and profit potential for every vehicle at each step of the acquisition process.
The third leg of the Provisioning process — where to find the vehicles you need — is proving to be problematic for many dealers.
The situation: More dealers recognize that online auctions are an efficient and necessary option for finding and purchasing used vehicles to extend their acquisition reach beyond local, physical auctions. However, many dealers and their used vehicle managers say they find it difficult to win vehicles through proxy bids — and some avoid this form of bidding altogether, favoring live participation in simulcast auctions.
As I’ve addressed this topic with auction executives, dealers, used vehicle managers and others, I’ve come to recognize that making proxy bidding a more effective acquisition option for dealers is critical for our industry. It’s really the last mile for enabling dealers to maximize their acquisition efficiencies.
The following are immediate steps dealers can take to win more vehicles via proxy bids and maximize the efficiencies and profitability potential of these acquisitions:
1. Use technology and tools to comb run lists for the right vehicles.
There are too many vehicles and too many online auctions / lanes to do this job manually anymore. Today’s technology and tools can instantly match the right vehicles for your dealership with the lanes where they’ll run. Dealers say they can apply this time savings to vetting a vehicle’s condition and setting their bidding strategy.
Note: A rise in the number of dealer-owned vehicles at auctions means many vehicles lack condition reports, photos and other information buyers need to size up a vehicle’s opportunities and risks.This is a real problem, but one that I predict will pass as dealers and auctions work to address this deficiency. (A proactive “trick” some dealers use to address the current condition report shortcoming: Do a Google search with the vehicle’s VIN to find the unit online. Sometimes this step yields photos and condition information sufficient to place a bid rather than pass up a vehicle.)
2. Bid to buy.
Dealers who have the greatest degree of success with proxy bids approach them the same way they do bidding via live simulcast or physical auctions. Before bidding, they’ll calculate the vehicle’s gross profit margin, or the spread between the unit’s likely retail selling price and the cost to acquire the vehicle (including auction fees, reconditioning and transportation costs). With this margin in mind, these dealers determine the maximum wholesale amount they can pay to acquire a vehicle and whether they get it from a simulcast auction, physical auction or proxy bid.
These dealers will also “pay up when it pays.” That is, they’ll add a few hundred dollars to their proxy bid if they need the vehicle, know it’ll sell quickly and / or they spot an opportunity to enhance the unit’s front-end gross to offset the higher acquisition cost (e.g., accessory, F&I options).
This approach helps to mitigate what’s known as “proxy bid discounting,” in which dealers either set a low price in hopes of stealing a unit or they purposely hedge their bids to avoid winning every proxy bid they place. Both scenarios are likely to render these proxy bids ineffective, given the competition among dealers to acquire inventory and current used vehicle supply constraints.
3. Know your win / lose ratios.
Dealers with longer-term proxy bidding experience say they’ll typically close about 10 percent of the proxy bids they place. They track this ratio to help balance the number of proxy bids they place in conjunction with acquisition efforts via simulcast and live auctions. The calculation, if done on a per auction basis, also helps spot patterns that may be problematic for proxy bids (e.g., they are less effective at Auction A versus Auction B).
Dealers who put these steps into practice will see two benefits. First, their proxy bidding process should improve and provide a better resource for inventory acquisitions. Second, these dealers will be the first ones to complete the last mile of an increasingly competitive online auction marketplace.