Impact of virus on auctions may linger

Time will tell how many dealers return to both digital and physical wholesale auctions. While auction companies report promising signs for digital sales, whether dealers turn out in force to stand in the physical lanes will likely depend on how the COVID-19 crisis plays out.

"It's hard to imagine that we want to have hundreds of people shoulder to shoulder at one of our locations, short of having some sort of massive testing, treatment or vaccine," Manheim President Grace Huang said. Even when physical sales reopen, a lot of people's habits likely will have changed, she added.

With the coronavirus outbreak, wholesale auction companies had no choice but to go all-digital. On March 16, both Cox Automotive's Manheim and KAR Global's ADESA announced they would switch to digital-only auctions as the pandemic began to trigger stay-at-home orders from state governors.

As auction volume ground to a near halt, the backbone of the used-vehicle business appeared to be in paralysis. Now, as volumes slowly return, one thing is clear: Wholesale auctions will not be the same for the foreseeable future.

On March 20, ADESA said it would shut down all auctions, even digital sales, completely for at least two weeks. Manheim continued to run all-digital sales where local and state orders permitted. And volume plunged.

At Manheim, wholesale transactions for the week ended April 11 plunged by more than 75 percent compared with the same period in 2019.

When ADESA restarted digital auctions April 7, initial volume was at about 20 percent of normal levels, and sales conversion rates were "light," ADESA President Peter Kelly said.

Representatives from both companies say they've seen improvements since opening more auctions. Manheim and ADESA now have a majority of their locations running all-digital auctions.

"We do think we hit the bottom. Now the question is, how quickly can it come back up?" Huang said. "That is the million-dollar question we're all trying to figure out right now."

Kelly said he thinks ADESA has seen the bottom, too, at least from a volume perspective.

"But I think the bigger picture of what's really going on is with retail consumers, and, ultimately, that's where it kind of starts and finishes here," he said. "I don't think we're there yet."

All the while, vehicles have continued coming in. From the beginning of the outbreak through mid-April, Manheim added about 100,000 vehicles to its lots, and a company spokesman said inventory levels were about 40 percent higher than normal levels in the middle of the month.

Auction companies have seen some relief as retail sales volume and the number of vehicles coming off lease also have been lower, Kelly said. Some leases have been extended, and many dealerships have been closed. Also, vehicle repossessions have been suspended by lenders.

"So there's been a deferral of the normal inflow process," Kelly said. "But I do think it's a deferral; I don't think it's an elimination. That volume is still out there and will have to be processed at some point."

One silver lining amid the chaos, at least for ADESA and Manheim, is they were able to quickly deploy technologies they'd been rolling out anyway.

Last year, almost half of Manheim's sales and nearly 60 percent of ADESA's transactions were done online. At both companies, almost all aspects of a transaction are now digitized — sellers, buyers and auctioneers are all remote and use screens to monitor activity.

Still, a concern early on in the nearly overnight switch to all-digital sales was that dealers who traditionally favored physical auctions wouldn't get on board.

But many have, said Zach Hallowell, Manheim's vice president of digital. Use of the company's remote seller tool doubled in the first week of all-digital sales. He called the switch to all-digital transactions smooth and well received, adding that the business was already headed in that direction.

"Buyers seem to be, when they have the choice, even choosing to increasingly buy through those channels, for all the reasons I think that all of us are using online tools," Hallowell said. Efficiency and greater selection are primary reasons, he added.

A crucial aspect to the success is having high- quality pictures and thorough condition reports, he said, so buyers can feel comfortable acquiring vehicles remotely.

"We're really trying to put ourselves in the buyer's shoes," he added.

National Auto Auction Association President Laura Taylor said a majority of its member auctions are running online sales with limited staff on their premises. But she remains confident there's still a place for digital and physical sales in the future.

"Digital sales have definitely been utilized by most of the auctions to get us through this difficult time, but I think this has proven that digital and in-lane complement each other," Taylor said in an email.

Executives from both Manheim and ADESA agreed with that notion. And dealers see the business case for each approach.

Even before the outbreak, some dealers had been avoiding physical auctions.

"I haven't been in a lane at an auction since I was 12 years old with my grandfather," said Jake Dykeman, dealer principal of Putnam Ford in Putnam, Conn. He said he's been using digital channels from Manheim and ACV Auctions to acquire cars remotely.

"By doing it this way, I think we get a broader breadth of opportunity," he said. "Because we don't have to drive ourselves all over creation to make sure we're looking at every single vehicle."

But even with the digital advancements, some dealers prefer physical sales. Jason Clary, general manager at Kia of Des Moines, in Iowa, said his used-vehicle manager would rather be on-site for sales once a month.

"We're not opposed for it to go all digital, but I think that there is still a need for the auction lanes," Clary said.

It's one thing to buy a vehicle fresh off lease with 20,000 miles. But older vehicles are more difficult to judge online, especially in terms of reconditioning costs they'll require, he said.

"That's hard to gauge online at a fast pace," Clary said.