Casting a wide net for used vehicles

Just as consumers cast wider nets to buy used cars and trucks, so too are more dealers looking farther afield for inventory.

It's a reality borne not just from the rise of digital auctions amid the coronavirus pandemic but also from a sheer need for vehicles to sell, as high demand and low supply converge.

Earlier this spring, Jason Pettigrew, used-car manager at Cain Toyota in Ohio, found himself bidding on vehicles in Pittsburgh, Nashville and Orlando — all simultaneously.

"You have the ability to be in multiple states, and [at] multiple sales, and I've never utilized that before," Pettigrew said.

Pettigrew participated in digital auctions before the pandemic, often saving a six-hour drive to Manheim, Pa., where he'd have to spend two days on the ground, for example. But monitoring auctions in multiple states is new for him.

He's not the only one. The industry's auction giants and others say they're seeing dealers shopping more distant auctions, though they're not abandoning physical auctions altogether.

"Cross-state bidding has just about doubled from what we saw pre-COVID," said John Hammer, chief commercial officer of KAR Global and president of the company's ADESA auction unit. "You're seeing people shopping across [states] way more than they used to."

Hammer said buyers have recognized that instead of traveling to one auction and spending hours there, it's advantageous to stay in their stores and monitor several auctions at once.

"So it's been a very efficient way for them to buy cars," he said. "And we've seen a lot of folks — even some that probably never thought they'd buy digitally — that now realize buying digitally and shopping outside of their home market area is really productive for them."

ADESA has seen dealer registrations for its digital platform increase by about 25,000 since the pandemic began, Hammer said, calling it a "very material number."

Numbers from Cox Automotive's Manheim unit support more location-agnostic shopping, too. Manheim has seen the average distance vehicles travel after purchase more than double from 225 miles in the first quarter of 2020, largely before the coronavirus pandemic, to about 500 miles as of June 8.

The shutdown of Manheim's physical auctions and other constraints across the industry at the height of the pandemic drove digital adoption at a much faster rate and caused dealers to source cars regionally and then nationally, the company said.

The number of auctions each dealer was shopping had begun to grow at the beginning of 2020, before the pandemic, and that's only increased further, said Zach Hallowell, senior vice president of Manheim Digital Solutions.

But Manheim's buyer base has grown, too, Hallowell said.

"What that tells me is that more dealers are using digital channels to expand their options for buying, but at the same time, we have been able to retain those physical buyers," he said. "Because one thing we saw also pretty definitively in this period is that there's a certain percentage of dealers that just were not comfortable buying digitally."

Pete Grupposo, vice president of dealer sales for Manheim and Cox's Nextgear Capital lending unit, said for many of his dealer clients there is "still tremendous value" being physically in front of a car.

"In many ways, 2020 kind of took some of that out of their hands for a period of time," Grupposo said.

Some dealers have returned to their prepandemic ways of attending physical auctions, while many have adopted a hybrid physical-and-digital approach. Others have gone all digital.

With auctions expanding data availability, improving condition reports and streamlining shipping, some dealers have built larger buying networks, Grupposo said.

"They don't necessarily need to go to that auction closest ... the same auction every Tuesday," he said, adding that a variety of options is especially crucial now with supply so low and demand so high.

Even so, logistical challenges can arise if auctions are too far away.

Marc Schumacher, used-vehicle director at Fitzgerald Auto Malls based in Rockville, Md., said he has limits on how far away he'll look.

"I basically try to stay [on the] East Coast because of shipping costs," Schumacher said. He typically won't pay more than $500 for shipping unless he "really needs a specific car."

Schumacher said his group, with 18 locations across Maryland, Florida and Pennsylvania, has been cross-state buying for years.

"Prepandemic, we were always buying cars all over because I don't have enough cars in Maryland," he said.

Massachusetts dealer Gary Rome also was used to shopping across state lines for his Gary Rome Auto Group's Hyundai and Kia stores.

"We're watching multiple auctions, multiple states at the same time," Rome said. "We're putting in alerts, in proxy bids and on many vehicles, so we can expand our area of purchasing."

While the group has aggressively bought digitally for years, one big switch is how much the retailer now is needing to pay for vehicles, he said.

Prices have risen dramatically. Even with casting wider nets, dealers often find their new auction ponds being over-fished as well.

"It's pretty brutal," said Fitzgerald's Schumacher. "My one manager, he proxied 50 cars for an auction. ... He got two of them."