The Blending of Physical and Digital Auto Auctions, Part I

The Blending of Physical and Digital Auto Auctions, Part I

Digital auctions have accelerated significantly in recent years. Physical and digital have their own unique strengths and weaknesses, resulting in a rapid acceleration in the blending of the two formats. To find the best of both worlds, let’s take a deeper look at the first two key elements at play.

By Matt McLeod, director of sales operations and John Brasher, executive vice president, auction operations for EBlock

The age-old process of auctions has been the tried-and-true method to transact everything from coins and antiques to real estate and airplanes since humankind started buying and selling. The liquid market created by auctions has never been matched or duplicated. The urgency and competition combining supply and demand with buyers and sellers to maximize value has been proven again and again and again.

Over the years, technology adaptations have added to the liquidity of auctions in our industry, starting with online run lists and advertising, and eventually leading to satellite and now internet simulcasting auctions. Starting in the 1990s, online and mobile technologies have enhanced and expanded the scope of auto auctions that were once limited by time and geography.

Since then, digital auctions — both simulcast and digital-only auctions — have been steadily growing and have accelerated significantly in recent years. Physical and digital have their own unique strengths and weaknesses, resulting in a rapid acceleration in the blending of the two formats. To find the best of both worlds, let’s take a deeper look at the first two key elements at play:

1. Physical Auctions Are Commanded by a Live Auctioneer

Live auctioneers are immensely valuable to physical auctions. Live auctioneers can gauge vehicle interest as it crosses the block by assessing the number of potential buyers ready to bid and by evaluating digital metrics such as recent offers and watchlist saves. This live information and interest can help with optimizing the starting bid, choosing where to place IF bids and adjusting how much bid increments should be. In the event there’s a gap in market-price discovery, a physical auctioneer can easily negotiate with both buyers and sellers in real time to close a deal right then and there ahead of an IF bid.

Digital auctions use algorithms to closely match the role of a physical auctioneer by setting the start price based on historical data, but algorithms have yet to replace the full value and energy of a professional auctioneer. Simulcast allows the virtual participant to see and hear the on-site auctioneer from the comfort of their home or office, creating something of a happy medium. This also allows a customer to access a variety of analytical tools while bidding from home that they otherwise would not have access to from physical lanes. However, they still can’t send the ringman around to work deals they might otherwise have missed out on.

An interesting nuance is that digital-only auctions provide a little more trust and transparency since there is no artificial bid inflation, which is common practice at physical auctions, but at the end of the day, part of the art of a live auction is the show!

The younger generations aren’t all looking to recreate the physical auction experience and they are open to something different. However, there are still many that appreciate the physical auction. The challenge is that to create a robust marketplace, both groups need to feel comfortable. Not everyone desires the same experience along with the stage in the vehicle lifecycle in which they require liquidity. That is why it’s critical the industry provides auctions that are 100% digital, others with live auctioneers, as well as a marketplace that accommodates both.

2. Cars Are Transported to the Physical Auctions

Due to the vehicle being physically present to cross the auction block, sellers must transport their vehicles to the auction location. Depending on where the seller is located, shipping logistics can become a cost and time dilemma. An often-overlooked consideration is that the time a car is not available for sale due to those logistics costs dealers. Conversely, this same location dilemma causes similar issues for buyers. The fixed location of a physical site may limit the number of buyers a vehicle is exposed to — ultimately affecting the returns for a seller. Major weather events like blizzards, tornados and other natural disasters can make these logistics more cumbersome. That said, the selling dealer who has transported a vehicle to a physical auction has more invested in the transaction and has a bigger motivation to sell. This often results in higher sales percentages, and high buyer participation, which leads to higher net results.

On the flip side, transporting vehicles to the physical auction has benefits that may not be as obvious to the casual observer. It is the perfect situation for dealers that are landlocked – every inch of their lot is full and they need that vehicle moved immediately for space to fill with a retail unit and/or a more efficient lot experience — why plow around it, boost the battery, put air in the tires and repair lot damage when you don’t have to? Moving these vehicles off the lot also means that consumers won’t get confused with non-retail pieces when they come to browse and buy. The longer a unit sits on the lot the more resources it will consume. Transport for buyers is also more efficient when vehicles are located at physical auctions as all their purchases can be picked up from a singular location, as opposed to sending transporters to many different cities and dealer to dealer.

This is where digital auctions offer the benefit of better control of inventory. The dealer can dispose of a unit to free up space and avoid the time wasting mentioned above at any time by listing it on a digital auction. Digital auction platforms also offer the ability to do internal group trades if they are part of a dealer group before the open market, in order to keep profitable retail inventory within the group.

Money is saved by not transporting vehicles to a physical auction, but there is always a tradeoff that needs to be considered. In some cases, the tradeoff is very easy to make, for example, for fleet businesses that don’t have land and services to support the remarketing of their fleets. In other cases, a seller may not struggle with space issues. In a time of low inventory, a seller may want to keep a unit on their lot while awaiting the upcoming auction. The digital auction allows the seller to keep the vehicle offered for sale unlike when utilizing a physical auction, it may have had more downtime while being transported and prepared for the lanes. Combining both digital and physical auction solutions allow for the flexibility that meets the variety of use cases that exist in the car business.

Brick-and-mortar auctions aren’t going to disappear. The camaraderie and relationships built through physical auctions bring an excitement that’s difficult to virtualize, while digital auctions offer unique benefits that physical auctions can’t replicate.

For Part II, click HERE.

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