Automakers, Auctions Align to Prop Up Used Car Prices
Date: July 7, 2017
Source: Automotive News, Reuters
CARLETON, Mich. -- Two lanes apart at a noisy, fast-paced auto auction near Detroit, two vehicles show why major U.S. automakers have a problem with used cars.
In one lane of the Manheim auction facility, a black 2015 Chevy Malibu sedan with barely 20,000 miles on it sold for just over $13,000, less than half its original sticker price. In the other lane, a white 2013 Chevy Silverado pickup truck sold for $11,500 -- despite having 200,000 miles on the odometer.
America's renewed lust for new crossovers, SUVs and trucks instead of smaller cars is already hurting major auto companies, which posted their six consecutive month of declining new vehicle sales in June.
But millions cars that were leased two or three years ago, many of them used compact and midsized cars with low mileage, are heading toward auction lots and used car dealerships.
That surge in supply threatens to depress prices for new and used vehicles, raising the risk of losses for automakers and finance companies on lease deals. It also undercuts the value of cars customers want to trade in for a new vehicle.
So major carmakers, including General Motors and Ford Motor Co., are aligning with auto auction houses with aggressive moves to make sure they are getting the best prices for their vehicles. Such maneuvers include transporting the automobiles to where the greater demand is based on real-time pricing data, spending more to spruce up used cars and slowing the pace which leased cars get moved to used car lots or auction houses.
Auto auction houses such as Manheim in southeastern Michigan are where the romance of new car marketing goes to die. The dominant player in the U.S. auction market along with rival KAR Auction Services Inc., Manheim treats vehicles like commodities, grading them on a fine-tuned scale from one (poor) to five (excellent) that provides dealers with certainty and transparency.
"If a dealer sees a 2015 Ford Fusion with a rating of 4.3, they know what to pay for it and what they can sell it for," said Matt Trapp, a Manheim vice president on a tour of the auction, scanning tags on vehicles with his smartphone to pull up a multitude of transactions for that make, model, year, condition and mileage.
"If you don't want to overbid on this one, wait a minute and another will be right along," he said.
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