New Gadgets help Dealers decide what to Buy

of the sub-prime repossessed units which tend to be older,

rougher and, as a result, less-expensive is relatively high

at auction right now. This may be attributed to two things: the

preference of some dealers to conserve floorplan capital,

and the relative success retailers in the buy-here-pay-here

space are having. The latter are often perceived as lenders

of last resort for the credit-challenged car-buying public.

Also, older units are in shorter supply at auction. This is

because franchised dealers are holding on to trade-ins that

they would have previously wholesaled. This is done in an

attempt to retail these units for the attractive grosses

they generate.

Often, sub-prime financing companies that have to satisfy

certain covenants with sources of capital are basing sales

strategies on liquidity considerations rather than retention

considerations. As previously stated, this may be an

appropriate and commendable strategy to provide “front-end”

liquidity for retail lending. Dealers may also find it best to

liquidate aged or unwanted used-vehicle inventory to generate

cash in order to weather potential economic storms.

So at a time when the government, the financial community

and the automotive industry are all seeking ways to inject

liquidity into the market, the auction industry represents a

ready source of cash from ample volumes of used-vehicles.

Wholesale market values may be depressed at present, but

there are pockets of healthy demand for certain types of

used-vehicles and auction companies can advise remarketers

of those opportunities. In these unprecedented times, the

need to create liquidity may ultimately supersede the desire

for price maximization.

Tom Kontos is Executive Vice President of Customer

Strategies and Analytics at ADESA, Inc.

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