In this Wreckonomics™ Feature we’re going to take a look at the hidden high costs of selling your vehicle supply through automotive auctions Nationally. While most remarketing operations are still experiencing high average recovery values, the picture is much more complicated than it first appears. Wholesale buyer fees have skyrocketed. These fees typically don’t appear on the seller ledger for an auction sale but they are having a significant effect on your recoveries. We’ll take a quick look at the giant step buyer fees have taken since the COVID-19 Pandemic and how to avoid overpaying for routine wholesale transactions.
Background
For those of us who have spent much of our careers in the wholesale automotive space, up until March of 2020 our lives were pretty routine. Searching for value, maximizing recoveries, stretching a dollar or collecting a dollar was pretty much a mundane affair. We would coast up and down with market rises and falls but for the most part these were slow moving forces not rapid changes.
And then the Pandemic remade our universe. Now we were experiencing a complete paradigm shift
Par·a·digm Shift
/ˈperəˌdīm ˌSHift/
noun; a fundamental change in approach or underlying assumptions.
Transportation behaviors turned on a dime and wholesale values shot through the roof. The average value of a used car went up over 27%. In the short run, sellers profited immensely. But over time these high values mellowed and the advantage that sellers had in the market diminished significantly.
However during that period of explosive growth most auction operations took the opportunity to significantly boost their per-unit-income by loading up the buyer with auction fees.
Let’s take a look. Since ARS’s primary focus is low value units we’ll examine vehicle values under $5,000.
Source: Advanced Remarketing Services
As you can see, fees in this cohort rose approximately 45% from 2019 to current. Buyers bore the increased acquisition expenses silently. The scarcity of product made the drastic increases just the cost of doing business.
However, professional buyers at wholesale aren’t reckless – to have long term success they need to be careful and consistent. So, while these ‘buyer fees’ are ostensibly paid by the buyer, they are factored into their bidding methods and severely erode the net recovery for wholesale sellers, transforming what appears to be a successful sale into a mystery box of expense that does not appear in the reconciliation. These fees collectively diminishes the seller’s ultimate proceeds. Understanding these off ledger expenses is crucial for wholesale sellers aiming to optimize their asset recoveries.
The Equitable Exchange: mBid™
ARs launched our mBid exchange in 2011. Our digital platform connects buyers and sellers without the gimmicks typical of auto auctions. On mBid, basic fees are are most usually split between buyer and seller with neither throwing the party. ARS sells more cars directly to licensed bidders outside of the traditional auction than any other platform – insurance Salvage, fleets, repossessions, charity, dealer and consumer volume. From coast to coast, ARS’s buyers bid and buy on assets that fit their appetite.
Now let’s look at that same graph and add the context for ARS’s mBid Exchange. Having trouble seeing the mBid stats? Hint: They’re the small pink and yellow columns.
As you can also see, ARS’s mBid fees have not risen at all since 2019. ARS has the lowest fees anywhere in the wholesale marketplace and it’s been that way for over a decade.
Understanding the Fee Landscape: Your First Line of Defense
We discussed earlier how these auction fees were installed during a huge increase in value. Well, these fees will not go down with any market correction. The line between a good and bad deal may be difficult to determine for sellers. Before you consign your next unit, you need a clear understanding of all the fees involved, not just the ones on your sales reconciliation. Don’t settle for vague estimates. Demand a detailed breakdown from the auction house and overlay those fees against your past transactions you may find that the auction is prospering where you are struggling.
About ARS
If you are tired of watching your profits erode under a mountain of fees when selling vehicles at Auctions, you are not alone. If you have a pool of low value vehicles in your portfolio or if you’re looking at ways to maximize recoveries, please reach out to us at ARS. Send us an email: success@arscars.com
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