With the rise of internet auctions, the used car sector is becoming more regional and international, stirring greater demand for efficient logistics services, reports Malcolm Wheatley.
Used car transactions take place thousands of times a day–in corporate parking lots, rental locations, private homes, and dealerships. It is an exchange between owners who could be hundreds or even thousands of miles away. And in between them: a complex chain of handovers, probably an auction, and quite possibly another torturous transit with multiple handovers before the final destination is reached. It’s big business, as well as complex. One estimate puts the used car market in the United States at nearly three times the size of the new car market, with some 72,000 businesses involved–many in quantities of one or two vehicles at a time. Take the American operations of Toyota’s leasing and financing business, Toyota Financial Services. The operation uses 21 auction sites across the country, explains national remarketing manager Ralph Fisco, and it ships ex-finance and ex-lease vehicles to them by vehicle transporters contracted through a single provider.
Many of the auction sites in question are operated by Toyota’s auction partner Adesa, a major player in the used vehicle auction market. Unlike vehicle auctions in the UK, for example, which are open to the general public, American auctions are often ‘dealer only’ events, a factor that has aided the move to online sales in the eyes of some.
Earlier this year, for instance, Adesa reported record growth for its Toyota Dealer Direct Web site, a dedicated online auction platform that provides Toyota and Lexus dealers with the opportunity to buy from each other, as well as purchase vehicles owned by Toyota Financial Services and Lexus Financial Services before they are sent to physical auctions. Manheim, another major player in the American auction market with 77 operating locations in the United States, has also branched out into online trading. In June, for instance, more than 2,500 pre-owned Toyota and Lexus models were sold during four open weekend Manheim-operated online sales events, up from 732 cars sold during the same month in 2009, with an average of 400 bidders participating in each of the auctions, according to Nick Peluso, senior vice president of customer management at Manheim.
A similar move to online auctions is taking place in Europe–and not just at the consumer level, in response to the threat posed by online rivals such as eBay Motors. At Europe’s largest vehicle auction firm, UK-based BCA (formerly British Car Auctions), the vast majority of vehicles sold come from businesses: fleet operators, manufacturers, finance and leasing houses, rental companies, national authorities, and professional dealers from across the motor industry. With 21 auction sites in Britain, as well as operations in 12 other European countries, BCA now also operates a dealeronly ‘Live Online’ service. This provides online access to physical auctions held at the company’s auction sites, as well as internet only auctions, often dedicated to particular vendors. As in America, the result, says BCA logistics director Jonathan Higham, has been to accelerate the demand for logistics services. “Where it was once ‘local cars sold in local auctions’, now there are many routes to market–physical and online–and logistics has become more critical to the increasingly complex remarketing chain,” he notes. “A bidder at one end of the country may buy vehicles located at the other end. This creates a requirement for a national logistics infrastructure that can meet the increasingly complex collection and delivery needs of national and local sellers, and local and remote buyers.”
It’s also a business becoming more international. Manheim’s ExportTrader.com website not only lets overseas buyers bid on the 100,000 or so vehicles going through the auction firm’s business at any one time, but also arranges for purchased vehicles to be shipped to the buyer’s desired port of import, offering a choice of roro or container.
A market in need of logistics innovation
Yet despite all this activity, from a logistics point of view, the used car market represents a process fraught with problems, pitfalls and practical issues to address. The original owner might not be physically present at the original handover, for instance. In the corporate world, for example, the true owner is generally a vehicle leasing or finance company–while the company employee who hands the vehicle over has simply been the assigned driver. In other cases, the vehicle may be a repossed one.
The value of the vehicle, too, is often an unknown until it can be assessed. While a rental fleet owner will know a vehicle’s mileage with a fair degree of accuracy, the owner of a vehicle coming off lease to a corporate executive, for instance, might only know the reported mileage at the last vehicle service. Yet it’s a value that can’t be realised until the vehicle is presented, in a saleable condition, at auction. ‘Appropriate’, though, doesn’t mean ‘nearest’. Sellers intent on improving the sale value understand all too well the regional, seasonal and model-based differences that drive used car prices.
Convertibles will attract a higher price in an affluent southern US state than they will in a poor northern one, for instance–a difference in price likely to be well worth the extra transport distance. Pickup trucks, too, sell more readily in some locations than others, likewise small urban vehicles. But shipping used vehicles further not only increases the chances for damage, but failing to get a vehicle to an auction location by the appropriate date means the seller must wait, while all the time the value of the vehicle depreciates. It’s a market crying out for logistics innovation. And it’s starting to happen–if patchily. David Carp, director of fleet and remarketing at Kia Motors America, for instance, points to a number of transport companies that have set up used vehicle-specific divisions to tackle the opportunity. But that’s only the starting point, he stresses.
“Service providers are only just beginning to understand how automobile manufacturers operate their used car divisions,” he says. “There’s still a learning curve taking place.” Others concur. “Logistics suppliers must be able to provide robust pickup and delivery networks, extensive market coverage, and be able to aggregate and manage small orders,” says Jeffrey Grandstaff, general manager at ShipCarsNow, a subsidiary of the US railway Union Pacific. “Used car shipments can take place from anywhere to anywhere, but rarely is the volume aggregated at one origin into nice efficient loads for motor carriers, railroads and vessel operators.” The contrast with new vehicle flows couldn’t be more stark. “With new vehicles, you have a much more consistent logistics flow, and often one that is scheduled,” says Marty Colbeck, a regional sales manager with Auto Warehousing Company, an import processor and vehicle logistics provider. “You know that there will be a schedule, and that you’ll be sending 10-15 railcars to a destination. Used vehicle flows are far more erratic, and every day those vehicles are with you they are losing value.”
Nor is there a ‘one size fits all’ approach to service levels and pricing. “Used car traders are looking for different solutions for different needs,” says ShipCarsNow’s Grandstaff. “In our 2010 market survey, dealers told us that 64% of buyers want price/service options, as opposed to fast delivery all the time, or the lowest price all the time.”
Introducing inspection standards
Slowly but surely, though, logistics solutions are emerging. Auction operators, for instance, are developing ‘de-fleeting’ services to seamlessly take over an ex-fleet vehicle at the point of handover, inspect it, agree and then levy any charges in respect of damage, and then deliver the vehicle to auctions. While some operators simply take care of the logistics dimension of the task, assigning a ‘trade plate’ driver to the pickup who will perform a perfunctory check on the vehicle’s condition, others offer a value-added service aimed at minimising the gap between a vehicle’s theoretical residual book value and the actual value achieved at auction–a gap that can arise from damage, or if it lacks a spare key, radio, or other aspects of the original, as-supplied specification. “We call the vehicle user, set a collection date, and explain what will happen,” says Steve Weston, general manager of UK-based Manheim Inspection Services, part of the company’s ‘DeFleet’ brand. “They must understand that they’ll be charged for damage, or if the spare key isn’t there, and that there’s an abortive collection charge if they don’t turn up.” A charge also applies, he adds, if the vehicle isn’t roadworthy and must instead be taken away by vehicle transporter.
The inspection is to standards set by the British Vehicle Leasing and Rental association, and takes around 15 minutes, at the end of which the vehicle’s assigned driver is asked to sign a statement agreeing with the inspection outcome, and agreeing to pay any applicable charges for damage repair. “We’ll then arrange delivery to any of our own 18 auction sites around the country, or to auction sites operated by thirdparties such as BCA,” says Weston. Optionally, too, delivery may be to a vehicle manufacturer’s refurbishment facility to have damage rectified, if that represents the best way of achieving the vehicle’s full theoretical book value at auction. Here, too, innovative developments are underway. A newcomer to the market, UK-based Car Delivery Network, for instance, aims to replace a process currently managed through e-mails, faxes, phone calls and spreadsheets with a ‘software as a service’ central hub, accessible through a web browser, and complemented with handheld mobile devices to provide instant visibility as to a vehicle’s location. “Our role is to electronically connect a customer to a carrier, and a carrier to their driver, in order to facilitate information flow from the driver to the customer,” says Wayne Pollock, Car Delivery Network’s managing director.
And although the primary purpose of the business is the transport of new cars–some under contract for Ford–around a tenth of the 10,000 vehicles moved through the network each month are used cars. Manheim, for instance, is a customer. While Manheim’s inspection and damage service isn’t mandatory–fleet owners can send vehicles straight to auction, with an auction partner simply managing the transport–the opportunity that the service offers to achieve resale value as part of the normal de-fleeting logistics process is attractive. A growing number of fleet owners are starting to use it, explains Weston, and it is being rolled out for Manheim’s operations in continental Europe.
Getting volumes up, and complexity down
But it isn’t, it turns out, the way that business is done in North America, where a different system applies. “In the United States, there’s a tradition of inspecting at the auction, after the customer has lost sight of the vehicle,” notes Weston. The potential for confusion and dispute is obvious: did value-sapping damage take place during the original owner’s custody or subsequently, during the transport and vehicle unloading processes?
At which point, enter logistics giant UPS, which in November 2009 was selected by Manheim to oversee its entire supply chain for moving millions of used vehicles each year to the wholesale market–which means auctions initially, but subsequently post-auction delivery to dealerships. “After an extensive review of our vehicle transport operations, we identified opportunities to improve efficiencies and deliver a more consistent experience for our customers,” concedes Brett Franklin, senior director at Manheim. UPS’s Automotive Industry Solutions Group will work on behalf of Manheim’s customers–including dealerships, carmakers, car rental companies and financial institutions–to arrange pick up and drop off of vehicles bound for Manheim’s 77 operating locations in the United States.
The transition won’t be immediate, says Wayne Cabeza, UPS Automotive Industry Solutions Group operations director. But over an anticipated 18-to-24 month timeframe, all of Manheim’s operating locations will transition to UPS. The role of UPS, however, is more 4PL than 3PL.
UPS will coordinate and dispatch requests from all of Manheim’s operating locations, he explains, enabling UPS to make the most cost effective supply chain decisions, such as consolidating multiple shipments from one region into one delivery. UPS also will provide Manheim with consistent transport paperwork, payment terms and processes.
“The more we can get volumes up, and complexity out, the more efficient the business is,” Cabeza notes. “Going to Washington state for a single vehicle isn’t efficient: we have a large pool of carriers available, and we work with them to help them be more cost-efficient and effective.”
Improvements are taking place on the international shipping front, too. While vehicle flows are inevitably constrained by lefthand drive and right-hand drive issues, they do exist–and not just as ad hoc personal imports.
For instance, there are regular container-based flows of used vehicles from the UK to Malaysia, from Korea to Russia, and from Japan to the UK, South Africa, Australia and New Zealand, points out Paul Donaldson, managing director of Trans-Rak International. “It’s been something of an underground thing that’s always gone on, but which has never really bubbled to the surface,” he notes.
That may change as roro operators see opportunities to bolster recession-ravaged volumes. Wallenius Wilhelmsen Logistics, for example, has traditionally shipped used vehicles from North America to the Middle East, and from North America to Europe. And the shipping line is happily responding to rising demand in the Middle East by increasing the frequency of sailings from North America, as well as adding extra port calls, explains John Felitto, executive vice president and head of commercial for WWL’s Americas region.
“The service was increased from one voyage per month to two or three sailings per month, and the vessels now serving the route can also accommodate ‘high and heavy’ as well as break bulk cargo and boats,” he notes.
WWL has also added direct calls on the North America- Middle East trade route to ports in Umm Qasr, Iraq, and Karachi, Pakistan.
On a variety of fronts, in short, progress in the used vehicle logistics market is underway. The bad news? There’s still a long way to go.