Auto Auctions Disintermediated

Carvana acquired the Adesa auto auction last week.  Discussion on Twitter said this was not fair play, cutting into the supply line, and that dealers should take their business elsewhere.  I replied that there is already a movement to “disintermediate” the auctions, and that they will ultimately go the way of the stick shift.

Auctions are to wholesale what the test drive was to retail.

If you think about it, the whole auction paradigm is incompetent, like the dark days of assembly plant inventory before JIT was invented.  It means that one dealer took my used X5 in trade, couldn’t retail it, and sold it at auction – where it was purchased by another dealer, and finally retailed to a new owner.

Think of the friction – the time lags, the transport, the fees.  It’s just insane.  The only reason I didn’t sell the car myself is that it’s a lot of bother, but I can easily sell person to person (P2P) through platforms like Shift and Tred.  I can also sell direct to a used-car specialist like CarMax or, yes, Carvana.

This diagram shows three ways to skip the auction:

Figures from NAAA show that auction volume has declined every year since 2016.  I understand they provide other services but, look – Carvana already ingests inventory at scale using its own facilities.  They handle two million vehicles a year, and Adesa will bring them to three.

The wholesale market will be conducted dealer-to-dealer, without physical auctions, on digital marketplaces like CDK CarSource and Cox Upside.  The only wholesale inventory will be in transit or recon, because the digital listing can flip instantly to a retail offer.

The Car Offer case is instructive.  Bruce Thompson developed Car Offer as a dealer-to-dealer marketplace, skipping the auction.  Car Gurus then bought the platform and converted it to a consumer site, skipping the selling dealer.

Auctions are to wholesale what the test drive was to retail.  Just as consumers are learning to buy cars online, so will dealers.  In fact, dealers should pick it up faster because they’re experts.

Author: Mark Virag

Management consultant specializing in software solutions for the auto finance industry.

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