Pre-owned sales market remains healthy, NPA’s Woodruff says
Following his highly informative presentation during the Powersports Business State of the Industry webinar in October, National Powersport Auctions chief operating officer Jim Woodruff is once again called on by Powersports Business to provide an even deeper look into the auction industry.
PSB: What are you seeing as trends in the auction business at the moment, in terms of dealer consignments? Repos?
JW: Current auction trends have been similar to the previous couple of years. Seasonality has been fairly normal, and demand for certain categories and models fluctuates with their desirability at the retail level. The repo market declined in volume again in 2012 as default rates remain at historic lows. Our consignment volume has seen an uptick as dealers more actively take in trades and turn their inventory for best use of their capital. Knowing their dealership floor is not the only avenue to sell their inventory, has given them the freedom to close more deals.
PSB: How has the economy affected the product mix at your auction? With retail improving as the economy improves, what does that mean for dealers who buy at auction?
JW: We are seeing a lower ratio of off-road vehicles than we did several years ago as those retail segments have softened, especially ATVs. Street motorcycle selection remains diverse. Product quality has remained good, with the average model age and mileage increasing over prior years as bank portfolios age, which mirrors the increasing average age of motorcycles on the street. We expect certain product segments will go through price bumps when they go through their inflection point of retail demand picking up before the wholesale supply picks up, with the dealers that buy those units benefitting from that same scarcity value in their retail pricing.
PSB: With credit default rates so low after the retail lenders tightened up, how and why should dealers use the auction to build up their inventory line?
JW: For dealers that have capital to work with, buying a little ahead of the curve can save them some money. Dealers with less capital to work with or that like to maintain flexibility to quickly react to market conditions can buy product at auction on more of a just-in-time basis. Auctions can be a great resource for obtaining hard-to-find models, or for stocking up on a popular model or two to drive traffic into a dealer’s showroom. In general, especially during the peak selling seasons when making money requires inventory, it is important to stock up with the right mix of products and liquidate what you don’t need. When the peak is over and inventory needs to be right-sized, dealers can use auctions to quickly turn any excess inventory back into cash or a different product mix for the change of season. Auctions have a much broader geographic reach than the typical dealership, so auctions have the potential to net a dealer a better return than retail discounting at the end of a season.
PSB: How does the retail environment at the end of 2012 affect pre-owned availability at auction?
JW: It’s no secret that the repo volumes are down due to the lack of loans being written for new and used powersports. Tighter credit lines mean fewer motorcycles sold than the market will bear. We are starting to see loans loosening up on new powersports, but pre-owned financing is still a challenge. Pre-owned sales remain healthy at the retail level and dealers are getting smarter about inventory turns, so consignment volumes are not showing any impacts from tight retail financing.
PSB: How important is it for dealers to continue to turn to auction to generate the appropriate used product mix?
JW: Dealers should treat auctions as a tool to assist with their overall inventory management. Not only can the auction be used to add new inventory to a showroom floor, but if managed correctly, it can also be used to take in additional trades, offload slow moving inventory and buy off the street. Depending on the time of year and overall market imbalance, we will have a dealer that will focus on simply taking in trades and consigning the ones they felt were not fits for their store. Several months later that same dealer will purchase from us to restock after a strong selling season. Because auctions both buy and sell, use them for what your dealership needs.
PSB: How can a dealer capitalize on pre-owned by buying at auction?
JW: Auctions offer several opportunities for dealers that are looking to purchase pre-owned powersports. Auctions offer the largest volumes of pre-owned vehicles — NPA offers on average 5,000 powersports a month nationwide — so dealers have the opportunity to purchase almost every make and model each month. Dealers can also utilize online platforms such as NPA eSale or NPA Insurance|Total Loss as a “virtual showroom” with the availability to purchase 24/7. We have seen a rise in dealer participation on both these platforms, proving the benefits of the virtual showroom approach. Some auctions like NPA also have other tools to help dealers with their pre-owned business, such as valuation tools, commercial credit lines for building inventory and recommendations for retail financing.
PSB: With a slow rebound of the economy, how can the dealer generate more sales by turning to pre-owned?
JW: Pre-owned is here to stay! It is great to see new sales on the rise, but lending is still very tight and the average consumer is still not always comfortable with the idea of the commitment required for buying new, especially those who are considering their first powersports purchase. Pre-owned is a great way for a dealer to create a new customer today and sell him or her their next bike in a couple of years when consumers are more confident and financing accepts a larger range of credit scores. In addition, the sooner a new customer relationship can be established, the sooner a dealer can generate revenue from parts, accessories, service and strong referrals.
Any push within the industry to get lenders to consider motorcycles as actual modes of transportation? i.e., not strictly for recreation? It's dumb that I can get an interest rate of 4% on a $15-20,000 car, but if I want a $15-20,000 motorcycle, the intrest rate shoots to 10% with the same terms. I believe the latest statistics show the majority of US buyers now indicate the primary reason they're buying a motorcycle is for transportation, so the discrimination seems like a real barrier for buyers AND sellers.