David Ruggles - Ward's Dealer Business
One of the more interesting occurrences taking place in Orlando during NADA convention week actually happened at the American Financial Services Association (AFSA) conference held at the Peabody Hotel earlier in the week. The conference preceded the J.D. Power conference and the NADA convention. One of the most anticipated presentations was to be given by industry forward thinker and innovator, Dale Pollak. Many of the attendees were curious to see what Dale would have to say to a room full of bankers.
Pollak made the case that technology could better determine retail values by sampling actual prices posted on dealer pre-owned inventory in each market. It then followed, based on Pollak’s reasoning, that wholesale and loan values could then be established by calculating backwards from the market driven retail price. He then asked the room full of bankers, “Wouldn’t it make more sense to lend based on actual market numbers rather than the theoretical numbers provided by the “guide books?”
Of course, this new concept assailed the current and historical practice of lenders and dealers using the guidebook numbers provided by Kelly Blue Book, Black Book, and NADA, which use much different methods from what Pollak proposed to establish their values. Adding to the intrigue is the fact that Pollak’s company, vAuto, is under the same Cox Enterprises/AutoTrader corporate ownership as Kelly Blue Book and Manheim Auctions. Manheim Market Report (MMR) has become a commonly used appraisal tool for dealers these days.
Mike Stanton, VP and COO of NADA Used Car Guide took the microphone when the floor was opened up for Q&A. Clearly irritated at having his business assailed in a public place by a partner of NADA University, Stanton made the assertion that Pollak had misrepresented the methodology used on the sixth floor of NADA headquarters, where the NADA guide book staff crunches the numbers for the iconic values guide. There was an uncomfortable hush in the room as the discussion unfolded.
In a later conversation, Stanton itemized a number of potential problems with Pollak’s new concept, including the fact that all possible vehicles are not necessarily available for sale in a given market at any single point in time to provide consistent retail pricing. In other words, single markets do not always provide enough units of each example to be statistically relevant. Then there is the issue of price sampling inventory with inconsistent mileage. In addition, lenders need a certain “smoothing” in the values they depend on to make lending decisions as value volatility can be unnerving to lenders. To be sure, NADA in particular, has improved its methodology in recent years after dealer margins were pinched when the relationship between actual wholesale values and retail values were not accurately reflected when the used vehicle shortage caused auction prices to skyrocket in 2009.
With retrospect, it is easy to imagine that the participants in the discussion would have preferred that it had unfolded in a different forum. But the genie is now out of the bottle. It will be interesting to see if this discussion has legs. There is a lot at stake.
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