ATLANTA -

In today’s wholesale market, buyers are extremely hungry for quality used vehicles, which are seeing prices rise as the supply dearth remains.

Wholesale values have hit record highs recently and buyers are paying top-dollar for these hard-to-find quality used units, of which there never seems to be enough.

So how can consignors in today’s auction market put themselves in the best possible position?

For one, the wholesale certification process certainly can provide consignors a measurable lift, according to Manheim Consulting.

In a case study titled “The Value of Recon and Certification,” the firm set out to determine how much of an uptick these wholesale consignors see from certification, thus giving sellers a quantifiable tool in their auction decision-making

Manheim examined seven non-factory captive finance companies during the study, each of which provided wholesale certification warranties on their vehicles and used either a Manheim Certified Program or a private-label program in doing so.

What the company discovered is that every dollar pumped into recondition and certification yields sellers $2.27 in return, on average.

Going into the study, the company expected the return would be less than $2 for every dollar invested, said Erik Kibler, senior director of consulting and analytics.

“They were better than we expected,” Kibler told Auto Remarketing in a recent interview. He also explained that the report was conducted in 2008 and the numbers were verified again last year.

The report indicates that one consignor, in particular, had a remarkable knack for selecting the best vehicles for certification. In fact, the money the seller put toward certifying units was not any higher than what it put on readying non-certified vehicles, officials said.

What’s more, despite the consignor not spending any more for certified versus non-certified vehicles, the seller’s certified units fetched a $215 premium. For the seven consignors in the study, the average premium was $127 for what was spent in reconditioning.

“It comes instinctually the more you do it,” Kibler said.

Essentially, the more seasoned consignors can find items to recondition that bring in the most ROI.

Kibler emphasized that the premium these seven consignors saw on their certified units demonstrates the unprecedented “wealth of data and analytics” available to consignors. What’s pivotal for consignors is to combine this data, analytics and information with their experience and expertise.

Doing so “really provides an effective way to make decisions in our marketplace,” Kibler noted.

He warned against relying solely on data or making decisions based solely on experience and expertise. Again, it is crucial to combine these elements in decision-making.

Which Units are Best for Certification?

Continuing on, the report offered a grading scale for judging a vehicle’s condition, as follows:

Grade 5: X-Clean
Grade 4: Good
Grade 3: Average
Grade 2: Rough
Grade 1: Extra Rough
Grade 0: Salvage

Interestingly enough, vehicles in the Grade 3 class — not from Grades 4 or 5 — typically yield the best returns. Often, a Grade 2 can be ideal, as well.

“There’s a great opportunity to improve the condition of the vehicle,” Kibler said of the Grade 3 units.

In the study, four of the seven consignors chose vehicles with average scores a bit higher than Grade 3 (3.14), while three picked units with average scores a bit below Grade 3 (2.8).

Manheim found that retention level for sellers with units slightly above Grade 3 was 4 percent stronger than those who picked units a bit below Grade 3.

“No concrete conclusion can be drawn from this fact since the study did not control for the effectiveness of each consignor’s marketing campaign,” the study suggested. “Still, this difference hints at the precision required in the selection of vehicles to achieve the best return on recon and certification investment.”

So why not select Grade 4 and up vehicles for certification? Basically, buyers tend to already think of vehicles Grade 4 and up as being already certified quality, Manheim’s analysis suggested.

While their certification costs are not as great as those of a Grade 3 unit, the difference in the price that a certified Grade 4 or above vehicle fetches, and the price for non-certified Grade 4 or above unit, is as much as the price gap for certified versus non-certified Grade 3 units.

In other words, it’s the law of diminishing returns: you don’t get as much money in return for certifying a Grade 4 or higher unit.

That being said, the study stressed that: “These results do not argue for omitting the higher condition grades from certification. There is a positive investment lift for certifying vehicles of all conditions above 2.0.”

On the opposite end of the spectrum, a Grade 1 unit costs too much money to certify for it to yield any worthwhile return.

“It would be too much expense in the car to improve the condition,” Kibler noted.

Implementing a Process

Moving along, when asked what consignors should do if they are interested in implementing a certification process for vehicles they sell at auction, Kibler suggested two methods.

The most ideal, he said, is for a consignor to create and customize its own program. Another option Kibler gave is to utilize the Manheim Certification Program.

Two steps comprise the Manheim program. Sellers choose vehicles to certify and then these units go through inspection and reconditioning per minimum certification standards, the report explained.

Kibler acknowledged that using the Manheim method doesn’t create a uniqueness that a customized certification program would, but it creates a standard.

“It’s a lot easier to implement,” he noted.

Kibler said that “some debate” exists around wholesale certification. Proponents of customization claim that it serves as a “differentiator” for them, while others believe that it can be “overwhelming” when each consignor has a different certification procedure.

Continuing on, Kibler also shared his insight on how sellers should go about determining which vehicles to put through a wholesale certification process.

First, consignors establish general criteria to determine which of the multitudes of their vehicles are best for certifying. Then, hone in on the Grades 2 and 3 units and figure out which ones will bring in the most ROI. After that, consignors should determine which vehicles meet their specific expense threshold and focus on those.

Wrapping up the analysis, Manheim keyed in on one crucial point.

“The study establishes a clear message for remarketers with the volume, the willingness and the resources to engage in wholesale certification: Such wholesale certified programs, intelligently combined with appropriate reconditioning and detailing, provide a low cost method for significantly boosting sale prices,” the report indicated.