A Nobel Prize for selling used cars
Showing the picture of an older couple, Steffen Schick asked the audience at the Remarketing Forum to identify the lady. More than a few identified Janet Yellen, current head of the U.S. Federal Reserve. Nobody knew the identity of the man. “That's her husband, George Akerlof. He is the only person ever to receive a Nobel Prize for selling used cars”.
Cherries and lemons
Schick (pictured), Chief Strategy Officer at EuroTaxGlass's, was joking, but not by much: Akerlof's Nobel Prize-winning economic thesis was titled The Market for 'Lemons': Quality Uncertainty and the Market Mechanism. And of course, used car salespeople know their lemons (vehicles with hidden defects) from their cherries (cars that are extremely good value for money).
“Akerlof's paper examines market inefficiencies due to information assymetry: when the seller knows more than the buyer. When the buyer doesn't know a cherry from a lemon, he will assume that all cars are average – or worse. As a result, the bad cars drive the good cars out of the market”, Schick explained.
Fortunately, there are plenty of reputable sales channels – exponentially more so, thanks to the internet. But too much information is a problem in itself: “How is a consumer going to derive the correct price for a car if there are so many variables to correct for?” Schick went on to establish a set of criteria and suggested methods to resolve this crucial issue, and to help dealers find the 'sweet spot' between focusing on price (but facing long stock times) and aiming for a big turnover (but losing out on revenue).
Schick also provided some Big Data insight into 'Dieselgate': “Remarkably, used diesels are still outperforming used petrol cars, and even VW's residual values are holding up”. In a best-case scenario, the scandal passes without any damage to resale prices. But other scenarios, particularly those involving heavy-handed intervention by regulators, could spell a serious decline in the remarketing fortunes of diesels.
Schick was joined on stage by Rui Ferrera, Vice President Fleet Remarketing for Hertz Europe and Ingo Schlosser, International Remarketing Manager for ALD Automotive, for a panel discussion on the challenges and opportunities for future remarketing, moderated by Johan Meyssen, CEO of CarsOnTheWeb.
Mr. Ferrera voiced the fear that 'Dieselgate' could become something of a self-fulfilling prophecy: “In my industry, I hear about it every day. But many of my friends don't even know what it's about. I'm afraid that the more we talk about it, the worse it could get. There was already an erosion of diesel sales before the scandal, this will add to that process”.
Mr. Schlosser noted some counter-intuitive market shifts: “In France and Poland, VW diesel sales have gone up since the scandal broke. That is very strange. And I agree with Mr. Schick: we see that prices are not dropping, and that resale values remain conservative. But indeed, if regulators make it small diesels more expensive, these cars – which were specifically designed for specific market conditions – will stop being made”.
Disruption need not come from scandals, the speakers noted: new technology will do that on its own. “I don't see enough emphasis in the industry on what the end consumer wants. That's an opportunity for someone new to come into the market and to do exactly that”.