10 oct 22

Why tomorrow’s Remarketing will be leaner, fitter, stronger

The dot-com bubble of the late 1990s didn’t kill off the internet. Similarly, remarketing may buckle under the economic headwinds now blowing our way, but the industry will emerge leaner, fitter and stronger.

At present, used cars are in short supply and in high demand, and thus by the iron laws of supply and demand, quite expensive. 

That has provided lease companies – who didn’t factor in a pandemic, a war and an economic crisis when they set Residual Values (RVs) of their new cars three years ago – with a major windfall, pushing their revenues this year up to record levels. But there could easily be a yin to that yang.

Modern-day alchemy

RV setting, that key component of vehicle remarketing, is modern-day alchemy in the best of times: take a new car, and try to predict how much it will retain of its original price once it gets sold as used, a couple of years down the road. 

Essentially, it’s guesswork; but there are helpful guardrails. Brand reputation. The resale value of previous model versions. Available options. Customer preferences. 

But, as most will agree, these are not the best of times. The litany of troubles is familiar: the pandemic is barely over, supply chain issues have hampered the automotive industry for the past year and a half. Then there’s the Ukraine war, stoking a rise in fuel and energy prices, not to mention inflation acting like a wet blanket on the economy. 

If the world since 2020 has taught us anything, it’s not to trust predictions – especially positive ones. The only certainty is uncertainty, and change is the only constant. Especially in a future-oriented business like Remarketing, that has left its traces. 

Hercule Poirot

In some movies, you’ll sometimes still encounter the ‘classic’ caricature of a used-car salesman, dressed in a 1970s suit, oozing self-confidence, and guaranteed to overcharge his customers for a no-good clunker. That portrait has as little to do with remarketing today as Hercule Poirot resembles a modern-day police detective. 

The work of today’s remarketers (and police detectives) has been transformed by technology. Thanks to Big Data, Artificial Intelligence and other innovations, the business of used-car selling and buying has become transparent as never before. This has benefited both customers and remarketers: better information leads to better choices. 

But the often limitless belief in the power of digital solutions is not always matched by the huge revenues that investors and shareholders expect. This is where we were going with that dot-com bubble reference. Yes, the remarketing world is moving towards digital. But the road towards that digital future is not as smooth and straight as was once presumed. 

Today’s economic turbulence has revealed the shakiness of some business models in online vehicle remarketing. In recent months, several platforms have announced a reduction of service – retreating from certain markets and/or market segments.

Typical back-and-forth

This is the result of the typical back-and-forth of a business cycle. Up until, say, 2019, you only needed to whisper the term “digital remarketing” to investors, and they would stuff your pockets with a few billion. The luxury of ample funding has in some cases led to lavish spending: on personnel, on real estate, on outsourcing services. 

Leaner times as these call for thriftier spending. Hence the reduction in services by online remarketing platforms. We may see similar movements in other parts of the remarketing value chain, with companies slimming down, refocusing, merging, and perhaps in a few cases, ceasing operations.

However, it is important not to mistake that hardship for the failure of online vehicle remarketing as a business proposition. Rather, it is an invitation to anyone in this industry to come up with a business model that is leaner, fitter and stronger than what came before. 

Tomorrow’s remarketing industry will be even more digital than today. And tomorrow’s remarketers will look more like IT specialists and data analysts than like that caricatural used-car salesman in his 1970s suit. 

Change with the times

Yes, these are hard times. But they will separate yesterday’s success stories in remarketing from the winners of tomorrow. In every business, the urge to repeat what worked before is very strong. 

But in Remarketing, which is being transformed by electrification and digitization, not to mention fundamental changes to the business model itself, including the agency model and innovations in mid-term leasing formulas, the only way forward is to change with the times – or to be left behind. This is no longer your daddy’s remarketing industry. 

Authored by: Frank Jacobs