Automobiles and Other Motor Vehicles

SIC 5012

Companies in this industry

Industry report:

This classification covers establishments primarily engaged in the wholesale distribution of new and used passenger automobiles, trucks, trailers, and other motor vehicles, including motorcycles, motor homes, and snowmobiles. Automotive distributors primarily engaged in selling at retail to individual consumers for personal use, and also selling a limited amount of new and used passenger automobiles and trucks at wholesale, are classified in SIC 5511: Motor Vehicle Dealers (New and Used).

Industry Snapshot

Total volume of used vehicles sold at wholesale auctions rose to 9.51 million units in 2006, up from 9.40 million units in 2005. Despite the slight increase, the percentage sold of units that entered the market actually dropped from 60 percent to 58 percent. The percentage had held steady at 60 percent since 2003, when the auction industry had a high of 9.96 million units sold.

As the supply of off-lease vehicles entering the market steadily dropped through the mid-2000s, the average price per unit steadily climbed. After a drop of 2.2 percent in the average price per unit in 2003, the percentage increased 1.3 percent in 2004 then 4.1 percent in both 2005 and 2006. The average price per unit in 2006 was $9,138, giving the industry $86.9 billion in total sales, roughly $4 billion more than the previous high in 2003.

Of the 15,993 vehicles handled, 9.53 million used cars and trucks were sold through its members' auctions in 2007 valued at $88.8 billion. Total volume of used vehicles sold at wholesale auctions fell slightly to 9.48 million units in 2008, as did the value to $83.1 billion. Total volume of used vehicles sold at wholesale auctions reached 8.91 million units in 2009 valued at $80.5 billion.

Total volume of used vehicles sold at wholesale auctions increased in 2007 to 9.53 million units, falling slightly in 2008 to 9.48 million units before declining to 8.91 million units in 2009. However, when the percentage of vehicles auctioned off was taken into account, the total number of vehicles auctioned off was higher in 2009 at 61 percent compared to 55.4 percent auctioned off in 2008. The average price per auctioned vehicle was $8,762 in 2008, a 5.9 percent decrease from $9,310 reported for 2007. For 2009, the average price for an auctioned vehicle grew 3 percent over 2008 to $9,026.

Organization and Structure

The Census of Wholesale Trade breaks down typical wholesaling activity into three categories based on business ownership, ownership of goods sold, and the character of typical transactions. Merchant wholesalers are independent or chain operations that take title to the goods they sell from a manufacturer and in turn sell to a variety of clients. Approximately 60 percent of all wholesale sales are made by these firms. Manufacturers' sales branches and offices are owned by the product manufacturer or producer and sell to retail outlets and franchised dealers. The majority of motor vehicle wholesale sales fall into this category. Finally, agents, brokers, and commission merchants are independent merchants who buy or sell products for others. Sales for this category usually relate to commissions and fees.

Generally, automobile manufacturers maintain a network of franchised retail dealers who sell to the public and provide customer support and service. To maintain a unified corporate presence, the manufacturers also establish separate wholesale sales offices that set and monitor dealer sales practices, advertising and marketing campaigns, and retail pricing ranges. Because these transactions are internal to the corporate entities and regarded as proprietary in nature, little specific information is available.

Many sales are made to franchised dealers, but the manufacturers' sales offices also sell to fleet purchaser and rental agencies with guaranteed buy-backs after three to six months.

With dealers swamped with the growing volume of quality used cars, the manufacturers have increasingly shipped bought-back vehicles, known as program cars, to national auction chains, which have gained in size and popularity. Traditionally, the auto auction had been a small mom-and-pop operation designed mainly to redistribute used cars between differently branded dealerships or between regions of varying consumer market preference. Dealers of one type of car who took a competing make as a trade-in could wholesale the used car at an auction rather than display it on their own lots. In the late 1980s, however, some large players entered the auction arena and began consolidating many of the smaller operations into regional and national chains, transforming the industry into a high-tech "stock" market for motor vehicles.

Background and Development

Henry Ford's concept of mass manufacturing on the assembly line meant that his fledgling auto industry needed a means of mass marketing its product. Ford intended to build as many copies as possible of a universal automobile that everyone would buy. To do so, he and his competitors set up a network of small dealers who would buy the product and promote it locally, freeing up the manufacturer to concentrate on the technical development of the product and the evolution of the manufacturing process. This was particularly important in those early days of the industry, when communications were slow and unreliable. Making local managers and independent entrepreneurs responsible for everyday business decisions created a flexible and responsive marketing system.

As the American consumer's appetite for various models of automobiles increased, other manufacturers entered the arena. To maintain market share, Ford dropped the price of his Model T to almost half its initial offering, but still erosion continued. Innovation and product improvement picked up speed in the 1920s, prompting Ford to close his plant in 1926 for nine months to design and retool for his Model A. When he reopened, he found he had a new competitor, Chrysler, which produced few of its own components but responded quickly to market demand by sourcing parts and systems from supplier firms.

During this heady period of product innovation, the dealer network played a less important role in gaining and maintaining corporate profits than did the actual product. Those early years saw the complete domination of the world automotive market by American manufacturers, but the rapid acceleration of car production after World War II attracted global players. America's world share peaked at 82 percent in 1947, but declined since that time until the early 1990s, when domestic manufacturers once again increased their global market share. The American auto industry regained some of its market share between 1993 and 1996--particularly with pick-up trucks, minivans, and sport utility vehicles--but auto sales continued to fluctuate.

After 1948, the majority of technical development came to an end, and product lines within manufacturers became less differentiated. At that point, product loyalty and customer service at the dealer level became paramount. The entry of foreign firms into the market in the late 1950s again set up a measure of product differentiation that was eroded after the OPEC oil embargoes of 1973 and 1979. Those oil shocks made the primarily foreign-produced economy car more acceptable to the American public and strained the ties of product loyalty, when manufacturers in Detroit, the headquarters of the three major domestic carmakers, failed to respond. Dealers, threatened with bankruptcy, began to look to the foreign manufacturers for alternative vehicles to offer in their showrooms.

The wholesale arms of the manufacturers tried to impose discipline by forbidding franchisees from displaying competing models, but American law protected the dealers. Even so, the 50,000 U.S. automobile dealers who operated in the 1940s declined to about 18,000 in 1997.

Four segments defining particular niches for models had evolved--economy, sports, family, and luxury. Within those categories, the product became increasingly undifferentiated, as technological advances slowed. By the early 1990s, all the manufacturers were selling products with many similarities, which made the wholesale aspect of the business an especially important factor. As noted by the National Association of Wholesaler-Distributors, competition in the distribution of cars and trucks became particularly heated.

The 1980s saw a decline in the fortunes of the American automotive industry. Sales of all cars, motorcycles, and heavy trucks plummeted in the face of increasing competition from abroad. Only recreational vehicles and light trucks maintained their sales strength. This general downturn in the retail arena had a corresponding effect on the wholesale industry.

According to Federal Reserve Chairman Alan Greenspan, the seeds of that downturn could be seen in the drop in the number of vehicles per household that occurred between 1979 and 1983 and the rise in the relative age of vehicles on the road. That resulted in a pent-up demand somewhere in the neighborhood of 10 million units, producing a selling boom between 1983 and 1987. However, those gains evaporated in the slow economic growth of the late 1980s and early 1990s. In 1990 total sales of all new cars in the United States dropped close to their 1982 level of 7.9 million units. From 1991 to 1994 auto sales climbed. Sales of U.S.-produced cars increased, while sales of imports decreased. In 1995 total import sales declined--from about 9 million sold in 1994 to 8.6 million sold in 1995--but total sales of U.S.-produced cars continued to climb.

Moreover, competition in the industry from manufacturers abroad had increased in strength. Sales of imported cars rose from 21.9 percent of all new sales in 1979 to 26.4 percent in 1990 according to Monthly Labor Review, and the output of transplants--foreign car manufacturing plants built in the United States--rose from nothing in 1982 to 14.4 percent of sales in 1990. At the same time the wholesale price of the vehicles was dropping. In Applied Economics, Edward Millner compared the average wholesale price of domestic cars in the period from 1954 to 1974, before the OPEC oil shocks, to the period from 1975 to 1986. He found prices in the later period to be lower than the earlier period, despite the fact that the costs of doing business had increased.

The sales of imports dropped steadily between 1991 and 1995, but foreign car manufacturers continued to build plants in the United States. Throughout the 1990s Japanese companies invested $12 billion in U.S. facilities and employed about 40,000 American workers. Toyota opened a $700 million light truck plant in Indiana in 1998, creating 1,300 jobs. BMW opened a plant in 1994 in South Carolina, and by the end of 1995 production totaled 12,000 units. Mercedes Benz opened a $300 million plant in Alabama in 1997, employing 1,500.

With foreign automobiles being manufactured in the United States by American workers, and American cars being built overseas by foreign workers, the distinction between domestic and import has become blurred. According to a 1996 poll by the Japan Automobile Manufacturers Association (JAMA), a majority of Americans believe that a car by any name is American if it was built in this country. Nearly three-quarters believe that a car made abroad is foreign, even if it is sold by Ford Motor Co., Chrysler Corp., or General Motors Corp.

The Development of the Auto Auction.
In 1995, approximately 20 percent of all U.S. new car sales were to rental companies. Often these vehicles return to the hands of the manufacturer. Handling such volumes of essentially used vehicles proved a headache for the wholesale divisions, even after they established factory-direct operations to move thousands of vehicles every week from rental agencies to dealer lots. In response, the wholesalers looked to another, more traditional used-car wholesaler already established in the industry. The auto auction provided an ideal distribution tool.

The traditional auto auction was a small operation that essentially exchanged vehicles between dealers, but the 1980s saw a revolution in the marketing device. Anglo American Auto Auctions Inc. and its British Car Auction Group (BCA) targeted the American lease and fleet operations, drawing on their extensive European experience to transform the American industry. Between 1979 and 1988 the number of vehicles sold by about 300 wholesale-dealer auctions doubled to 4.5 million units per year.

Growth slowed toward the end of the 1980s. The National Auto Auction Association (NAAA) expected sales of 10 million units by its 215 auction operators in 1990, but sales for the year only reached 7.7 million units. By 1996 the number of NAAA auction operators had increased to 252, and 14 million vehicles would be offered for sale in member auctions in the United States, Canada, Australia, Denmark, and Japan.

Like other wholesaling segments, this part of the industry has become increasingly concentrated. The three largest players competed with each other throughout the late 1980s by buying up smaller auctions across the nation. In 1987 the largest player, Manheim Auctions, Inc., moved 600,000 cars through 21 sites for a 13 percent market share. A new challenger, General Electric Capital Corp. (GECARS), responded with 450,000 vehicles at 17 locations. BCA followed with 415,000 through 20 facilities. In 1991 Manheim and GECARS merged under the Manheim name to form an auction giant with 46 locations and expectations to sell as many as two million cars annually. In 1995 Manheim was the world's leading auto auction operation and sold four million cars that year. In 1996 Manheim, of Atlanta, Georgia, bought the Greater Auction Group, which has operations in five states. With its acquisition, Manheim operated 62 auctions in the United States and Canada, and employed 18,000 people. Dealers were their biggest customers.

According to the National Automobile Dealers Association (NADA), in 1998, some 31 percent of the used cars that dealers retailed were bought at auto auctions. Dealers had increased their use of the auto auctions as a source for their inventory of used cars. The record 31 percent share reported in 1998 was a substantial increase from the 10 percent of dealer used car inventory reported in the early 1980s.

The growth in automotive leasing had a direct effect on the growth of auctions. Automakers used the auctions to dispose of their off-lease vehicles. The off-lease activity began at a time when fleet incentives and rental returns began to wane. As a result, auto auctions experienced more growth through the end of the twentieth century.

Dealers became more comfortable using the auction as a source when program cars, rental fleets bought by the manufacturers, were offered in the 1980s. In 1998 new car dealers retailed 12 million used vehicles and wholesaled another 7.3 million, according to NADA. They also reported the average price of a used vehicle sold by a new car dealer was $12,500, up from $12,100 the previous year.

According to data gathered from members of the National Auto Auction Association (NAAA), more than 8.6 million used cars and trucks were sold and 14.5 million vehicles handled through their auctions in 1998. The value of the vehicles was reported to be $66.7 billion. In 1999 the association had 204 members in the United States.

In 2001, seasonally adjusted sales for all U.S. merchant wholesalers amounted to about $226.4 billion per month. With monthly average wholesale levels of approximately $17 billion, motor vehicles and parts accounted for approximately 7.5 percent of this total. The auto industry plays an integral part in the American economy and everyday life. In 2001, it employed 923,570 workers. About 1.1 million individuals are employed indirectly as dealers at 22,150 franchised dealerships. If employment figures for the nation's 54,150 independent dealerships were available, this total would be much higher. In addition to auto dealerships, auto auctions employed an estimated 75,000 workers. The U.S. automobile industry is the number one U.S. manufacturing industry and contributes $375 billion to the U.S. economy, or 3.7 percent of the nation's gross domestic product (GDP). Indirectly, about one in every seven jobs in America relates to the manufacture, sale, operation, or maintenance of motor vehicles.

The automotive industry also forms the core of America's industrial strength. In a typical year, it generates one-sixth of all U.S. manufacturers' shipments of durable goods and consumes 30 percent of all the iron, 15 percent of all the steel, 25 percent of all the aluminum, and 75 percent of all the natural rubber bought by all industries in the nation. In 2001 personal consumption expenditures for new and used automobiles and trucks were approximately $375 billion.

Automotive leasing firms, the fleet vehicle industry, and rental car companies continued to be major drivers of auto auctions in particular and automotive wholesaling in general. According to Manheim Auctions, in 2002 an estimated 4 million off-lease vehicles were remarketed.

In 2001, new car dealers retailed 13.3 million used vehicles and wholesaled another 8.1 million, according to NADA. The average price of a used vehicle sold by a new car dealer was $13,930, up from $13,648 the previous year.

The NAAA reported that, of 15.9 million vehicles handled, a record 9.4 million used cars and trucks were sold through its members' auctions in 2001. The value of the vehicles was reported to be $77.6 billion. That year, NAAA had 280 members in the United States and Canada.

Although traditional on-site auctions still represented the primary means of wholesaling vehicles, Internet auctions were emerging in the early 2000s. A January 2002 NAAA member survey revealed that 46,378 vehicles had been auctioned online, worth more than $552.2 million. The average unit price of vehicles sold in this manner amounted to about $11,900. Other reports indicate that online auctions may have an even greater economic value. Manheim, the world's largest operator of auto auctions, reported that its Manheim Online arm sold 134,000 vehicles via the Internet in 2001, with an estimated value of $2 billion. This was a significant increase from levels in 1998 ($275 million) and 1997 ($58 million).

By the mid-2000s, auto auctions had made even greater inroads with dealers. NADA figures revealed that in 2004, some 33 percent of used cars sold by dealers were acquired at auction, up from less than 10 percent during the early 1980s and up from 25 percent in 1994.

In 2004, the NAAA's 360 members reported annual sales of 9.67 million units, valued at $81.5 billion, down from 9.9 million units valued at $82.9 billion sold during 2003. According to the NAAA survey, 32.2 percent of all vehicles sold were lease, fleet, or reprocessed vehicles, 46.3 percent were dealer-consigned units, 18.6 percent were factory vehicles, and 2.8 percent were from other sources.

By the mid-2000s, off-lease vehicles made up a smaller share of remarketed vehicles. Because of zero-percent financing, more consumers bought new vehicles in the early 2000s instead of leasing. New vehicle leases declined 40 percent between 2000 and 2001, as reported by the Association of Consumer Vehicle Lessors, which meant that fewer vehicles were coming off lease during the mid-2000s. During 2004, the number of off-lease vehicles declined to 1.5 million units, down about 500,000 units from 2003 levels.

Wholesalers continued to aggressively expand Internet-based technologies during the mid-2000s. In 2003, ADESA launched Live Block, and by July 2004 the company had Internet-capabilities in 90 percent of its commercial vehicle auction lanes. Computer bids won approximately 7 percent of all vehicles run through those lanes. Manheim launched its online Dealer Exchange in 2003 that enabled dealerships to buy and sell vehicles among themselves. In 2005, Manheim announced that its simulcast auction had generated two-year revenues of $3.5 billion. Although Web-based sales continued to be a fractional amount of total revenues, advances in technology, such as upgrades that would allow buyers to simultaneously participate in numerous auctions, were expected to make Internet sales more important.

In an attempt to tap into a large, unclaimed market, Manheim was developing operations in China. As of 2005, only the Chinese government was authorized to sell used cars, as the laws to govern the used-car industry had yet to be written, but Manheim had its foot in the door by helping the government work out national regulations.

Tight supply and strong demand in the United States pushed prices up during the mid-2000s. According to ADESA, small and midrange cars performed the strongest, with prices increasing year-on-year by 11.6 percent to $7,563 in February 2005. Over the same period, the average wholesale price of large used SUVs fell by 5.2 percent to $14,870.

More off-lease, rental and commercial fleet vehicles began to return to the market as used cars and trucks in 2007, according to economists for Manheim and ADESA. Manheim's chief economist, Tom Webb, expected the number of vehicles coming off lease to grow by about 100,000 units per year from 2007 through 2009. Such higher volume will help moderate used-vehicle prices, said Tom Kontos, ADESA's vice president of analytical services.

Wholesale used-vehicle prices at the outset of 2007 exceeded prices from January 2006. Wholesale prices of large used SUVs stabilized but remained slightly below 2006 prices. Those prices plunged as gasoline prices spiked during the summer of 2006. In January, the average wholesale price of a full-sized SUV was $13,645 in January 2007, about 0.8 percent lower than the previous year.

Current Conditions

Despite sluggish new and used car sales in 2009, the auction industry reported healthy gains. The industry hasn't experienced this volume of vehicles auctioned off since 1997, when the association began tracking data. The auction industry reported the average sales price for a vehicle sold through an association auction increased three percent to $9,026 in 2009, marking the third-highest price in a decade. One industry leader, ADESA auctioned off 67 percent of its vehicles, compared to 61 percent in 2008. Furthermore, ADESA's parent company, KAR Auction Services Inc.'s net income spiked 80 percent to $94.4 million in 2009.

According to the National Automobile Dealers Association (NADA), in 2009, 34 percent of the used card dealers retailed were purchased at auto auctions compared to 32 percent in 1999. In 2009, new car dealers retailed 9.1 million used vehicles and wholesaled another 5.8 million, according to NADA. They also reported the average price of a used vehicle sold by a new car dealer was $14,976, down from $15,201 in 2008.

Over the past couple years, auto manufacturers trimmed their leasing programs or eliminated them all together, which resulted in fewer off-lease vehicles available in 2010. Consequently, off-lease volumes were on target to fall to 2.5 million units in 2010 and below 1.5 million units in 2013 before rebounding to about 1.75 million in 2015.

Industry Leaders

Manheim, founded in 1945, was the world's largest operator of wholesale automobile auctions in the late 2000s. Manheim had 145 operating locations and 10 service centers worldwide. A subsidiary of Cox Enterprises, Inc., Manheim handles approximately 10 million vehicles annually at its North American locations and online.

ADESA, Inc., which spun off from ALLETE, Inc. in 2003 to become a publicly traded company, is the second-largest vehicle auction operation in the United States. ADESA, which operates more than 50 used-vehicle and more than 40 auto salvage auctions, was acquired by an investment group for $3.7 billion in 2007.

Insurance Auto Auctions, Inc., the leading U.S. auto salvage company that auctions off unsalvageable vehicles, was founded in 1982. The auction provides insurance companies with a cost-effective means to process and sell total-loss and recovered-theft vehicles. Insurance Auto Auction, which is a subsidiary of the investment firm Kelso & Company, operated nearly 90 auction sites across the United States.

Both ADESA, Inc. and Insurance Auto Auctions (IAA) are owned by holding company KAR Auction Services Inc. that went public in late 2009. KAR Auction Services was formed in 2007. The company reported $1.7 billion in 2008 and $1.8 billion in 2010 with 12,588 employees. Besides its 215 locations throughout the U.S., the company hosts Internet auctions.


In the automotive wholesale industry, employment experienced a slow but steady growth as the volume of off-lease and dealer consignment vehicles grew. The need to move large volumes of automobiles and trucks spurred growth in the employment of personnel to shuttle these vehicles. According to the U.S. Census Bureau, there were more than 6,400 automobile and other motor vehicle wholesaler establishments in 2005, employing almost 117,000 people.

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