You’ve heard all the nicknames, Meaningless Market Report, My Mistake Report, Mindless Market Report and many others. It’s all in good fun, but if you are depending on MMR to guide you to buying decisions without understanding how the other market indicators actually work, you are a speculator not an investor.
Everyone in charge of vehicle acquisition certainly should become a student of the market you are investing in, just as a good financial advisor should be well versed in trends and market analysis of the stock market. Watching the lanes and seeing bidders pay ridiculous amounts of money for cars reminds of an article about Warren Buffet’s take on Day Traders.
“Speculators may knowingly pay more than what a stock is worth in the hope of selling it for an even higher price.” Warren Buffet
We have all heard the stories of record-breaking months from late spring to summer. It was almost impossible to make a buying mistake in the lanes. Dealers were selling cars at a rapid rate and sometimes faster than they could get cars back to the dealership and stocked in. If you did have that one car that you could not sale in 45 days, the hottest wholesale market in history could bail you out and maybe even make you money.
The speculators in the lane keep relying on MMR as the true value of a car, buying at record prices, hoping high consumer demand and low days supply continue through the fall.
The key word here is hope. Top re-marketers rely on that hope taking advantage of uninformed bidders paying whatever it takes to buy the car. In other words, speculators don’t know when the music will stop and reality will set in one day, wrecking their portfolios.
Understanding the Other Used Car Market Data
According to Cox Auto Inc.
The Manheim Index is increasingly recognized by both financial and economic analysts as the premier indicator of pricing trends in the used vehicle market but should not be considered indicative or predictive of any individual remarketer’s results. Learn how the Manheim Used Value Index is calculated.
In my post, Buying Cars at Auction – 7 Tips to Avoid Auction Mistakes, I talked about leveraging technology and making sound buying decisions just like investing in the stock market. If you don’t know in what direction the market is heading, how can you make informed buying decisions?
Just like any good investor finding the holes in the market, regardless of the market trending up or down, is crucial to acquiring cars at the best value. In the last 60 days I have only purchases 38 cars at auction. All of these cars were found using technology and data, based on other market indicators that I have created business plans for in Stockwave.
Everyone says there are no deals to be had on any car. I promise you they are out there you just have to know how to find them. You have to be looking forward to find the deals. The cars you are sourcing today are discovered from doing your homework 2 weeks ago.
I’m not going to give the recipe for the secret sauce, mainly because you’re my competitors….LOL! , but I will show you proof that it’s possible to find deals even in a bubble market like we are in now.
“A pin lies in wait for every bubble,” Buffett said. When a bubble pops, “a new wave of investors learns some very old lessons,” One of those is that “speculation is most dangerous when it looks easiest.”
A Great Buy in a Bubble Market
Here’s the proof I promised you. I’ll go to the end of the earth to find a deal if the data and numbers align. It was the only car I bought that day at the ADESA Vegas auction. I know you’re asking yourself right now, why would he go all the way to Las Vegas for one car when it’s going to cost him at least 1K in freight to get the car to his dealership?
All the boxes were checked. 23% margin at 97% rbook pricing, 2k behind NADA and $2500 back of MMR, with low days’ supply (57) 4.1 CR grade and a cost to market below 85%!
It was listed as a “Buy it Now” and looked at this car 4 times before I clicked the button. I’m asking myself, what the hell is wrong with this car for the seller to be listing it so cheap. It must be wrecked, an engine problem, some inop equipment or something. I couldn’t find a thing wrong with this car except a few wheel scuffs.
I paid $16,200 plus auction fees and transportation for this 2017 Mini Cooper S. A fantastic buy in a white hot wholesale market.
Speculators Beware - 3 Warning Signs
The market indicators are becoming apparent. Retail sales have slowed in the first 15 days of September. As of this past Sunday, the rolling seven-day total dropped nearly 8 percent from the prior week.
Dealer inventories days’ supply has been running around 30-35 days since May. As of this week, the average days’ supply has increased to near 45 days, a sign that dealers aren’t selling as many cars as quickly as a few weeks ago.
The wholesale market has also softened. So this means that you won’t be able to dump that car that didn’t sell in 45 days because you’re new found backstop is gone. For much of late spring and summer MMR tracked well above 100 percent. MMR is now tracking below 100 percent in past several weeks.
Industry analyst and Cox Automotive view this data as a sign of the market slowdown that many of predicted. The good news about bubbles inevitably bursting is that investors can profit, those that resist the hype and keep their nerve when the market crashes may find themselves in position to find great opportunities to invest in. Doing the hard homework months in advance will allow you to weather the storm when the speculators are left holding the bag on their upside down inventory.
Become an Investor my friends, not a speculator. It’s the prudent thing to do rather than hoping for the continuing market trend.