The latest issue in the Economist has an article on reduced volatility in the business cycle and postulates one cause may be better inventory management. Specifically, lean inventories keep businesses from piling up supply; when demand slackens, businesses no longer need to wait months to bring inventory supply to an acceptable level.
Unfortunately, the used car industry does not manufacturer new products, but resells existing cars. The supply of cars lags previous demand, large supply shocks can bloat auction inventory, pushing down wholesale and retail prices. Volatility in the used car industry still exists.
Volatility is exacerbated by supply pushing, versus demand pulling, used cars through the remarketing process. Wholesale consignors with large fleets need to dump cars to free up capital, avoid depreciation losses (are vehicle portfolios marked to market?), and other holding charges.
The supply chain moves cars from one place of stagnation to another, moving cars from upstream, to midstream, downstream and finally the consumer. Each step in the process has random fluctuations of cost and time delays, resulting in higher costs for the consumer and lower profits for the consignors.
The used car distribution process can be dramatically improved by more efficiently connecting retail demand with consignor supply. Auto auctions would move from marketplaces to service providers, helping consignors improve the saleability of their cars. Additionally, because auto auctions are all over the country, in major cities, they are ideal terminals to implement a hub and spoke transport system.