When to Consider Consignment

For anyone looking to sell their vehicle, the fundamental tradeoff that defines the sales process is between two sets of factors – between time and convenience versus financial return. Sellers most often find themselves choosing between selling their vehicle themselves to maximize return at the expense of significant time and energy spent, or selling their vehicle to a dealer and giving up some margin upside financially.

This analysis is intended to break down the benefits and considerations of a third alternative – that of consigning your vehicle for sale by a third-party agent. Per our research, consignment represents a “sweet spot” between the two traditional sales channels, allowing sellers to capture ~5% more return compared to selling to a dealer, whilst being able to move on their vehicle ~15 days sooner than when looking to sell individually – all while benefiting from the convenience and professionalism of a capable consignment agent.

With that said, consignment is not a panacea to the challenge of selling your car most effectively. Cautionary examples such as the CNC Motors’ scandal in 2021 emphasize the need to carefully diligence consignment partners’ track records and sales terms. With that said, consignment ultimately is an attractive option for sellers looking to capture some of the best of each traditional sales channel.

In the automotive world, consignment is simply defined as the process of finding a specialist to help you sell your car. And consigning your car certainly comes with many advantages as opposed to selling it yourself, with an expert professional able to sell your car both quickly, conveniently, and for top dollar.

But what does consignment entail? Well, it firstly involves finding a good consignment agent (or “consigner”) to manage the process well for you. The ideal consigner is one who is well-connected to buyers, has a good reputation for honesty and fairness, and who is resultingly able to command high (but fair) prices on a rapid sale. Consigners are most often found at established automotive dealers due to natural synergies between consignment and outright sale.

In exchange, of course, consigners typically require compensation in the form of a “consignment fee”. This is usually based on some percentage (typically 5-15%) of the sale price of the vehicle – the cost is justified to consumers due to consigners’ ability to 1) remove the hassle of the sale; 2) command a higher price for the vehicle than the average consumer would otherwise be able to obtain; and 3) be able to sell your vehicle more quickly.

1. More attractive economics compared to dealer sale, faster turnaround as opposed to private party sale

   Consignment represent a “best of both worlds” option when compared to selling your vehicle to a dealer, or looking to sell it yourself. Based off industry benchmark rates for dealer margins and consignment fees, sellers can expect to secure a ~5-6% higher return from consigning their vehicle, as opposed to selling it to a dealer. Correspondingly, while selling your car privately can yield slightly higher returns (~3%) when compared to consignment, private sellers can typically expect to need ~33% more time on average to successfully sell their vehicle – without even taking into account the additional frustration, effort, and stress involved.

   Consider the breakdown shown in Exhibit A below. In using a vehicle with a dealer retail value of $100k as an example, we can first see that selling your vehicle to a dealer offers the greatest convenience to the seller, but at the greatest cost. With the average dealer targeting a purchase price of 10% below dealer retail value to ensure a healthy margin cushion, the seller of a $100k vehicle can expect to secure $90k from a purchasing dealer.

   In contrast, consigning your vehicle with an agent or dealer typically requires a lower cost to the seller, with consigners typically charging ~5% of the vehicle’s retail value as a commission or fee. With a $100k vehicle, this means that the seller can expect to get $95k from a consigned sale. When accounting for the fact that consigners typically sell cars as rapidly as dealers do in ~45 days on average, this effectively means that sellers can enjoy all the convenience of selling to the dealer, whilst potentially capturing a bit more margin for themselves at the same time.

   Finally, sellers can also choose to maximize their financial return by selling their vehicle themselves. Yet, after accounting for a conservative ~2.5% average loss in sale value due to the average seller’s inability to maximize pricing, selling a $100k vehicle privately ultimately translates to a relatively low ~$2.5k in added return for the seller. This added return comes at significant additional cost in terms of time and effort, with the average private seller taking an additional ~15 days to move on their vehicle by themselves. When further accounting for the significant incremental stress and energy involved in a private sale, the appeal of consignment becomes noticeably more evident.

2. Removing hassle and inconvenience

   When consigning your vehicle to an agent for sale, one very significant additional benefit comes in the form of the professionalism and convenience you can expect from a capable agent. In return for consigning their vehicle, sellers can expect to remove themselves from the many frustrations involved in personally selling a vehicle – whether it be dealing with ambivalent or non-serious potential buyers, uncertainty over maximizing returns or correct pricing, or simply investing the sheer amount of time and energy involved in marketing, maintaining, then selling a vehicle by yourself.

3. Maintaining vehicle ownership and control

   Consigning your vehicle also comes with one last significant benefit for sellers – that of maintaining control over the vehicle right up until the point of sale. For example, should you want your consignment agent to either charge a higher price, or even withdraw your vehicle from sale should you have second thoughts, you can do that. While this seems self-evident, and is certainly possible while selling your vehicle privately, consignment allows you to maintain control while also preserving convenience and potential margin upside – a best of both worlds solution.

Of course, consignment is hardly a universal panacea to the tricky question of selling a vehicle quickly, conveniently, and profitably. There are certainly significant risks to consider as a seller when contemplating retention of a consignment agent. The most significant amongst these involves the trustworthiness and reputation of the consigner. Consignment is ultimately a transaction centered around trust, and while an established consigner can be a huge asset in helping move on from your vehicle, trusting the wrong consignment agent can have disastrous consequences.

Take the example of CNC Motors into account. As an established premium vehicle dealer and consigner in California, CNC Motors previously enjoyed a solid reputation as a partner who could effectively transact vehicles for clients. Yet unbeknownst to customers, founder and CEO Clayton Thom began siphoning away profits, selling consigned cars without sellers’ approval and without sharing due payment. This caused significant chaos, as illegally sold cars without titles were transacted to new customers. While CNC Motors’ ownership and management were ultimately held to account, with the business no longer operating as of 2022, over 40 customers experienced losses amounting to millions of dollars in value.

While the case of CNC Motors is certainly an extreme one, it speaks very much to the need to effectively diligence and assess prospective agents when consigning a vehicle. This can entail asking for recommendations from prior customers, asking for a breakdown of prior consigned vehicles, and ensuring the provision of a legally-binding consignment agreement between all parties involved. As is the case with much in life, strong preparation represents the best protection for sellers looking to consign a vehicle.

When employed correctly, consignment can be a highly effective alternative for knowledgeable sellers looking to maximize both financial return and convenience when moving on from their vehicle. With that said, successful outcomes depend on both the careful selection of the consignment agent, as well as developing a fundamental understanding of the terms and dynamics involved in the process.