A is for Auction

October 21, 2010

The dealers’ perspective on auto auctions

“The auctions are an integral part of our business,” says Fred MacNeil, president of the Steele Auto Group in Halifax, NS “We use them extensively.” Indeed, auto auctions play a pivotal role in most dealers’ remarketing strategy. Readers of Trevor Henderson’s articles in this magazine will be familiar with developments in the industry. Perhaps the most significant has been the simulcasting of live auctions, which has, to some extent, leveled the playing field for dealers.

The auto auction has been around for years, and big city dealers used to have an advantage. Canada’s first auto auction, known initially as the Motor City Auto Auction, was held in 1952 in the Dixie Hockey Arena near Toronto. In due course it became the Toronto Auto Auction (1969), until its purchase by the Manheim group in 1983.

The first-ever auto auction dates back to March 1938, when a certain J.M. Rawls, who was already in the car business, visited a livestock auction in Columbia, South Carolina. He wondered why cars couldn’t be sold the same way, and decided to try it. According to www.rawlsautoauction.com, “the early going was tough, but interest was high, and as the word spread, this first auto auction flourished.”

ADESA came to Canada in 1993 when they bought the Montreal Auto Auction. In 2000, ADESA added to its Canadian holdings with the purchase of the multi-site Canadian Auction Group. The other major player, Manheim, the largest in the world by volume of trade, was established more than 65 years ago with the purchase of the Manheim, Pennsylvania auction.

Internet is a game changer

The auto auction has changed dramatically with the omnipresence of high-speed Internet and dealers’ growing familiarity with the technology. Love them or hate them, live simulcast auctions are now an essential part of the remarketing system and they’ve changed the way many dealers stock their used-car departments.

With the accessibility of the simulcast auction, Jay Chesley, (Park City Toyota, Medicine Hat, AB) stopped making weekly trips to Calgary, he hasn’t been to a physical auction in more than three years. ADESA’s Calgary auction – two hours away from Medicine Hat – is usually held on Wednesday, so general manager Chesley takes a look on Monday and Tuesday to see what’s coming through, and if

there’s something of interest, he monitors that week’s live auction. “I generally buy vehicles that are still on warranty and I’m careful about who I buy from. I tend to stay with Toyota Credit or dealers and groups that I know.”

He saves travel time, but says another advantage to buying online is that he’s not restricted to the Alberta auctions and can keep an eye on Vancouver and Toronto. That way he gets a feel for pricing in other markets, and occasionally gets a better price on a vehicle from Ontario. Online auctions are also a great tool for helping appraise the trades coming into the dealership.

Chesley admits there’s more risk when buying online but that’s an element he accepts. “There’s a less tactile experience, and you do expect to get caught once in a while. But it works both ways. Sometimes a vehicle arrives and I’m happily surprised by how great it is. Another small thing that adds to the risk: you only have 24 hours to lodge a complaint after you buy. But by the time the car is delivered here and we check it out, it’s often way past that deadline,” he says.

Ironically, when it comes to selling, he prefers the live auction. “We recondition our cars really well, and we hope people will be there in person to see them. We think we have a good reputation and we leave our licence frames on.”


Live auctions have their charms

In Fredericton, NB, the O’Leary Auto Group hired a dedicated used-car buyer for their three dealerships. New car manager and wearer of many hats, Shawn Bordage says that buyer hasn’t set foot in a physical auction. “We’ve moved to a bigger inventory of used cars and in his first few months, he bought more than 500 pieces online. Buying that way there’s more consistency and the requirements for full disclosure definitely mean we can buy with confidence. They even tell you when there’s a scratch on the front bumper.”

Until this year Bordage himself made the weekly trips to Moncton, NB, and he admits he loved it. “You’d get there the night before and have dinner with colleagues and auction staff. It was a great opportunity to build rapport. The auction itself is noisy, it’s chaotic. You have to be ready to make split-second decisions. It’s a lot like what you see in the stock market, without the bits of paper flying around.”

Now with corporate changes at O’Leary,
Bordage stays in Fredericton, but misses the excitement of the live auction. “If I could, I’d do it for all three dealerships, but it takes me away from the dealership and from my young family too many days a week.”

On the selling side, Bordage doesn’t use anything but the auction. It’s a lot more efficient than going through wholesalers. “If I send cars directly to auction, I eliminate three or four phone calls, and I can structure the deal according to my appraisal.” Most vehicles go to the ADESA auction in Moncton, but from time to time he uses the local independent auction for very low-end units. “Moncton’s 175 km away, so it doesn’t pay to send the low-end vehicles.”

Over in BC, Steve Davidson owns Kamloops Ford and Kamloops Kia, and sales have been brisk. With more trade-ins, he now uses the auction system less to fill his used-car lots. With fewer cars coming off lease, there’s less to choose from at the auction, and prices are strong. Davidson says he does better buying wholesale and he also buys directly from the public at a trade-in price, whether or not that person buys a car.

He still heads to the ADESA auction in Vancouver to sell cars. “My used-car manager and I want to be there to rep our vehicles. It’s kind of a ‘pain’ to spend that much time travelling and to pay the shipping costs, so we only take six to 10 vehicles a month.”

Strong guarantees

In Halifax, Fred MacNeil observed that when the online auctions started, both Manheim and ADESA provided strong guarantees of customer satisfaction. “That gave us the comfort level we needed. We were all a little nervous about buying online at first, and the companies knew they needed to do something to build confidence.” He finds both auction companies are very service-oriented and very relationship-oriented. In MacNeil’s view, all their services have some value and have been steadily improving over the years.

On the buy side, the Steele Auto Group employs a used-car co-ordinator who works with their 14 stores. Managers research the online inventory to develop a list of the vehicles they’d like to acquire and the price they aim to pay. The used-car co-ordinator wants the staff in every store to be fluent with the system so the Group has used the training offered by the auction companies. He physically attends both local auctions and also visits Toronto and Montreal several times a month. “It’s good for us that both companies operate here. It’s nice to have people compete for your business,” says MacNeil.

The Group generally uses Manheim to sell, running 100 vehicles every two weeks. “We’re big believers in the auction system. You’re presenting in front of hundreds of buyers.” In MacNeil’s opinion, Manheim packages things up well and does a great job of auctioneering. Up-to-the-minute figures from across the country help set prices.

Virtual auctions haven’t caught on with the dealers I spoke with. Steve Davidson hasn’t tried any of the virtual auctions in recent years. “We did dip our toe in the water a few years ago,” he says. “We went to sites that promised direct dealer-to-dealer sales, but it was more a source of aggravation than anything.” Jay Chesley says he was aware of several start-ups of strictly online auctions a few years ago but he didn’t think any had survived. The Steele Auto Group does occasionally buy through OPENLANE.

Dealers have embraced the live simulcast auction with enthusiasm. The vast amount of information now easily available plus the efficiencies of reduced travel should mean more profitable used car departments for dealers everywhere in the country.


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