Many dealers are finding that bringing cars to auction is proving increasingly profitable
The car business presents both some unique challenges and opportunities. The Great Recession of 2008-09 saw many changes. Perhaps the biggest news was the bankruptcy and subsequent re-structuring of two of the Detroit Three, Chrysler and General Motors.
On the leasing side, this saw a sizeable reduction in the number of off-lease vehicles available for re-selling. Factor in a shortage of affordable used cars, thanks to cash for clunkers types of incentives by the federal government and it has created a very unique environment particularly for those both buying and selling used cars.
On the flip side, however, there are more opportunities than ever for dealers to find the right buyers, thanks to the growth in popularity of auctions. Whereas traditionally, dealers have sometimes found it a struggle to dispose of old, or undesirable inventory, often relying on a handful of wholesalers to do the job, more and more have been doing it via auctions, where the prospects of finding the right buyer, are simply that much greater.
In this article, Canadian auto dealer looks at the auction process and asks a number of retailers how they’ve fared at buying and selling cars through these venues and based on their own experiences, what are some of the best strategies to follow.
A broader net
Dealer auctions have been around for years, but it’s only in the last decade or so that they’ve really taken off. Part of that has to do with the phenomenal growth of Internet traffic, which puts both buyers and sellers in touch instantly, while providing full, detailed disclosed descriptions of each vehicle being auctioned.
In addition, given that consumers themselves are becoming ever more sophisticated, particularly in their demand for certain vehicles, successful dealers want to make sure that any cars they are buying, fit the criteria and that often means that items such as mileage, condition and any history of repairs or liens are verified. CarProof Canada works with major auction houses such as Manheim and Adesa to ensure that those buying vehicles at auction get what they pay for.
As for those selling cars, auctions today, often represent the best opportunity for ensuring the trade-in vehicles up for grabs attract top dollar. Doug Brewer, Pre-owned Wholesale Operations Manager for Mercedes-Benz Canada, finds that auctions can really prove advantageous when it comes to generating a sizeable profit on the re-sale market.
“As part of the Mercedes-Benz retail division, I’m in somewhat of a unique position, being responsible for seven corporately-owned stores in the Greater Toronto Area. Traditionally, like most independent franchise dealers, we used to rely heavily on wholesalers to move trade-ins,” says Brewer. “However, the process was often tricky. The only audience for pre-owned cars that the dealer didn’t want to keep was usually through a handful of wholesalers. Consequently, many new vehicle purchases which hinged on trade-in value were based on what the wholesaler was willing to pay, often via an over the phone description.”
Get more control
If a wholesaler later viewed the trade-in and decided it wasn’t worth the original asking price, or already had a similar car in their inventory, it could often make or break the deal. It was very difficult to make any money on trade-ins.
Brewer says that by relying on wholesalers to move used inventory, you’re essentially taking control of the process out of your hands and relying on the assumptions of just a few people as to what a vehicle is worth. That’s why auctions are in many respects, a more attractive option.
“By taking the car to auction directly when it comes in on trade, not only do you have direct control of selling it on, you’re also able to disclose information on the vehicle. At modern auctions, because of Internet bidding and the sheer volume of cars that go through, you’ve also got a much larger audience with far greater potential for higher bids,” says Brewer. “At Adesa’s Toronto auction each Wednesday, on average I’m able to put through around 40 cars. Working with corporate stores is also a major advantage. Because we don’t rely on wholesalers, the process of moving pre-owned inventory is much smoother, which means the pre-owned managers aren’t tied up dealing with wholesalers when they could be helping their sales staff put deals together.”
There’s also less risk of deals falling through and greater potential to make money on pre-owned vehicles, even after paying the auction fees.
Building relationships
Brewer also says that auctions are really good for building a loyal customer base and forging long lasting relationships.
“By going to these events and bringing cars, people, including other dealers get to know you. I’ve been doing this business for 30 years and have developed a reputation for bringing quality vehicles to the auction block, with the information on them disclosed. Providing potential bidders access to the vehicle, including mileage, condition, a CarProof report and also a chance to look around the car before it enters the lane, gives them much more peace of mind. Auctions are good, because after a while, you can develop a following. If you gain a reputation for bringing quality cars through and being transparent, there will be ‘regular’ dealers willing to bid on your vehicles and prepared to pay good money, because they view what they’re getting from you is value. And thanks to online bidding, some of the best offers can come from some surprising places, even as far away as the Prairies or the West Coast, especially if bidders are looking for a specific car.”
Save time and money
Although going corporate clearly has its advantages in the auction process, even independent franchise dealers see the benefits. Mark Irwin, dealer principal at Newmarket Infiniti Nissan, says getting involved in the auction process has helped him save significantly on two of the most valuable commodities in the car business — time and money.
“By bringing our trade-ins and pre-owned inventory direct to auction, it’s like you have a complete, dedicated team whose task it is to wholesale your cars. Doing it at the dealership you might be able to have one or two people help you, but at the same time you’re dealing with wholesalers, you’re trying to put new car deals together, as well as overseeing other aspects of dealer operations such as F&I and Fixed Ops,” says Irwin. “I know that by bringing my cars to auction at places like Adesa it’s just one less thing I have to worry about. And the support and after sales service, it’s simply fantastic.”
For Irwin’s dealership, about 90 percent of pre-owned inventory now ends up at auction. But he says used and new car buyers are like “chalk and cheese,” and they have to be treated as separate businesses.
“The used car market is changing, you’re getting more and more cars from different model years going for the same price, it’s quite possible to have a 2009 Infiniti G37 and 2010 model going for the same amount. We’re also seeing more and more used cars actually being sold upstream – i.e., several days before the actual date of the auction, often as soon as dealers get the list of cars slated to cross the block, which means they can essentially pre-bid on them,” says Irwin.
As a franchised dealer, he says it means he needs to be pro-active if there’s a particular car he’s seeking. “Sometimes it works out, sometimes it doesn’t.”
Better quality
Irwin says that besides prices and availability, the quality of cars available at auction has vastly improved in recent years.
“At the big auctions, even if a car is 10 or 15 years old, it can often still be in great condition and represent a good buy. CarProof reports and post sale inspections have really changed the way cars at auction are viewed. I’d probably rate the post sale inspection on each car as among the best $75 you’ll ever spend as a dealer.”
Impact of leasing changes
Other interesting developments in the pre-owned and wholesale vehicle market include dramatic changes in leasing. With the drying up of leasing programs from the likes of GM and Chrysler, the spotlight has shifted to higher-end offerings, such as Japanese and European premium luxury vehicles, while also providing an opportunity for independent leasing firms to thrive at auctions.
It’s something that Claudio De Angelis, Remarketing Manager for Foss National Leasing has seen firsthand.
“As a national leasing company, a lot of our business comes via fleets who will lease their vehicles, often through open-end lease agreements, so essentially when those leases are up it means that we can justify our sales by providing fair market value for the vehicles we sell at auction,” says De Angelis.
Because of the changes in the marketplace over the last few years, especially in the reduction of the number of off-lease vehicles via the likes of GMAC and Chrysler Credit, the lack of supply of off-lease vehicles has made it a priority for his company to get top dollar for vehicles they re-market. One of the best ways of doing that is by taking cars to auction, to ensure they get the maximum exposure and the right price, because there are more potential buyers.
“Before, when it came to off-lease vehicles, those from GM and Chrysler would often attract higher bids than ours, but with less of these vehicles currently out there, the spotlight is now more focused on other leasing companies like us, which means that the cars we bring can attract higher potential bids than in the past,” says De Angelis. “One thing for us, as a national, corporate leasing company is that we keep maintenance cards, so from the time when the vehicle is first delivered to the customer to the time it is returned after the lease has ended, it has a full service history, which is accessible to any potential buyer.”
De Angelis says that documentation is “everything” and if you’ve got proof that a vehicle has been properly maintained, it will almost certainly be worth more to a potential buyer than one without. “For us, this strategy has worked very well. It has enabled Foss to develop a following at dealer auctions. Potential buyers ask specifically for our cars and in most cases know exactly what they’re getting. When you add in the amount of exposure a national auction group like Adesa or Manheim can provide, particularly via online bids (which tend to account for 50 percent of all our sales), it’s very much a win-win situation.”
