Auction Xs and Os
If you own a car dealership, chances are you use the services of auto auctions. According to NIADA’s latest survey, 84
percent of the association’s members said they buy vehicles from auctions.
Given that, it’s obviously important for dealers to figure out how to get the most value from their auction experience.
The way to do that, Manheim vice president of dealer sales Peter Grupposo said, is to have a game plan.
“It doesn’t matter if a dealer is going to an auction to buy one car or 50,” he said. “They have to go to that auction with a plan for what they want to buy and what they want to pay for those purchases.”
Fortunately, there are plenty of tools available to help today’s dealers do just that.
Those tools include auction run sheets that state which vehicles will be for sale, including condition reports, the vehicles’ age and mileage. They even have photographs.
“I think buying car requires a balance of having the right data and having experience,” Grupposo said. “Experience takes time, but we provide the data right away.”
Having the ability to go to an auction allows a dealer to be able to touch and even smell a car. But condition reports and other services also allow a dealer to bid with confidence from the comfort of his or her own office, Grupposo said.
“The advice I would give dealers is that no matter how they buy their cars – either in person or online – they must take the time to collect market information,” he said.That includes analyzing what vehicles sell best at their own dealerships and at what price. That kind of information makes it possible to go to the auction with a plan.
Dealers can also get vital information and insights by consulting with their peers through 20 groups. By talking to each other, dealers can get a sense of what’s going on in the industry.
That’s great for buying at auction, but buying is only one half the equation.
What can dealers do to get the best price when they are selling at auction?
ADESA chief commercial officer Paul Lips said the best way is: don’t wait.
“The first thing I tell dealers is get their cars to auction as early as possible,” he explained. “It used to be most cars would arrive at auction the day before the sale or even on the day of the sale. Now if a dealer can get inventory to the auction a few days ahead of the sale, that car can be previewed and we can do a condition report.”
A good condition report really opens up the marketplace, Lips said, and gives online buyers confidence to bid on a vehicle.
“A dealer should take advantage of all the resources we have at our auctions,” he said. “The condition a car is in when it’s in the lanes does affect its turnaround. So if we can do a quick reconditioning, why not have us do it?
“We can do a simple recon within 24 hours of the sale, but heavier stuff like frame work takes more time. Doing something major could delay the sale of the vehicle for a week.”
Of course, if you take a car to auction early, that means it’s not on the lot – and it can’t be sold retail.
“Selling a car retail is the goal,” Lips said, “and I know dealers would prefer to do that as opposed to taking a car to auction.
“But if a dealer is considering taking a car to auction, that usually means it’s been sitting on the lot for awhile. That hypothetical buyer who might come and purchase the car before it’s sent to auction probably isn’t going to show up in those couple of days before the auction.”Lips also said making a good impression on potential buyers really matters.“You only get one shot to have a car go down the auction lane for the first time,” he said. “So sellers need to be transparent, even if that means admitting any flaws a vehicle might have.“Accurate condition reports and realistic price settings matter. When dealers have trust, they will buy. You only have one chance to make a first impression.” NIADA Retail 20 Group moderator Justin Osburn, instructor for NIADA's Certified Master Dealer course and author of Used Car Dealer magazine's Retail Ready series, is very much a believer in the importance of preparation for auctions - for both buyers and sellers.When I look at what sells at auction, the decisions to buy are made by people who have prepared themselves,” he said. “They’ve looked at the history of the vehicle, they’ve checked out the prices and what’s selling out there as well as what’s available for sale.
“I tell dealers to do their homework, check out historical data. Even know in advance what vehicles will be in what lanes at what time. If possible, smart dealers will even see if they can drive a vehicle before bidding on it.”
Osburn said he advises dealers to create a “strike” system for bidding on cars.
“Develop a set of criteria of what you want when buying,” he explained. “The criteria will be different for each dealer. I’m talking about things like mileage, price, vehicle age and options.
“A dealer should have a good idea of what kind of vehicles he or she carries on the lot. The strike list can be even more detailed. A dealer might prefer cars of particular colors, or prefer one brand of pickup truck over another because maybe Fords sell better than Toyotas in his market. One dealer might not mind minor dents, while another won’t buy cars with scratches.”
With a strike system, dealers can check the characteristics important to them. If a vehicle doesn’t meet the standard for those characteristics, that’s a strike against that vehicle.
It doesn’t have to be three strikes and you’re out, but if a car has enough strikes – how many is up to each dealer – that car isn’t bid on.
“So a car might not have all the options a dealer likes to provide, but its age, mileage and body condition are in the dealer’s preference range,” Osburn said. “That one strike doesn’t eliminate the car. But perhaps the cost is too high and the color is wrong.
“All those factors might combine to remove the car from the dealer’s buy list. Each dealer has to come up with his or her own strike list, but that list should be based on solid research. It can’t just be based on gut
It’s also important to keep emotions under control when buying.
“I know dealers are human,” Osburn said.
“It can get very exciting to be at an auction, so when a dealer sees a car that fits all his criteria, that dealer can, just like his retail customers, get very excited about it. But if the price becomes too high, that dealer has to be able to walk away from the sale.
“I know it’s frustrating for a dealer to have to do that. I’ve heard stories about dealers getting into fights because another dealer ‘stole’ a vehicle away from him in the auction lane. You have to leave that kind of emotion at the door. This is a business, after all.”
And the most important tool for that business is information.
“There are a lot of resources available to dealers about vehicle prices and market conditions,” Osburn noted. “Auctions provide lists and dealers can go to outside sources like Kelley Blue Book or Black Book. There is a lot of information out there for dealers to use when developing a plan to buy at auction.”
Darrell Saul, owner of D5 Auto Sales in Des Arc, Ark., knows what it’s like to work without that sort of information. When he got into the business at age 25, he said, he knew next to nothing.
“I had to learn the business from the ground up,” he said. “Books taught me a lot about things like dealer auctions and frame damage, but you can learn only so much from books. What I didn’t know was who to buy from at auctions. Even in this digital age, relationships are still very important.”
Saul now participates in five auctions in a given week – two brick-and-mortar auctions and three online.
“I can watch physical auctions from my phone now,” he said. “We call them phones, but they’re really portable offices. So take advantage of all the information auctions offer about what they sell.”
While Saul loves the efficiency of bidding online, he still sees value in going to physical auctions.
Being able to touch and smell a car still matters.
“I know some dealers like to socialize at auctions, and that’s fine,” Saul said. “For me, I’m there to do business, not meet my friends. But it’s still good to talk to other dealers to get a sense of what’s going on out there. It’s a balancing act. Just remember time is money.”
Saul said he appreciates that auctions have staff on hand to help with things like titles. Paperwork is the bane of the used car business, so when auctions have the dealer’s back, he said, it makes for a much more pleasant experience.
Eddie Caudle, president of Oxford Car and Truck in Oxford, N.C., said the changes technology has brought to buying and selling at auctions is amazing.
“There are so many platforms a dealer can use to determine what vehicles are worth,” Caudle said. “Manheim has market reports, Kelley Blue Book has information. But dealers have to understand that what they can buy and how long they can keep a vehicle on their lot often depends on financing.
“When you floorplan, you have to have a buying plan. The object is to sell the cars you buy as fast as possible. So dealers should do their research about what sells in their market and buy accordingly.”
Caudle said one advantage to working with auctions is that they offer more than condition reports – for example, he’s been able to build up his credit with Manheim through the years.
Full-service auctions have all sorts of services available, from finance to transportation to reconditioning. Dealers should take advantage of those services.
“Auctions depend on repeat business with dealers,” Caudle said. “They want me back next week, so they make sure to treat me right.”
Caudle has also found having a personal relationship with auction general managers has helped him get the best service possible.
“The smart GMs realize that even though they might work for national organizations, it pays to look out for their local customers,” he said. “For example, the GM at the ADESA auction in Raleigh, N.C., knows me. His name is Van Johnson, and I really benefit from knowing him.“He looks out for us and really works to make sure any problems we might have are taken care of.”
Finally, Caudle said, patience is a virtue.
“It’s better to not buy a car when it doesn’t fit your plan,” he said. “I know people who feel if they go to an auction, they have to buy. That’s an expensive belief.
“And if you’re going to sell at auction, it’s better to take several vehicles. If you take one, you might not sell it. But if you take six, even if you can’t sell one or two, you’re still selling four or five. It’s all about the percentages.”
David Andrews knows the auto auction business from all sides as CEO of City Enterprises, a vertically integrated company that owns auctions, dealerships and even a floorplanning service in Tennessee, Alabama and Mississippi.
That perspective has shown him that technology is critical for dealers to maximize their success at the auction.
“Dealers have to work hard to stay relevant,” Andrews said. “The days of franchise dealers just unloading their trades at auction are gone. That means dealers have to keep up with the times to source inventory.
“Those who have said technology is a game-changer are absolutely right. And when they say you have to have a plan based on solid research, they are right again. Doing the work isn’t glamorous, but it pays off.”
That said, Andrews also knows relationships do still matter.
“Some of my best salesmen have been competitors’ GMs who have driven dealers to my auctions by treating their customers poorly,” Andrews said. “There are a lot of auctions out there and the days when dealers were limited by time and distance in choosing an auction to buy from are gone. Dealers can buy online, they can hire people to visit auctions for them. So dealers have choices and that can pay off.
“It comes down to trust. We work with our customers and don’t want to run them off if they make one bad buy. If dealers understand that, they can make the occasional mistake and not worry about it.”
In the end, Andrews said, the marketplace determines what will sell. Dealers need to know their markets – and they need to use the services provided by the auctions.
“If you don’t have inventory, you can’t sell cars, so dealers have to go to auctions,” he said. “So they might as well use the services offered, like post-sale inspection, transportation and reconditioning. All those services are aimed at making an auction buyer happy.
“But when it comes down to it, a dealer still has to do his homework, know his markets and know his costs. There’s no magic substitute for hard work.”