Feeling the pinch of consolidation.

For 17 years I had the pleasure of being part of an expanding dealer group from Buffalo, NY. During my tenor there it grew from six locations to 22 with over 1500 employees.

As we grew in size we became a challenge to our vendors. More than just difficult in our negotiations but eventually expecting exceptional deals on everything from office supplies to auction fees. We usually got what we asked for without question. Because, from the vendor’s point of view, not only did they get a client that sells 40,000 cars a year but also they got the bragging rights to say things like: “We have a top 20 dealer group using our service”

I never looked at it as an unfair advantage, just good negotiating skills. But our size truly gave us an advantage that was difficult to match by smaller single point dealers.

Ultimately when we, the large corporation, received a deal, someone else, usually smaller dealers, paid the bill. It is a basic rule of business and nature, cause, and effect. As my bill was reduced, someone else’s had to increase.

I don’t Blame the big box auctions for raising their buyer’s fees. With the increased number of Megadealer groups in almost every market demanding lower or sometimes zero fees, someone has to pay the overhead.

Harder to be an Indy Used Car Dealer.

Independent used car dealers (known as indies) struggle with changes in market conditions. Especially now that the mega franchise dealers are keeping more high mileage vehicles than ever before. Also, some franchise dealers own subprime superstores, further depleting the inventory pool that Indies used to depend on.

Indy’s were struggling to hold profit, but with the addition of lemon law issues, compliance concerns and top if off with increasing buyers fees at auction, they are actually struggling like never before.

One Indy dealer I spoke to in Albany NY summed it up this way:

“My biggest expense in any given month is auction fees. I used to worry about the utility bills, but now the electric bill seems cheap compared to my buyer’s fees.”

Just to put it in perspective, a single point dealer who sells  350 cars per year, might spend $125,000 in auction fees to obtain those cars.

Indy’s are desperately trying to bypass the auction house and buy direct like they did in the 80’s and 90’s.

And then came the internet.

In almost every case internet disrupters will drive pricing down even further, by providing less expensive online apps and processes. What is surprising is that this has not been the case until recently. Factory run online auctions services have come along first, primarily to move off lease and captive vehicles again focusing on the Franchise dealer. But they still maintain the traditional fee structure. And some auction houses charge an internet fee on top of the regular seller’s fee just for the privilege of them posting the car on these sites.

It reminds me of the fight; taxi service put on as Uber changed the way they do business.

Auction Fee and Online Tipping Point.

Now a small band of internet entrepreneurs have come to market with a different spin on things. Companies like TradeRev (recently bought into by Adesa) and ACV Auction focus on the appraisal process, helping dealers make better decisions at the curb by providing buyers who make advance “if bids” on the future option of purchase. While these services are great for dealers struggling with the appraisal process, more progressive dealers who use appraisal tools like vAuto or Red-bumper to appraise usually find these services unnecessary.

Both are still charging sellers fees and discount the fee based on size of the dealer groups they are doing business with, which still gives mega dealers an unfair advantage, but their lower buyers fees have appeal to buyers. Although buyers do not like the long wait for titles traditionally a problem for appraisal “if” bid style auctions because the dealer still has to pay off liens and wait for titles to come from banks etc.

Single Point Dealer and Mega on an Even Playing Field

Other companies like Buffalo-based privately held, Auction Simplified, focus on helping dealers dispose of trades using online and traditional methods.

By leveraging the tried-and-true “Bid Sale” process and adding an online buying component, dealers have improved profitability while keeping the buyer’s fees extremely low, usually in the $120-$150 range or about a third of off-site lane sales. Added benefits are extremely high sell rates (typically in the 80-100% range), higher profit and zero sellers fees.

Dealers holding bid sale auctions, realized early on that the Independent dealerships were desperate for less expensive alternatives to high fees and are nostalgic about being able to buy directly from the dealer again, bypassing the middle man. When Auction Simplified, added the online component, it allowed dealers to attract buyers from all over the country and even foreign shippers to their small bid sales.

One bid sale manager from Michigan said, “While our bid sale was successful before the internet, now we get a third of our buyers from out of state and in some cases Canada and South America.”

I am a part owner of Auction Simplified and am proud to be a contributor in the success of independent dealers and franchise dealers alike. Since my humble beginnings at my dad’s Indy lot in Buffalo, I have looked for ways to improve profitability while providing a world class service.

If you are tired of paying sellers fees or are struggling to compete in your market, give me a call 716-818-4444 kevin@dealersimplified.com