Over the last decade, many of the mega auto auction houses have negotiated deals with the larger automotive groups. Depending on the number of wholesale cars the dealer group brings to auction, the deal can include a combination of the following.
- They may provide a special lane just for their wholesale cars
- They may provide lowered run numbers which helps the large dealer group achieve a higher sell rate than the average dealer.
- They may provide lowered seller’s fees. In some cases the sell fee is reduced to zero, especially if the dealer signs an exclusivity agreement with the auction.
- They may provide lowered transportation fees. And again in some cases no transportation fee at all.
Other perks include, meals, lodging, flights and large Christmas baskets.
THE UNINTENDED CONSEQUENCE
The unintended consequence of these special deals, is that it impacts how smaller dealers value their trades.
For example, if dealer (A) pays no fee, and dealer (B) pays a $250 seller fee and has to pay for transportation as well. It means that seller (B) will not be able to appraise his cars at the same level as seller (A).
If they cannot put that extra $250-400 in each trade, how many times a year are they giving up a deal to their larger competitor? Once a day maybe?
INDY’S HAVE IT EVEN WORSE
The impact is even worse on the small Independent dealer who, gets lowered lane numbers, higher sellers fee and then gets clobbered on buyer’s fees.
“I have stopped going to (name blanked out) auction because by the time I get the car home it costs me $800 more than I bid” –PA independent dealer.
Many have switched to the smaller local auctions where fees are somewhat lower, while others attend local dealer bid sales and buy through Craig’s list.
ITS NOT A GOOD DEAL FOR ANYONE.
Even the large dealer gets hurt by the deal because the savings are passed on to the buyer of that car. For example, if dealer (A) gets a lowered fee. Buyer (A) gets an increase in buy fee.
Dealer (A)’s – $100 Reduced sell fee
Dealer (B)’s – $450 Increased Buy fee
$200 Transportation fee for Dealer (B)
$100 Reduced Transportation fee for Dealer (A)
—-Dealer (A) ACV $8,300
—-Dealer (B) Lot Cost $9,150
That’s an $850 spread. The net result is the car becomes devalued by those costs but for some reason we keep selling cars this way.
WHY DEALERS HOLD THEIR OWN AUCTION?
Do you ever wonder why so many dealers fail to actively compete with companies like CarMax, who take it a step further and hold their own auctions?
I looked at the stock perspective for 2014 and learned that they make $950 average at their own auction. 375,000 times per year. Think of the impact that $950 more in every trade could mean to your market share?
Does this explain the growing trend towards private dealer bid sales? The analyst’s at AuctionSimplified.com, a company that helps dealers run their own auctions, estimate that 8% of dealers now hold their own wholesale auction. This is up 60% from just three years ago.
“There’s sort of a rebellion going on in the wholesale world, where dealers have begun to take back their wholesale profit, by eliminating the middle men.” –Philadelphia dealer who holds a bid sale.
$950 IN WHOLESALE REALLY?
I studied hundreds of profitable bid sales and dealer held auctions and there is a common denominator. They all have offer transparency. Hoselton Auto Mall in Rochester NY, provides CR’s, Video and Photos of every car. They will not sell a car until all the title paperwork is in order and they even offer “Bid Assurance” where they won’t make the bidder take a car that is not as described on the website.
Full disclosure in “As Is” sales is not a new idea, dealers around the country, including CarMax have been able to attract wholesale buyers in droves by providing a safe place to buy inventory.
So next time when you are offered a seller’s fee deal, think through the true impact and ask if it is actually in your best interest.