Weighing merits of public auctions

Some dealers see public auctions as a threat. Do they have a role?

The use of auctions by dealers has been a recurring theme in this magazine, and certainly in some of my own articles, which have discussed certain advantages in the auction model for dealers who, for a variety of reasons, are looking to trade out of certain pieces of their inventory.
In doing so, these dealers have found a ready market for their assets and have benefited from both a strong pricing environment and an industry of service providers focused on creating a great experience for them.

My last article discussed many of the key topics that were raised at this spring’s Auto Remarketing Canada Conference in Toronto but it did not address one that does have an impact on dealers’ use of auctions, and that is the public auction market, which most certainly did receive some attention from industry participants at this event.

Competing with dealers
Auction executives did address public auctions during a panel discussion entitled “New Technologies and Trends for Sourcing Vehicles in the Wholesale Market.” While it was noted that public auctions have been held in Canada for many years, it certainly seems there is more emphasis being placed on them by both auction service providers and related industry participants.

The public auction space has been the source of much discussion and even some controversy due to the fact that, at first glance, public auctions may seem to be competing with dealers. It is not difficult to understand how this conclusion is reached. Many dealers have the perception a retail consumer purchasing a vehicle at a public auction is doing so at the expense of a registered motor vehicle retailer, who is ‘losing’ a sale that could have taken place on their own lot.

It is certainly possible that this ‘substitution effect’ occurs from time to time. However, there are a number of other factors to consider before drawing any hard conclusions about the public auction business. Having significant experience in this area of the business as a result of running hundreds of public auction events over the course of many years, ADESA Canada is quite confident that such events hold numerous benefits for dealers.

Steve Langdon, executive sales director for ADESA Public Auctions, notes that these events are characterized by significant dealer participation, on both the selling and buying side. “I do get asked by dealers if we intend to compete with them by expanding public auctions,” says Langdon, “and my answer is always that we understand their concern, we have the utmost respect for their business and believe public auctions provide a net benefit to those willing to participate as sellers or buyers.”

Different buyers, 
different hours
According to Langdon, the addition of public auction events to the calendar provides dealers with another day to do business (in addition to the typical weekly wholesale auctions) and another opportunity for both sourcing and disposing of inventory. The events are well advertised and bring both wholesale and retail shoppers.

The auction is typically conducted on a weekend or evening, thereby providing a buyer base that may not have been present at the wholesale auction. In an auction environment, more buyers generally mean higher prices for the assets. A no-sale unit from the wholesale auction on Thursday can often sell for more money on a Saturday morning to either a dealer or retail consumer.

The public auctions can also provide benefits on the buying side. With ever-improving online access to run lists, condition reports and vehicle history reports, most public sale inventory is readily available to dealers looking to find certain units. Many sellers only remarket their units through public auctions, including municipal, provincial and federal government entities, and thus the only way to purchase this inventory is at a public auction. Additionally, there are certain types of vehicles that other sellers select specifically for public auction events.

Langdon notes that: “as we add more of these events to our business, we are seeing traditional wholesale remarketers considering public venues for units that may have a higher odometer reading or perhaps an incident in a vehicle history report.”

He attributes this to the fact that these sellers believe they can find more demand in public auctions where the units are not necessarily competing with a lane full of similar vehicles, only with lower odometer readings or clean history reports. He believes that: “if you want to ensure you are seeing the whole marketplace in order to make sourcing decisions, you want to pay attention to what is being offered in this channel as well.”

Langdon shares that he is seeing success in getting the message out there. “Offering our dealer customers the option to buy and sell in a public auction environment is increasingly seen as positive,” notes Langdon. “As a dealer, you work with your auction partner on the wholesale side; this is simply an extension of that strong relationship and an enhancement to the existing services and access to inventory that we offer for them.”

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