Chapter 2. How An Auction Operates
Wholesale auctions exist to sell cars. Everything is focused on accomplishing that objective efficiently, rapidly and accurately. Auctions also exist to be neutral trading floors, offering security and integrity to participants.
More than 9 million cars are sold at auction every year. Auctions vary significantly in size, number of employees, acreage, services offered, facility configurations, as well as the volume and types of cars being sold. Auctions can have as few as a couple of lanes or as many as 25 or more. Some facilities are on sites of less than 50 acres, while others occupy hundreds of acres and incorporate multiple buildings and operations. Some operations function with a hundred or so employees while the larger ones can employ as many as a thousand people. Some facilities offer shops for reconditioning, mechanical and other repair services, as well as services to assist in transportation, financing, arbitration, inspections, titling and a host of other services.
Activity at an auction takes place well before the sale day, starting with receiving consignments of vehicles from various sellers, including dealers, manufacturers, banks, rental car companies and other commercial businesses and government agencies. These activities are all coordinated between the seller or their representatives and the auction staff as part of the Pre-Sale Activities. On sale day, hundreds to thousands of cars will be processed and sold at the auctions. Once the sale of a car is agreed upon, there are a number of activities for the auction to facilitate to complete the transaction, and a number of services which are offered by the auction operation to assist in enhancing the exchange as part of the Post-Sale Activities. The diagram to the right summarizes the process, and the pages which follow provide more specifics on each.
Consignment to Auctions
Auctions receive vehicles for consignment from dealers and commercial accounts 24 hours a day, 365 days a year. Vehicles are brought to the auctions by rail and transport trucks, but can also be driven by dealership employees or their representatives or sometimes even by arrangement with the auction. When a vehicle first arrives at the auction, its Vehicle Identification Number (VIN) is scanned by the vehicle check-in personnel at most auctions, using a handheld wireless computer. Professional auction inspectors are trained to recognize vehicles by country of origin or with VIN problems. Once the VIN is in the computer system, the system delivers a description of the car as a double-check for security and quality. At the same time, the vehicle can be digitally photographed for Internet sales or advertising. This consignment process verifies that the vehicle has arrived at the auction, identifies the year, make and model of the vehicle and records the vehicle’s current owner.
Vehicles will have “run numbers” assigned that indicate which lane, at what time, and in what sequence the vehicle will run through the specified sale. Vehicles will either be provided a run number for that day’s sale as part of the check-in process, or will be stocked into inventory at the auction for a sale at a later date.
There are differences in the processes for dealers and commercial accounts which consign cars to the auctions. Detailed explanations for both commercial and dealer consignment are outlined on the pages that follow.
Commercial Consignment Overview
Auction personnel work with factory, rental car, fleet and financial institution representatives, some of whom maintain offices at the auction, to coordinate the arrival of their vehicles to the site. Together these teams handle all the necessary paperwork and make a number of decisions in preparation for the sale, including when the vehicles will be sold, the sequence of the vehicles for the sale and what, if any, work needs to be done on the vehicles. The starting place for this analysis is assessing the condition of each vehicle.
• Condition Reports
Following check-in of consigned vehicles for commercial consignors, an auction condition report writer completes a vehicle condition report upon arrival. Most condition reports are prepared on a handheld computer. Condition report writers are trained, certified professionals who have taken courses to properly and thoroughly identify a vehicle’s condition. Many vehicles arrive in top-notch condition, but on others the condition report might note that the vehicle has a flat tire, a dent on a quarter panel, a cracked windshield or more substantial body or mechanical issues. Condition reports list the recommended reconditioning work needed on a vehicle and the estimated cost of repair. The reports also grade vehicles on a common scale. Condition reports and vehicle photos can be posted online, which allows an auction account coordinator to discuss with the consignor or their representative each vehicle’s condition, as well as the suggested repairs. At that point, the commercial consignors may rely on auction account coordinators to give them an idea of what they might expect to receive for the vehicle if sold “as is,” and what added value could be gained by making various enhancements.
Critical to the success of any auction sale is attracting many buyers and sellers whose interests are complementary. All auctions bring this expertise to their customers. Auctions may employ telemarketers who call dealers locally or around the country to inform them of upcoming sales and promotions. In addition, the auction will send faxes, pre-sale lists or direct mail flyers to a targeted set of dealers who frequent the auction or who have made the auction aware of their buying needs. Advertisements are placed in automotive trade publications and announcements are put on the auction’s Web site. Posters adorn the auction lobby and displays are often created to attract interest in upcoming events. In many instances, sweepstakes or prizes are promoted to attract buyers.
Dealer Consignment Overview
Similar to commercial consignment, hundreds of dealer cars are consigned to auctions for each sale. To help facilitate the process, most auctions have dedicated Dealer Sale Managers and a staff of Dealer Sale Representatives to assure the experience is a favorable one for the consigning dealer. These dealer sale teams work with dealers and their representatives in a variety of ways, including:
• Assuring the dealer chooses the most appropriate placement for each vehicle being consigned.
• Assisting in setting realistic price expectations for each vehicle being sold.
• Establishing a pattern and reputation for the dealer as a credible and consistent seller.
• Finding the appropriate lanes and run times.
• Providing assistance to sellers and encouraging them to represent their vehicles at the time of sale.
• Developing plans to enhance the prospect for increasing sales rates over time.
• Assisting with any issues in the exchange process, including the required paperwork.
Auctions bring together large numbers of buyers and sellers on sale day to facilitate the fair market trade of vehicles for fair market values. The auctions themselves never take ownership of vehicles, but rather receive fees for the services provided. The open, live, competitive bidding on sale day is extremely quick, and results are driven by buyers competing for the same vehicles.
Dealers, who are the only buyers at wholesale auctions, may have pre-registered to participate, while others may need to register the day of the sale. These dealers may be local or might have traveled long distances to make their purchases.
Auctions may run multiple “lanes” of vehicles at one event. Drivers who work at the auction bring cars through the lanes where the vehicle, the seller, potential buyers and the paperwork on the vehicle all meet with a professional auctioneer. The auction “lot personnel” coordinate to ensure that the right car is in the right place at the right time.
The auctioneer facilitates the sale of each vehicle, which on average takes about 60 seconds.
To keep participants updated at the auction, electronic monitors are often available to provide the status of various auction activities, such as arbitration outcomes, “if” bids and the status of vehicles in each of the lanes.
Front Office Administration
The auction employs numerous specialists on its staff, including payment clerks, title clerks and financing personnel – among others – to assure the sale runs smoothly and transactions are completed effectively. Payment clerks handle thousands of buying and selling transactions at each sale; title clerks will assure that the documentation and transfers for each of these transactions are managed; and auction financing personnel will often assist in what has become the underwriting of hundreds of millions of dollars worth of transactions at the auctions.
Dealers who have made a purchase but are concerned with some aspect of the sale or vehicle can seek arbitration. The auction is staffed with personnel dedicated to assisting in these situations.
Most auctions use a sliding scale to set buyer and seller fees. These fees vary nationwide, but are usually related to the actual sale price of the vehicle.
Dealers who do not have their own means for transporting their vehicle purchases can contact the auction to arrange for vehicle delivery. The same transportation services which are utilized for bringing consignment vehicles to the auctions for sale can be used for transporting purchased vehicles to the dealers’ lots.
Advertising and Marketing Services
Auction coordinators can help dealers advertise their purchases immediately. Before the vehicles leave the premises, dealers can arrange to have vehicles posted on AutoTrader.com (a retail online classified advertising and auction service) or advertised in one of a number of publications, from newspapers to specialized magazines showcasing vehicles to the public. Auctions can also help dealers place vehicles in CyberLots® or CyberAuctions where dealers can buy on bulletin boards or send bids to the auction operating the site.