Two Toyota car salesmen with young families had a good idea for making money.
The proposal had been discussed and refined over and over again.
What was hard was making the jump.
They both had to give up a steady income, start paying website design bills and live off fresh air to make the transition to entrepreneurs.
But when the moment came they were up to the challenge.
They reassured their wives, made the break and cranked the handle.
Dealer-Auction.com is not only up and running, paying the bills and generating money for their customers – it is paying them a living.
Gavin Smith saw the problem before he saw the solution when he was working for Toyota as a salesman.
The problem was getting rid of the ugly cars taken as trade-ins.
“For years we put all the hard work into selling new Toyotas. The trade-ins were sold out to the trade for whatever they owed us.
“For all the years I was in the new car business we did nothing more than get rid of them and get the money back that they owed us.”
The solution to the problem was no prettier than the problem. The dealership would have a small number of preferred used car traders: one to take the under-£1,000 cars; one to take the over-£3,000 vehicles and one to take the rest.
“It was always frustrating on a Monday morning. Someone would turn up when you were busy with a customer and make an offer which you would accept.
"Later in the day someone else would arrive for whom the car was ideal and they would have paid £300 to £400 more.”
Clive Colyer, his partner in Dealer-Auction.com, had been working in the same Toyota dealerships, but had a different focus.
He was more concerned with how to source the cars the dealership was happy to sell to its customers.
Between them, they thought there must be a better way. The business model they could see that might achieve the objective was Ebay.
Chance then played a part. They knew Neil Farr, a computer whizz who had bought a couple of Toyotas and lived nearby.
They called him for a chat and told him they had an idea.
Their idea was that they would solve the problem they had found in their ow dealership for all franchised dealerships.
The model was obvious enough – they told Farr they wanted “an Ebay for the franchised motor trade”.
Farr had his own company with a wide range of software expertise. He started work on a disposal system that worked like Ebay with the best bid at the close of play winning the car.
But he also solved the cash-flow crisis for the would-be start-up entrepreneurs.
He saw the virtue in what Gavin and Clive were planning and took equity instead of cash. He is now a 5% shareholder in the company.
“We plucked up courage and put our suits on and approached two Inchcape buyers,” said Smith.
The early reaction was mixed.
They heard salutary stories about people who had built buyer clubs for used cars before and found that enthusiasm was strong enough when the idea was tested, but quickly faded away when it was time to pay.
“For that reason we decided to pre-sell before we launched. The website was pretty much complete and we were able to test it for a few months.
“We went to dealers with our PowerPoint and showed them the look and feel and how they could sell used cars for more money. It was very well received,” Smith said.
Today, some of the dealers in prestige brands are seeing an additional £1,000 a car and the word is spreading fast.
The business is growing strongly with 120 cars a week sold and a target to double that within 12 months.
“We want to get to 40 cars a day in the short term and think we will. The testimonials are very good.”
How it works
The initial thought was to ask for £300 a month for as many cars as dealers wanted to sell.
By January, with the recession at its worst, no-one wanted to commit £300 to an unproved system.
It was decided to charge sellers nothing to list the cars and fix a reserve.
A charge was only made if the car made the reserve. At that point the charge was £40 plus VAT.
If the vehicle failed to hit reserve there was no charge. It had cost the customer nothing other than the five minutes to load the details.
And he could still relist free at a lower reserve. This taught the virtue of realistic pricing.
If the car failed to hit the reserve, there was the option to accept the highest bid in a computer-generated email.
After a month, the user has a full understanding of the value of the system and pays a £50 subscription.
On the target subscription of 1,500 dealers this was going to bring in £75,000 before car sales revenues – enough to keep the partners afloat and pay the minimal costs of the business. The cost to participants with VAT is £100 to £120 a car.
“The reason we are successful is that we make sure that details of every car get out to every potential buyer.
Some dealers are very pro-active and log in to the website 10 times a day.
But some only log in when they get an email from us saying there is a car that meets their needs. It is worth the effort.
“Used car prices will only go up if there are three of four dealers bidding for every car.
What the users say
Sam Stillman, who runs Yeomans’ Nissan dealership in Worthing, is a huge fan of Dealer-Auction and doesn’t care who knows it: “It’s fabulous. It has helped us create a lot more trade and make more money.
“The beauty is that people buy unseen, pay in advance, pick it up and take it away. There are no more cars lying around waiting to be removed.”
He is a buyer of fresh stock as well as a seller of trade-ins.
“We have got an X-registered 2000 Micra for £2,999. That is the sort of thing that sells around here.”
Using the system to both buy and sell helps to purify the site and make it near enough Nissan-only.
He is surprised by the distances people will travel for a specific car, but recognises that it is simply proof the UK market is very regional with very different demand requirements.
“We find that the 4x4s all go up north for example,” he said.
Will Dealer-Auction be a major success: “It is all about the two guys who run it. They are very proactive and always on the phone with information about things that are of interest to us.”
The 14-strong Yeomans group is increasingly a user of the method.
Phil Humber, who runs Volvo and Citroën in Hemel Hempstead for the Pilling Group, said “It really has transformed our trade business. We were trading cars out at cost or less for years and pleased to see the back of them.
"Now, in our first full month of using Dealer-Auction, we made many thousands of pounds.”
In the case of a Shogun, the trade achieved £1,826 more than was allowed for.
“I was pretty sceptical to start with but it’s great – I wish I’d thought of it.”