Dealers need to adapt to changing auction market

Analysis of data provided by major auction houses shows that demand is still strong from dealers for all stock, whether young and ready to retail or older part-exchanges.

Manheim Auctions’ Dealer Dashboard showed auction first-time conversion rates stood at 65% for retail stock and 74% for part-exchanges in July 2008.

Compare that with 87% for retail and 84% for part-exchanges in June 2009 and it’s clear that dealers are keener to get their hands on whatever cars they can sell on.

Used car experts from CAP and Glass’s agree there’s a shortage of good quality used stock.

Although this is good for values, it means dealers have had to adjust to retailing older cars, in some cases, or reduce overheads in line with smaller stocks.

This is likely to continue into 2010, at least.

Naturally a new car market that is down by a quarter will mean smaller volumes of nearly-new and one to three-year-old cars coming into the used car market.

In addition, many fleets with vehicles already approaching the typical three-year de-fleet point have extended their leases, keeping these cars for up to another year.

With this in mind there has never been a more crucial time to get a grip on the market.

Auctions and remarketing companies are ideal for sourcing and disposing of stock, but with more dealers chasing fewer quality cars it is vital people know how to use these methods to their best advantage.

Independent car dealer Carl Baroni, owner of Ilford Motor Company which retails older cars up to £5,000, thinks private buyers are pushing the price of used cars up because they will pay more at auction than dealers whose bids need to allow for some margin.

Baroni said: “It is becoming a pain. Used car prices have gone up about 20% since Christmas.

“On average we are paying £600 more for a £4,000 car. We can drop our prices but by the time we take the costs out it is not worth it.

“We don’t know how we will cope over the next two years and know we will find it hard.”

As a result of dealers clamouring for the vehicles which are out there, companies such as Manheim, British Car Auctions and Paragon Remarketing report an increase in trade buyers attending auctions.

However, to get the most out of them dealers must take an astute approach. Knowing who to send, what to buy and how much to pay takes skill and knowledge.

The same goes for if you are selling at auction.

James Faulkner, group disposal manager at Motorpoint, recommended that to be most successful at selling, dealers need to build their brand.

He said: “People who are successful at selling vehicles at auction have consistent valuations. You have to start with the right product at the right price. Teach your staff to value the cars realistically with CAP and Glass’s guides. Everybody is guided by these publications and people buying cars should be guided by them.”

Faulkner said people should learn how values perform against the guides because some vehicles’ prices can fluctuate in comparison.

He felt the best people to send are those who know when the best bids have been reached. Staff should know if the bids are fair and learn who buys particular models.

Best practice

Many cars which go to auction are there because they have exceeded their sell by date at the dealership and need to be moved on.

Sewells’ Best Practice Guide to Used Car Management states that dealers can judge when this sell by date is by calculating six main factors:

Available profit The total amount the car will generate after it has been prepared.
Profit erosion The amount by which this available profit reduces, either weekly or monthly.
Interest charges on stock
The total stand in value on the used car stock multiplied by the current funding costs and divided by 12 or 52 to give a monthly or weekly figure.
Advertising Total weekly cost of advertising divided by the total number of cars advertised.
Stock maintenance Weekly costs of cleaning divided by the number of cars displayed.
Indirect expenses These include a business’s overheads such as property costs, management charges and telephone and utility bills.