SEPTEMBER 2011
                                        

Auto auctions in the digital ageClick to Enlarge
E-mail the author

There are few marketplaces with the adrenalin-pumped atmosphere as wholesale auto auctions – vehicles of every make, age and condition being eye-balled by anxious bidders looking for a bargain, either attending in person or watching online. People bid for various reasons – for resale, to repair and recondition, for export, to part out and for scrap value. The bidding is fast and furious, and informed buyers across the country settle baseline values for the used vehicle market.

Auctions are essential to recycling vehicles, not just used cars and light trucks, but all types of commercial vehicles and what are termed “toys” in the business – most anything on wheels from used boats on trailers to motorcycles, motorhomes, house trailers and the occasional lawn tractor.

There are two distinct types of auctions – rolling and salvage. At rolling auctions, most used vehicles drive through lanes, have clean titles and are sold for reuse. Rolling auctions also sell vehicles with branded titles – salvage, reconstructed, or theft recovery/stolen vehicles and these conditions are announced at time of sale. Due to the small number of branded vehicles at rolling auctions, not all vehicles are repairable and have clean titles. 


Rolling auctions

At salvage auctions, most vehicles are undrivable, have state-issued salvage certificates and are largely sold for parts and recycling. There is a confusion of terms between the two auction types, however, rolling auctions also categorize vehicles as salvage, but they are repairable ones with clean titles. Conversely, a small percentage of salvage auction vehicles have clean titles.

Members of the National Auto Auction Association (NAAA) represent rolling auction companies. These 317 members comprise the largest association of brick-and-mortar auto auctions in North America, which represented $81 billion of auction sales in 2010. 14.1 million vehicles entered the NAAA auctions during 2010 resulting in 8.4 million units sold. “We are the pulse of the wholesale market and vehicle prices are set by the auto auction industry,” said Frank Hackett, executive director of NAAA.

Auctioneers at work at an NAAA rolling auction.

“Auction volumes are off, but they are off right along with the rest of the automotive industry,” Hackett went on. “But our volumes have not been impacted as much as the used car business. Part of the problem with our volume is the shortage of cars. I think the Cash for Clunkers Program had some impact on our industry. It took cars off the road that people could afford to drive and impacted dealers that could have sold those cars. Maybe it was good for the salvage industry, but the program could have been better by not killing all of those engines. There were many cars that the auctions could have handled – this reduced our volume.”

According to NAAA, the demand for used vehicles remained strong in 2010. Prices actually increased by 5.6 percent during 2010 to an average sales price of $9,614, even though gross volume was down 1.9 percent compared to 2009.

Vehicles are consigned to NAAA auctions from several sources. Dealer-consigned vehicles represented the largest number of vehicles sold with a 44.4 percent share, followed by fleet lease at 43.7 percent and factory vehicles at 8.9 percent. Only 3.1 percent come from other sources.

All 317 NAAA members also hold online auctions. Of the $81 billion 2010 sales, $19 billion was attributed to 1.3 million vehicles sold via the internet. This is a significant change in the auction industry over the past few years. In 2003, electronic sales represented only about 1 percent of total industry sales, but by 2010 it rose to nearly 16 percent and this robust trend is likely to continue.

Over the past decade, computer technology has revolutionized the auction business and vehicle consignors, both for exchange of information within the industry and by using Internet portals to make remote and proxy bidding more convenient.

Atlanta-based AutoIMS, a subscription database tool, has emerged as a platform for commercial accounts, primarily banks. Credit unions, rental car and leasing companies, fleet managers and OEM financing also exchange information, manage inventory, establish market prices, see digital images and obtain vehicle condition reports from the company. Bidders no longer have to reference paper documents, but can stand in auction lanes using smart phones or tablets, or bid from cyberspace with fingertip access to data on a unit coming up for bid.

“We do a lot of translation and communication of data behind the scenes,” says Joe Miller, director of customer service for AutoIMS. “While many of our consignors and auctions use our website on a daily basis and use the web based tool, much of the information they are exchanging we have set up and facilitated to run as an electronic data interchange without even using the website. We help our subscribers to set up the automation of information for their unique enterprise systems.”

AutoIMS features LivePricing, which integrates current vehicle pricing with condition reports and customizable, adjustment formulas. Considerations such as auction grade, equipment options, damage estimates, and condition reports with digital images are pooled to facilitate and backup floor prices. A user can review data on one screen and accept or adjust a recommended price, send floor prices directly to one, or multiple auctions. LivePricing also accumulates historical data to help identify trends, such as percentage of floor price to net price. “For example, a bank could go into AutoIMS and put in what they expect the prices to be at auction and the bank representatives at auctions on sale day would know what the bank wants for each vehicle,” said Paul Lips, NAAA vice president and executive vice president of operations and finance for ADESA, a chain of 70 North American whole car auctions. AutoIMS is also used for managing vehicle remarketing portfolios by simplifying inventory management by providing a central platform to exchange vehicle data for auction houses and consignors of all types, such as repo agents.

Even though electronic auctions have made inroads over the past several years, Frank Hackett does not see the role of traditional auction houses changing. “You have to be a brick and mortar auction in order to belong to NAAA and 50 percent of a business must run through the lanes. During online bidding you cannot touch, feel or smell the vehicle. In the lanes, bidding allows you to view other cars in other lanes. There is energy, excitement and body language you can’t experience online.”

Unlike retail auctions like eBay with date certain bid deadlines, wholesale online auctions are held separately as well as simultaneously with lane auctions. Lane auctions are usually held on a weekly basis, some are held on weekends and some have more per week.

Vehicles unsold at real-time auctions are often posted on the Internet with “Buy Now” prices set to promote fast sales and unload inventory.

The auction industry continues a trend towards more full service facilities. Almost all NAAA members offer detailing, body and mechanical repair, paint shops, transportation services and dealer financing. The average NAAA auction operates an 8 lane facility on 76 acres and employs 137 people with an annual payroll of $3.4 million.

Charlotte Pyle is vice president of two independently owned auction companies in West Virginia, Capital City Auto Auction and Mountain State Auto Auction. She is also NAAA president-elect. Pyle said that electronics come into play at her operations – “Insurance companies don’t necessarily deal with rolling auctions, they deal with salvage auctions. I would say 95 percent of our salvage vehicles are ones that dealers are going to take and fix. We sell for large rental car companies so when they have one that’s damaged or wrecked, we pick those up because we handle the account. In the old days, we used to drive bidders around the lot on a truck to view the salvage vehicles. Now with technology, we go out and take pictures and run them on a camera on the indoor lanes and online simultaneously.”

Pyle’s regular rolling auctions are held weekly at one location on Monday and at the other on Friday. Her auctions employ an internet platform called AuctionPipeline that displays photos of vehicles on monitors at the auction and for online bidders on the company website and on a number of other online portals. “At my auctions we sell salvage vehicles right before the regular rolling auction and that happens once per month. For us, sales are much better in the lanes. We sell on the Internet but have much higher achievements in the lanes. On Monday, for example, we sold 69 percent of the cars. Cars that are not sold at auction go on the Internet for two or three days. Sometimes they are rerun at our auctions to different returning dealers. We have a Monday sale and a Friday sale. So if I have a client that did not sell their 20 units on Monday, I can take those vehicles to my other auction within same week and hopefully get a chance at a whole new buyer base. Our business has been great. The volumes are lower but the selling percentages and prices are higher.”

Salvage auctions

“There’s a big difference between wholesale rolling auctions and salvage auctions,” said Jerry Sullivan, executive vice president of QCSA Holdings, Inc. “If you look at the two industries side by side it’s ironic. All along, the salvage auction business has been a lot more sophisticated than rolling auctions from a technology standpoint. The people who drove our business were from the insurance claims industry. They were very technologically savvy, out with systems, digital images and selling over the Internet a lot quicker and early on.”

QCSA Holdings is one of the nation’s largest independent salvage auction companies. It works with insurance companies, automotive institutions and charities to remarket total-loss, recovered theft, damaged, disabled, inoperable and low end clean-title vehicles to an audience of global buyers.

With facilities in most every market in the United States, QCSA has two targeted brands, Crashed Toys and Salvage Direct, both heavily Internet dependent. Each brand offers specialized processing and sales along distinct inventory lines. Crashed Toys remarkets watercraft, power sports, motorcycles, exotic and recreational vehicles while Salvage Direct remarkets cars, trucks, SUVs, commercial vehicles and provides catastrophic loss services.

“The Internet is the driving force of everything we do and the majority of what we sell is online. Even our live sales are also 100 percent online auctions,” said Sullivan. QCSA currently serves more than 100,000 buyers in over 100 countries with 2 web-based sales platforms that reach over 800,000 visitors each month with nearly 7 million pages featuring 11,000 auction lots per month. They post 12 to 16 photographs of each vehicle on their websites, along with detailed descriptions.

“We are both online and live. We have a typical auction format with an auctioneer and a live audience, plus an online audience, but it takes place on an auction bus while we drive through lanes of vehicles that can’t move because they are either total losses or unsafe to drive. Only 2 or 3 of our facilities offer live auctions – our other 40 or so locations just sell on the Internet. Some of these are live Internet auctions and others are static where bidding closes at a certain time,” Sullivan explained.

Most of QCSA’s vehicles are sold to dismantlers who remove salable parts and then turn them over for scrap. “We are one of the primary sources of vehicles for recyclers. Approximately 46 percent of our vehicles go for dismantling and the balance go for export, rebuilding and resale. Anytime there is a recession people will fix rather than replace. There are fewer used cars out there which means that the used car dealer is more willing to buy a car that is lightly damaged, put it in his body shop, fix it up and put it on his retail lot. If there were a ton of undamaged cars in the aftermarket he would not bother. I always encourage everybody in the recycling industry to work with salvage auction companies that work with them. The more cooperative your auction is with your needs as a recycler, the better value you are going to get for your buck,” Sullivan concluded.

Here’s how Joe Miller at AutoIMS sees the future of electronic data in the auction industry, “The last 15 years has seen an incredible amount of progress with information being exchanged between systems to reduce labor costs and improve data accuracy. Accuracy is the key to the future. As information becomes more reliable, a greater number of vehicles are being sold online to compliment the physical auction lanes. More images, better arbitration policies, and certification programs give comfort to dealers who buy cars online. Physical auctions still play a key role in this new reality as they offer a location to marshal vehicles, provide reconditioning and repairs, detailing, title services, and high-quality inspections to facilitate sales. Remote buyers and sellers see these services as a guarantee, and physical auctions will continue to thrive and even direct the ongoing digitization of remarketing data.”