Rise of the auctions – should dealers be concerned?

As auctions around the country report a strong start to 2009, we ask the question; are more people now buying from auctions rather than dealers? If so where does this leave the future of many independent and franchised car dealers? According to many reports there is standing room only at auction halls up and down the country and apart from the usual suspects (big engine petrol cars etc) vehicles are selling like the proverbial hot cakes. We spoke with a regular auction visitor who patronises most halls in the south of England and has done so for at least 20 years, and he told us that the auctions are now like “a different planet”.

Prices for quality used cars have bounced back sharply. This is all seemingly good news especially for the vendors, but what about car dealers? Some are telling us that they are worse off than in 2008 and some are even considering the doomsday scenario of closing their sites in desperation! So if you have some dealers not selling cars, auctions and car supermarkets selling lots of cars and a bit of both depending on who you speak to in the franchised dealer world, just who is buying all these cars?

In the last few years we have seen many auctions significantly raise their game in terms of service, transparency, people and processes, in the past if a car didn’t have a registration, MOT, spare keys or the handbook were missing it was tough luck and the general perception was that if you were not completely au fait with the workings and pitfalls you would most likely get eaten alive. This had the effect of providing an almost closed shop where the same gnarled old traders would get together and virtually dictate prices and divvy up the cars accordingly. Whilst this was happening there was a lot of profit to be made and outside of franchised dealers – which were prohibitive to many customers – their only route to buying a used car rested with these same independent dealers who had bought their stock from the auctions.

This would now appear to be changing and we are now finding that with more information and safeguards from the car auctions, consumers are increasingly gaining confidence from these improvements and the better service being offered by buying direct, thus cutting the dealer out of the equation. Of course from the vendor and auction house point of view this is great news as there are more people looking at their cars leading to better chances of achieving top prices as the level of presentation, standard of vehicles and paperwork improves. The flipside is that the auction houses still have a responsibility to their ‘regulars’ who have attended through thick and thin and need the auctions to continue with their business.

The advent of on-line auctions is also very appealing to both vendors and customers alike, not only does it mean yet more people accessing the stock offered but also consumers, who are now very internet savvy, can buy themselves a car from the comfort of their living rooms and importantly with much more confidence.

There has been a 24% increae in on-line buying since 2004 and this of course will only continue to grow if consumers and dealers alike have enough confidence in what they are bidding on being the car they actually end up with and of course the auctions will need to keep high standards of description and administration to enhance this growing medium. The advantage from a dealer point of view is that he doesn’t need to leave his forecourt for the day and can save costs by buying cars in this way.

Where will this take us? One thing is for certain the on-line style of car auction is here to stay and will only continue to grow, so will that ultimately lead to the demise of many smaller independent dealers? Will auction groups buoyed by the success of selling cars to a larger number of private consumers look for other ways of introducing income streams such as on site or affiliated workshops and accessory centres? There are a lot of skilled recently redundant technicians desperate for work, and if a customer needs to have his car serviced and maintained but has bought his car from the auction what better way of continuing that relationship with the customer than by handling the maintenance side as well?

This may seem fanciful but with many smaller dealers struggling to buy stock at competitive prices, make a margin and sell any kind of volume and more consumers choosing to by from the auction or supermarkets who offer amazing choice then it may not seem quite so far fetched at all.