October 31, 2005
Let's make a deal | A day at a wholesale auto auction reveals hard times for the used car business
By Sean Donahue
If there was ever a crowd of potential pickup truck buyers, this would have to be it. On a drizzly October morning, a couple dozen men in jeans, flannel shirts and baseball caps ˆ used car dealers from western and central Maine ˆ have arrived at the Nichols-Bass Business and Technology Center in Wilton for the weekly wholesale car auction hosted by Western Maine Auto Auction. For an hour or so before the 10 a.m. start, they've been wandering the parking lot among 40 cars and trucks brought by 20 different sellers to this week's auction, lifting hoods, starting engines and checking interiors.
Now, inside one building of the former Bass Shoe distribution center, a Chevy 4X4 pickup rolls onto the sales floor. Six buyers cluster around for a closer look as the auctioneer, perched in a wooden podium, starts a rapid-fire patois that is all but indecipherable to inexperienced listeners. He announces lot #6, setting the asking price at $5,500, but the buyers won't bite. He rapidly drops the price to $5,000, then $4,500, $4,000 and $3,500, looking for an opening bid. He finally finds one at $2,400, when a buyer signals with a slight hand gesture. Another bidder joins in, and the pair volley the price up to $2,500, $2,600, $2,700 and then $2,750, before one drops out.
Sensing a deal on the line, the auctioneer asks the seller to reveal his reserve ˆ the lowest price he'll accept for the truck. He wants $3,100. The remaining bidder counters with an offer of $2,800, but will go no higher. Neither party budges, and with a quick shout of "roll" from the auctioneer, lot #6 slowly drives out the other side of the building. It's another big truck, here in big-truck country, that didn't sell.
"Nobody's been buying trucks since September," says Greg Cunningham, manager of Western Maine Auto Auction. "The used car guys bring them here to sell them, but nobody wants them."
It's shaping up to be another slow week in what's been a slow fall for Western Maine Auto Auction, where Cunningham says sale rates are running about 40%, versus the 50% or more he expects. And the failure of lot #6 to sell is a symptom of an industry-wide problem. The used car market has been whipsawed this fall by two powerful factors: The success of automobile manufacturers' incentive programs, such as General Motors' "employee discount" that ran through September, and the simultaneous rise in gasoline prices sparked by hurricanes in the Gulf of Mexico. Thanks to those heavy discounts on new cars, the late-model, low-mileage used cars that dealers ordinarily covet are now harder to move on used car lots. Meanwhile, high gas prices have scared consumers away from the big, heavy, vehicles like full-sized trucks and SUVs that are increasingly turning up at auctions.
The result has been one of the toughest markets used car dealers and auction managers have seen in years, as evidenced by slowing sales rates at auctions and falling used car prices at the wholesale and retail levels. The average retail used car price in September dropped 4.2% over the previous September, according to the car market information service Edmunds.com. Within that average, prices for premium luxury cars and large SUVs saw the steepest declines, falling 9.1% and 7.6%, respectively. "New car incentives have the most immediate impact on used car values," says Alex Rosten, manager of pricing and market analysis for Edmunds.com. "It's not a trickle down effect ˆ it's pretty much immediate."
Not surprising, then, that other car auction executives in Maine feel the same angst as Cunningham. Jack Stanton, a marketing representative for Port City Auto Auction in Richmond, says sales volume and prices are down at his weekly auctions ˆ the largest in Maine, featuring 500 cars and more than 300 registered buyers. Instead of selling about 70% of the cars put up for auction on a given day, Port City is averaging about 50% lately, he says. That slowdown is hurting what had been a good year for the auction. Through September, Port City had sold 400 more cars it did in the same period last year. Since then, the cushion has shrunk by 150, according to Stanton. "I don't know where it's going to wash," he says.
For their part, used car dealers say their reluctance to buy at auctions reflects their own struggles at the retail level. "If [shoppers] are not buying, you're not buying," says Doug White, co-owner of DNK Select Used Cars in Augusta. "I'm only going to buy what happens to be selling well, and if I've only sold a few cars under $10,000, that's what I'm going to purchase, not $25,000 pickups that will just sit on my lot."
The result is a kind of stalemate, as dealers look for signs of the next market shift. Car manufacturers ended their employee-discount programs in late September and early October. Gas prices have fallen from their September highs and appear to be stabilizing. And here in Maine, winter is looming, which makes dealers confident that buyers will once again take a look at four-wheel-drive vehicles. But as they wait to see which of those scenarios creates momentum in the market, they're cautious about removing their hands from their pockets at auctions.
Sold to the highest bidder
Wholesale auctions are the largely unseen engine of the used car market. Held weekly in several locations in Maine ˆ and in dozens of locations across New England ˆ auctions help new car dealers clear out their lots and used car dealers stock up on inventory.
Manufacturers use auctions to unload cars that are coming off of lease programs. New car dealers often auction the cars they've taken in as trade from buyers, or used cars that have been sitting on their lots for too long without selling. There, used car dealers seek out models they need to round out their inventory, or believe will sell well in their particular markets.
With any number of reasons for a seller to bring a car to auction, it's not surprising to see the kind of diversity on display at Western Maine Auto Auction. There's a host of big, late-model trucks that dwarf a pair of used Saturn sedans. A rough-running Mercury looks downtrodden next to a 2005 Ford Mustang with just 3,000 miles on the odometer. Clean-looking Mercedes and Volkswagens vie with newer Buicks for dealers' attention.
Though a 12-year veteran of the used car auction business, Cunningham only launched Western Maine Auto Auction in July, in partnership with the Nichols Development team that owns the facility. They saw the venture as another way to fill space in the 300,000-square-foot Bass Shoe complex, which they bought from the town of Wilton in 2004 and are now using to house a trailer manufacturer, several distribution operations and, soon, a specialty medical shoe maker, among other businesses. (See "Filling Bass' shoes," Sept. 13, 2004).
Cunningham also saw a chance to reach dealers in central and western Maine who already were driving farther north and south to attend other auctions. Business was strong early on, he says, with the first auction attracting about 200 cars. Then, as gas prices crept up and manufacturers extended their discount incentive programs, he began seeing the market shift. For example, many of the cars being traded in at new dealerships were big SUVs and other gas-guzzlers, meaning more of those cars began turning up at auction despite little interest from used car dealers.
But a good auction manager doesn't just expect the cars to sell themselves, says Cunningham. He relies on a few tactics to help build and maintain momentum during an auction. For example, he alternates the lots between cars and trucks to prevent buyers from getting bored with one vehicle type. He also looks for the ideal auction opener. "It's important to get a product that's likely to sell up front," Cunningham says. "That way, you get the crowd excited and get some momentum going in the auction."
For the mid-October auction, Cunningham has chosen a Chevy pickup truck with a plow as lot #2. With winter coming, he thinks dealers may want to stock up on plow trucks, and he hopes a quick sale will stimulate excitement in the truck market. As the auction begins, auctioneer Kevin Bernatchez does his part to excite the crowd by announcing, "Look at that, a four-wheel drive with a blade," and setting the asking price at $2,500.
As Cunningham had hoped, buyers show interest and bidders begin pushing the price toward $3,000, then $3,500. The momentum only lasts so long, though, and despite Bernatchez's efforts ˆ calling bidders by name and assuring them "you can't go wrong" ˆ bidders begin dropping out. The price stalls at $3,700, below the seller's reserve. No sale.
The market's not tough for all vehicles across the board, however. Buyers have quickly rediscovered the charms of small, fuel-efficient cars, say dealers, who in turn are looking for those cars at auction. In fact, compact cars are one of only a few car categories that saw a price increase in September, with prices rising 3.2%, according to Edmunds.com. "Mid-size or small cars are really what people are looking for at this point," says Jake Lovejoy of Franklin Chrysler in Farmington, who was eyeing a mid-sized Dodge Cirrus at the auction but ultimately declined to bid on it.
Likewise, say many dealers, you can't go wrong with a low-priced vehicle. There's always someone looking for a cheap commuter car, and making a bad bet on a $1,000 car at an auction is less risky than a bad bet on a $11,000 car. Maybe that's why a buyer on this day was willing to spend $500 on a slightly worn-out 1994 Ford Explorer, while newer Explorers rolled across the auction floor unsold.
That market dynamic has helped Central Maine Auction Center in Brewer buck the sluggish trend affecting other auctions, says owner Scott Tilton. He says demand at his auctions, which feature about 180 cars a week, has remained strong because he doesn't typically deal in the higher-end used cars that are struggling to find buyers right now. "We don't handle any of the newer, low-mileage vehicles," says Tilton. "We're mostly seeing the $6,000 to $8,000 vehicle, where it's still worthwhile for dealers to buy them."
A rollercoaster ride
As the auction nears the two-hour mark, it's clear the activity is slowing down. The crowd around the sales lane has thinned, and buyers and sellers are wandering off to grab chili and hot dogs from the small café set up nearby. Sellers have had some success today, with buyers jumping on a Jetta and even a couple of trucks, among other deals.
One seller, Brad Woodbrey of Sebago Lake Chevrolet, is reasonably happy with his results. He brought 14 cars to the auction and sold six of them, but was at times closer to moving even more. In several cases he had a bidder offering something close to his reserve ˆ occasionally just a few hundred dollars lower ˆ but he says he was unwilling to drop his price too low just to unload some inventory. "That's my decision: Do I cut my losses right now, or do I try [another auction] somewhere else? Do I take it back and try to retail it?" says Woodbrey. "It's a chase."
Once the auction is over and buyers and sellers have completed their transactions through Western Maine Auto Auction's administrative staff, manager Greg Cunningham says they've once again sold about 40% of the lots. He saw some positive signs in the day's activity, though. A few of the big trucks sold, and in general buyers' bids crept a little higher than they have in previous weeks. He mentions a newer Ford Explorer that attracted a $2,700 bid, which is about $400 higher than a similar car received last week. But his optimism is tempered: Even at $2,700, the Explorer still didn't sell. (Sales rate and prices ultimately determine the success of any auto auction, because the facilities charge buyers and sellers fees based on their transactions. Western Maine Auto Auction's fees run between $50 and $250, depending on the value of the vehicle sold, says Cunningham.)
Alex Rosten of Edmunds.com also sees reasons for optimism in used car sales, thanks to a dramatic turnaround in the new car market. New car sales have plummeted since the dealers ended their popular incentive programs, falling 44% in the first nine days of October, according to Westlake, Calif.-based J.D. Power & Associates' Power Information Network. "That could possibly stimulate used car sales, if deals on used cars are perceived to be good again," says Rosten.
Not all used car dealers are convinced good times are forthcoming, though. Doug White of DNK expects sales to remain slow for the rest of the year, but hopes that buyers will come back next spring as they start receiving federal income tax returns.
Even as they as complain about it this fall's market conditions, though, most dealers take comfort in the long-term perspective. They've lived through more than one oil shock, and watched consumer demand jump from big cars to small to big to small again. Although they can't be sure when a shift will occur, they know that another one is inevitable. "I was in the market in the early 70s when gas went from 20 cents a gallon to a dollar, and we thought it was the end of the world," says Jake Lovejoy of Franklin Chrysler. "It'll even out. It always has."
Now, inside one building of the former Bass Shoe distribution center, a Chevy 4X4 pickup rolls onto the sales floor. Six buyers cluster around for a closer look as the auctioneer, perched in a wooden podium, starts a rapid-fire patois that is all but indecipherable to inexperienced listeners. He announces lot #6, setting the asking price at $5,500, but the buyers won't bite. He rapidly drops the price to $5,000, then $4,500, $4,000 and $3,500, looking for an opening bid. He finally finds one at $2,400, when a buyer signals with a slight hand gesture. Another bidder joins in, and the pair volley the price up to $2,500, $2,600, $2,700 and then $2,750, before one drops out.
Sensing a deal on the line, the auctioneer asks the seller to reveal his reserve ˆ the lowest price he'll accept for the truck. He wants $3,100. The remaining bidder counters with an offer of $2,800, but will go no higher. Neither party budges, and with a quick shout of "roll" from the auctioneer, lot #6 slowly drives out the other side of the building. It's another big truck, here in big-truck country, that didn't sell.
"Nobody's been buying trucks since September," says Greg Cunningham, manager of Western Maine Auto Auction. "The used car guys bring them here to sell them, but nobody wants them."
It's shaping up to be another slow week in what's been a slow fall for Western Maine Auto Auction, where Cunningham says sale rates are running about 40%, versus the 50% or more he expects. And the failure of lot #6 to sell is a symptom of an industry-wide problem. The used car market has been whipsawed this fall by two powerful factors: The success of automobile manufacturers' incentive programs, such as General Motors' "employee discount" that ran through September, and the simultaneous rise in gasoline prices sparked by hurricanes in the Gulf of Mexico. Thanks to those heavy discounts on new cars, the late-model, low-mileage used cars that dealers ordinarily covet are now harder to move on used car lots. Meanwhile, high gas prices have scared consumers away from the big, heavy, vehicles like full-sized trucks and SUVs that are increasingly turning up at auctions.
The result has been one of the toughest markets used car dealers and auction managers have seen in years, as evidenced by slowing sales rates at auctions and falling used car prices at the wholesale and retail levels. The average retail used car price in September dropped 4.2% over the previous September, according to the car market information service Edmunds.com. Within that average, prices for premium luxury cars and large SUVs saw the steepest declines, falling 9.1% and 7.6%, respectively. "New car incentives have the most immediate impact on used car values," says Alex Rosten, manager of pricing and market analysis for Edmunds.com. "It's not a trickle down effect ˆ it's pretty much immediate."
Not surprising, then, that other car auction executives in Maine feel the same angst as Cunningham. Jack Stanton, a marketing representative for Port City Auto Auction in Richmond, says sales volume and prices are down at his weekly auctions ˆ the largest in Maine, featuring 500 cars and more than 300 registered buyers. Instead of selling about 70% of the cars put up for auction on a given day, Port City is averaging about 50% lately, he says. That slowdown is hurting what had been a good year for the auction. Through September, Port City had sold 400 more cars it did in the same period last year. Since then, the cushion has shrunk by 150, according to Stanton. "I don't know where it's going to wash," he says.
For their part, used car dealers say their reluctance to buy at auctions reflects their own struggles at the retail level. "If [shoppers] are not buying, you're not buying," says Doug White, co-owner of DNK Select Used Cars in Augusta. "I'm only going to buy what happens to be selling well, and if I've only sold a few cars under $10,000, that's what I'm going to purchase, not $25,000 pickups that will just sit on my lot."
The result is a kind of stalemate, as dealers look for signs of the next market shift. Car manufacturers ended their employee-discount programs in late September and early October. Gas prices have fallen from their September highs and appear to be stabilizing. And here in Maine, winter is looming, which makes dealers confident that buyers will once again take a look at four-wheel-drive vehicles. But as they wait to see which of those scenarios creates momentum in the market, they're cautious about removing their hands from their pockets at auctions.
Sold to the highest bidder
Wholesale auctions are the largely unseen engine of the used car market. Held weekly in several locations in Maine ˆ and in dozens of locations across New England ˆ auctions help new car dealers clear out their lots and used car dealers stock up on inventory.
Manufacturers use auctions to unload cars that are coming off of lease programs. New car dealers often auction the cars they've taken in as trade from buyers, or used cars that have been sitting on their lots for too long without selling. There, used car dealers seek out models they need to round out their inventory, or believe will sell well in their particular markets.
With any number of reasons for a seller to bring a car to auction, it's not surprising to see the kind of diversity on display at Western Maine Auto Auction. There's a host of big, late-model trucks that dwarf a pair of used Saturn sedans. A rough-running Mercury looks downtrodden next to a 2005 Ford Mustang with just 3,000 miles on the odometer. Clean-looking Mercedes and Volkswagens vie with newer Buicks for dealers' attention.
Though a 12-year veteran of the used car auction business, Cunningham only launched Western Maine Auto Auction in July, in partnership with the Nichols Development team that owns the facility. They saw the venture as another way to fill space in the 300,000-square-foot Bass Shoe complex, which they bought from the town of Wilton in 2004 and are now using to house a trailer manufacturer, several distribution operations and, soon, a specialty medical shoe maker, among other businesses. (See "Filling Bass' shoes," Sept. 13, 2004).
Cunningham also saw a chance to reach dealers in central and western Maine who already were driving farther north and south to attend other auctions. Business was strong early on, he says, with the first auction attracting about 200 cars. Then, as gas prices crept up and manufacturers extended their discount incentive programs, he began seeing the market shift. For example, many of the cars being traded in at new dealerships were big SUVs and other gas-guzzlers, meaning more of those cars began turning up at auction despite little interest from used car dealers.
But a good auction manager doesn't just expect the cars to sell themselves, says Cunningham. He relies on a few tactics to help build and maintain momentum during an auction. For example, he alternates the lots between cars and trucks to prevent buyers from getting bored with one vehicle type. He also looks for the ideal auction opener. "It's important to get a product that's likely to sell up front," Cunningham says. "That way, you get the crowd excited and get some momentum going in the auction."
For the mid-October auction, Cunningham has chosen a Chevy pickup truck with a plow as lot #2. With winter coming, he thinks dealers may want to stock up on plow trucks, and he hopes a quick sale will stimulate excitement in the truck market. As the auction begins, auctioneer Kevin Bernatchez does his part to excite the crowd by announcing, "Look at that, a four-wheel drive with a blade," and setting the asking price at $2,500.
As Cunningham had hoped, buyers show interest and bidders begin pushing the price toward $3,000, then $3,500. The momentum only lasts so long, though, and despite Bernatchez's efforts ˆ calling bidders by name and assuring them "you can't go wrong" ˆ bidders begin dropping out. The price stalls at $3,700, below the seller's reserve. No sale.
The market's not tough for all vehicles across the board, however. Buyers have quickly rediscovered the charms of small, fuel-efficient cars, say dealers, who in turn are looking for those cars at auction. In fact, compact cars are one of only a few car categories that saw a price increase in September, with prices rising 3.2%, according to Edmunds.com. "Mid-size or small cars are really what people are looking for at this point," says Jake Lovejoy of Franklin Chrysler in Farmington, who was eyeing a mid-sized Dodge Cirrus at the auction but ultimately declined to bid on it.
Likewise, say many dealers, you can't go wrong with a low-priced vehicle. There's always someone looking for a cheap commuter car, and making a bad bet on a $1,000 car at an auction is less risky than a bad bet on a $11,000 car. Maybe that's why a buyer on this day was willing to spend $500 on a slightly worn-out 1994 Ford Explorer, while newer Explorers rolled across the auction floor unsold.
That market dynamic has helped Central Maine Auction Center in Brewer buck the sluggish trend affecting other auctions, says owner Scott Tilton. He says demand at his auctions, which feature about 180 cars a week, has remained strong because he doesn't typically deal in the higher-end used cars that are struggling to find buyers right now. "We don't handle any of the newer, low-mileage vehicles," says Tilton. "We're mostly seeing the $6,000 to $8,000 vehicle, where it's still worthwhile for dealers to buy them."
A rollercoaster ride
As the auction nears the two-hour mark, it's clear the activity is slowing down. The crowd around the sales lane has thinned, and buyers and sellers are wandering off to grab chili and hot dogs from the small café set up nearby. Sellers have had some success today, with buyers jumping on a Jetta and even a couple of trucks, among other deals.
One seller, Brad Woodbrey of Sebago Lake Chevrolet, is reasonably happy with his results. He brought 14 cars to the auction and sold six of them, but was at times closer to moving even more. In several cases he had a bidder offering something close to his reserve ˆ occasionally just a few hundred dollars lower ˆ but he says he was unwilling to drop his price too low just to unload some inventory. "That's my decision: Do I cut my losses right now, or do I try [another auction] somewhere else? Do I take it back and try to retail it?" says Woodbrey. "It's a chase."
Once the auction is over and buyers and sellers have completed their transactions through Western Maine Auto Auction's administrative staff, manager Greg Cunningham says they've once again sold about 40% of the lots. He saw some positive signs in the day's activity, though. A few of the big trucks sold, and in general buyers' bids crept a little higher than they have in previous weeks. He mentions a newer Ford Explorer that attracted a $2,700 bid, which is about $400 higher than a similar car received last week. But his optimism is tempered: Even at $2,700, the Explorer still didn't sell. (Sales rate and prices ultimately determine the success of any auto auction, because the facilities charge buyers and sellers fees based on their transactions. Western Maine Auto Auction's fees run between $50 and $250, depending on the value of the vehicle sold, says Cunningham.)
Alex Rosten of Edmunds.com also sees reasons for optimism in used car sales, thanks to a dramatic turnaround in the new car market. New car sales have plummeted since the dealers ended their popular incentive programs, falling 44% in the first nine days of October, according to Westlake, Calif.-based J.D. Power & Associates' Power Information Network. "That could possibly stimulate used car sales, if deals on used cars are perceived to be good again," says Rosten.
Not all used car dealers are convinced good times are forthcoming, though. Doug White of DNK expects sales to remain slow for the rest of the year, but hopes that buyers will come back next spring as they start receiving federal income tax returns.
Even as they as complain about it this fall's market conditions, though, most dealers take comfort in the long-term perspective. They've lived through more than one oil shock, and watched consumer demand jump from big cars to small to big to small again. Although they can't be sure when a shift will occur, they know that another one is inevitable. "I was in the market in the early 70s when gas went from 20 cents a gallon to a dollar, and we thought it was the end of the world," says Jake Lovejoy of Franklin Chrysler. "It'll even out. It always has."
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