Auction Games

We still call them auctions but they’ve gone way beyond that. They’re almost like the carnivals we went to as kids. The big ones even have a midway filled with vendors. At Scottsdale Barrett-Jackson has over 350 vendors on the site. You can even buy cotton candy and funnel cakes. The carnival is now complete.

These are serious people with money to spend. If they auction house provides you with a table and chair you can be sure they’re explored your financial history.

Barrett-Jackson may not even be in the auction business. They’re in the event management business. The have giant events that rival any SEMA show you’ve ever attended. In the middle of this event they hold an auction. Barrett-Jackson gets over 300,000 people a year to attend their various events each year while Mecum had 75,000 guests at a single auction in Kissimmee Florida last year.

It’s not easy to arrive at hard numbers with all the various ticket packages and hundreds of vendors but we can get an order of the magnitude. If we use a $40.00 admission for Barrett-Jackson and estimate they have 300,000 paid admissions during the year we end up with $12,000,000 in annual revenue just from lookers. It’s possible that this number could be even higher.

If we do the same arithmetic for Mecum at Kissimmee Florida last year we get pretty close to $500,000 in paid admissions. That’s just for just for one week and one auction. If every guest at Barrett-Jackson buys only one Coke during the day we’re looking at another $300,000 in annual revenue for either them or the vendors who rent space. We also know there’s not such thing as a $1.00 Coke at these auctions. Any way you do the calculations they’re huge. Collector car auctions are no mom and pop business.

Obviously these guests aren’t all buyers. They come to see the circus. They also bring money. Lots of it. This is why the midway is critical for both Barrett-Jackson and Mecum. They generate a lot of revenue from renting space on the midway.

Cars spend very little time in front of the bidders. The serious buyers have already performed the necessary due diligence well before the bidding begins.

Then we have what can best be called the boutique houses. These firms offer fewer cars at much higher prices. You won’t find Nomad wagons at RM or Gooding. Consider that Gooding & Co. sold fewer than 300 cars last year while Mecum sells almost 3,000 cars at a single auction. These are two very different types of auctions.

Every auction house has a reputation. They’ve worked very hard to get that reputation. Mecum is the largest collector car auction company. They don’t really compete with Gooding or RM. Gooding, Russo and Steele and RM deal with high-end cars of the finest quality. Their auctions are much smaller and they have no midway. They make their money the old fashioned way – selling cars.

Let’s look at the Amelia Island results from this year. RM claims to have sold $26.8 million worth of cars. Now we have something called a buyer’s premium. This is a surcharge on top of the price you just agreed to pay for a car. Unlike the seller’s premium this one is pretty much non negotiable. Most houses charge around 10%. That means RM made $2.7 million on just the buyer’s commission. I’m sure they made less on the seller’s commission because that’s where a lot of negotiation takes place.

Feeding the Beast

The most amazing number is the quantity of cars that these auction houses need to stay in business. During the month of January the various companies will sell over 3,000 cars in Scottsdale. Last year Mecum sold almost 3,000 cars at a single auction in Florida. If you start to add up the numbers from all the various auctions in the past year you easily pass 15,000 cars. This year we could easily see 20,000 collector cars changing hands. That means auction houses need to locate and sell 20,000 collector cars in the coming year.

Here’s one more revenue stream. The arrangements between the

vendors and the auction house are not made public. In many cases

it’s both space rental and a percentage of gross sales.

Not only do you need a lot of cars but also you have to have the correct balance. You simply can’t have all multi million dollar cars. Neither can you have an auction filled with $10,000 cars. At the top of the market we have the 7-figure cars. This is rare air. Good multi-million dollar cars are in demand and the auction houses compete to get these good cars. This is where the seller is in command.

In that sense we’re starting to resemble the art market. Every auction house on the planet wants at least one 50’s Ferrari with a serious race history. A Delahaye with provenance has become the Monet of our world. In the art world auction houses are guaranteeing prices and even going so far as purchasing paintings if the reserve isn’t met. In other words the auction houses are becoming more than simply a broker between the buyer and the seller. At some level the auction houses are now becoming participants in the process. If you want to see where the collector car market is headed you need only look at the major art auctions.

It takes a lot of people to run an auction. Just think about how many

auctioneers you need in a day.

Don’t expect to find people at your front door when you offer up your AMC Pacer though. It’s only at the very high end of the market where it gets interesting. Acquiring the very best cars is a very competitive business these days. If you have a serious car with a good history you’re going to find any number of auction houses camped out in front of your garage.

How many cars can be run through in a day?

This is going to vary widely from house to house. There are several auction houses where the average sales price is almost $500,000. If you’re getting that much money per car you can take a little more time. That’s why attending an RM or Russo and Steele auction is a totally different experience from Barrett-Jackson or Mecum.

The volume houses generally run over 200 cars across the block every day. One way to move more cars in a day is to put the hammer down as soon as the reserve is met. Once the reserve is met the car is sold and the house moves quickly to the next car. Some houses will try and move the price above the reserve. That though takes up time. If you have to move a lot of cars across the block in a day every minute counts.

How are the cars organized for the sale?

This is an art. Actually it’s a theatrical production. You have a bunch of people standing around most of the day with cash in their hand. You have to keep their interest high. How well can you hold the interest of the folks with $100,000 in their hand while you auction off the $40,000 cars? Quick answer – you can’t. That’s why all the $25,000 cars are run across the block early Saturday morning.

It’s called value grouping. If a $200,000 car is sold that means the auctioneer has just identified a number of people in the audience with $200,000 in their hand and ready to bid. If the next car up is a $10,000 MG these folks lose interest real fast. Auction houses group cars together the way the buyers are grouped together. You want to keep the interest of the big dogs going. Don’t mix Minis in with the Bugattis.

You can group cars too tightly though. You certainly don’t want a bunch of 1955 Chevrolets grouped together. That starts to looks like a fire sale on Chevys. The same thing is true of colors. You can only have so many red cars in row before the auction gets boring.

It takes days to put the right mix together. It’s similar to doing a jigsaw puzzle. In fact Barrett-Jackson is working on this puzzle is right up to the last minute. That’s why they tell you:

“Barrett-Jackson cannot predict the exact time your vehicle will cross the auction block. Each individual lot takes a different amount of time to sell. Also, Barrett-Jackson reserves the right to add additional lot numbers.”

The Overhead

Every auction house really wants to sell your car. That’s how they make money. You might not agree with them about the value of your car but they absolutely want to find a buyer for your car. The main reason you can be certain the auction house wants to sell your car is the overhead they have. You may have paid an entry fee and spent even more money to transport the car to the auction but they’ve got more cash out of pocket than you have.

Move the cars as quickly as possible.

We’ll never know the real amount but we can take a guess. The big houses probably spend about $2,000 to $2,500 per car. That’s a lot of money if you’re selling $25,000 cars. That’s the reason you can’t negotiate the seller and buyer’s fee on lower priced cars. The auction house actually needs the money.

You can group the overhead expenses into roughly three categories. First we have staff. At any auction you’re going to need several hundred people. That means you have to fly them in to the location and put them in rental cars. Then you have to find them a place to sleep. Dana Mecum usually has an on-site cafeteria for his people. That can’t be cheap.

Catalogues are a huge expense. This example from

Amelia Island is over 270 pages. That’s for 190 cars

Then we have facility costs. This is a huge number. At Kissimmee Mecum had fifteen acres under tents. They didn’t come cheap. RM at Amelia Island had a couple of ballrooms reserved for the week. Considering that a room in the Ritz-Carlton is $500 a night I hate to even think about how much it costs to reserve two Ritz Carlton ballrooms for a week.

The third category is best called promotional expenses. Auction houses spend a lot of money advertising and marketing. This includes all of the money for catalogues and advertising. Also, they all have web sites that require constant updating.

When it’s all said and done most auctions have a couple million dollars invested in an auction. The bigger ones have even greater amounts. I hesitate to think what the overhead is on some of the Barrett-Jackson and Mecum auctions. They can cover this overhead by selling a lot of cars. Or, a smaller amount of very high priced cars.

The Title and VIN

This is a huge problem for every auction house. It’s almost an exercise in statistics. If you have to review several thousand titles and an equal number of cars you’re going to find some problems. Every auction has a number of owners have never even looked at their title to see if the VIN is the same as what’s written on their title. A lot of people don’t even have any idea where the VIN is located. The day before the auction is not the best time to find all of this out.

Russo and Steele uses a system where they require a picture of the VIN before they even accept your car for auction. That forces you to figure out where the VIN number is located. It saves a lot of looking around with flashlights in the dark of the night. Every single auction house employs a group of retired theft recovery specialists (i.e. cops) to examine the VIN number and the titles.

One of the reasons for all of this interest regarding the VIN and title document is that the state where the auction is being held has a huge interest in this information. If you intend to transfer 3,000 titles in a single week you can be sure that the state motor vehicles office is going to be involved. An auction house has to make sure that everything is perfect.

Getting the cars to the new owners

You can’t hold an auction without cars. They don’t just fall out of the sky. Someone has to take them to the auction and then someone has to remove them from the auction site. This is where the trucking companies get involved. Reliable Carriers, Inc. handles about half of all the auction business in the United States. That means in the course of the year they’ll haul 10,000 cars to various auctions and then haul 10,000 cars home to their new owners.

In bound transportation is the easy part. Reliable have 378 trucks moving around the country at any given time. That means they can put your car on a load with other cars that may not be going to the auction. Bob Sellers of Reliable says the key is to put loads together that make sense. This is really easy to say but a lot more difficult to do.

The larger auctions require around 100 loads. That means 70 to 100 trucks. The hard part is the outbound loading. A company such as Reliable won’t know what’s going where until the cars are sold. The planning starts as soon as the cars are sold.

The general admission revenue is a significant part of the revenue stream. Every single person in this audience paid to watch the circus.

This means the trucking companies energize the system the minute the first car is sold. They start to put the short loads together first. It all starts with concentric circles. The first circles might only be 300 miles from the auction. That means you can dispatch a fully loaded truck and get it back the next day. Remember trucks only make money when they’re moving. The next circle might be around 1,000 miles in diameter. The goal is to always send a fully loaded truck out on the road. You don’t want to send a partial load on a 1,500 mile run. If they do this right they can handle 100 loads with fewer than 70 trucks. That means everyone makes money and you get your new car home in your garage.

Some Numbers

You can get a good picture of who sells what by just looking at the average sale price. These numbers are what the auction houses say they did last year. You can see how the market is segmented amongst the various auctions.

Mecum Auctions - $39,500

Barrett-Jackson - $81,200

Gooding and Company – $640,635

RM Auctions - $485,500

Auction Houses

Bonham’s Auctions

580 Madison Ave.

New York, NY 10022

212-644-9001

www.bonhams.com

Russo and Steele

5230 S. 39th Street