Market Conditions Commentary
 
This topic will be a chapter in my book
by Robert Hollenshead
Nov 12 2011 11:29AM
Over the past four decades that  I have been in the wholesale business certain explainable realities make you spend some time scratching your head and talking to yourself.  On the surface, it simply makes no sense.  I am referring to a class of cars that for one reason or another are out of whack.

With the aid of hindsight it has always been due to some market anomaly based on number of specific criteria such as a new model, a build shortage, a build date needed to export, miles, import duty or regulation.  It happened in the early 80s with the K car, the body 1982 Chrysler 5th Ave, the 84 Vet, the Cross fire injection Indy Camaro, the front drive Lincoln Continental in ’88, the NSX in 1991, mid 80s Ferraris, the L6 BMW in the 80s  the 8 series BMW.

It happened with the new body SL in 1990 when we paid sticker, $91,000 and sold them for $105,000 on the block.   And then 1998 ML320 when it first was built we were selling them overseas for twice the sticker price ( I was thinking about that yesterday while I sold one for $1,200.  It might be the one I sold for $100,000 as it was the same color…wild).

We had a wild run of irrational prices on 1999- 2007 Lexus RXs that lasted for a decade where high miles brought more than low miles and older ones were worth more than newer ones.  We have sold Bentleys with 100,000 miles for more than ones with 10,000, the same model year but a different color, option set or build date.

Now I want to make it official, a 2008 BMW 3 series is worth more than 2011.  Nutty?  But true.  I had a bunch of 2011 3 Series with single digit miles, the right gear, and no paint work that I sold for less than 2008s.  The 2011s have nobody looking.  You would think that somebody would be there and say “wow, that’s cheap”, even if they don’t bid.  Right behind them are 2008, 2007, 2009, twenty, thirty forty thousand miles and the lane is on fire , for more money and bids flying from everywhere….for more doe than the 2011s with 4,000 and 6,000 miles.

This is the definition of brain death.  I had my normal conference call with all my analysts today and our operation people for the auction.  The conclusion we have come to is this;  we are going to mark the windshield of all 2011 BMWs as 2008s as it is the only way to ensure a buyer is willing to bid on the car.

I have done this in the past and with one exception if worked.  Dealers buy a car that is a year or two newer than the year I marked on the windshield.  They never bring it up as they figure they caught an absolute idiot that didn’t know what year car he was selling.  What they didn’t know is the unit was at the sale the week before with no bid at $0 because of the year/ mile relationship.  Think about this.  In current day terms a 2010 BMW with 48,000 miles falls into no mans’s land.  No new car dealer would bid, it’s too new for a used car dealer, it’s no good for export, so who bids? Nobody.  The definition of MUD.  Now take that same unit and make it a 2008 with 48,000 miles.  Still not good, but you can sell it to a host of people that include a new car guy or a used car lot…and very possibly an exporter.  Now you have bidders.

The exception I mentioned earlier happened a few  years ago.  It refers to a 2004 BMW with mud miles and nobody interested.  Mud frequently falls into no-man’s land in the wholesale market.  In this case he is a dealer from Connecticut that bought a BMW from my son that was marked two years older than the unit actually was.  He called me a week after the sale to proclaim that I was unfair and misrepresented my car.  He was furious.  I asked him what was his mal-function.  He said he had bought a 2002 car that turned out to be a 2004 and demanded I make an adjustment.  I referred him to Galves, the book, and asked him to make the adjustment he saw fit, you know, make things right.  The “Book” value was $4,00 more as a 2004, including the mile adjustment.  Since he acknowledged that he owed me the difference of $4,000 he felt that was fair (even though he could have kept the car for the lower price, with no sweat and no need for a thank you) he opted to bring it back.  The unit was re-sold with the right year for  a gee or so more.  Of course I told the story on the block to get some action on the unit that otherwise would have fallen back into oblivion and nobody bidding.  As mentioned before, mud does that frequently.

The moral of the story is that in many cases wearing a no-brain helmet at the auction might not be smart.  A no brain helmet is one that protects you from ideas that may cause you to think, or use logic.  Paying attention can help you bump into some really good deals, like really good.  If you are stang at an auction shooting bull  please understand that that activity will only lul you into a trance that is guaranteed to not make you money.  This is based on a study of four decades on observation.  This is not just a case study, but a longitudinal study that has founfd no excetions to the rule, don’t fall asleep, use your five senses the maker has given you, and it is impossible to make money when you don’t have cars.  Let the other knuckle brained experts eat fries and shoot the bull.  Pay attention in a lane that is selling.  I absolutely guarantee you will leave with some buys that will leave you scratching your head and asking, “how did I buy this car for this price?”

If you are in my lanes and are not sleeping, I can make an absolute guarantee.  If you give me the respect of paying attention and have your antenna up, you will never hear me use the worst profanity known to man “NO-SALE”.  It simply ain’t  gonna happen.  The last two days proved it out.  In the mid-nineties in sale conversion and $10,000,000 sold.

So if you buy a 2008 from me in the next few weeks, check the VIN because it’s very likely the sucker is a 2011, or 2012.  If you think I am joking, pay attention.  If I need to be ridiculous in order to wake folks out of a logic stupor, I’ll do it.  Buying guidelines need to be buying guidelines, not Nazified rules that are void or logic.  It’s great to be a disciplined buyer, but not to the point of being obtuse to reason.

1 Readers' Comments

1
Yakov Bandura
Syracuse
NY 13206
8 years ago
Hello Bob,

This is Yakov B. from Highline Motor Works in Syracuse, NY. I think that this post should be read by every dealer in the country since there is a lot to learn. You are 100% correct that newer cars with a lot less miles don't do money anymore. I personally witnessed you selling 2011 Lexus ES350 with 9K miles for $27,500 on Thursday(while MMR is $33,500) and then arbitrated and then bought by same guy for $26,600 on Friday. In the mean while 2009 ES350 are doing 23-24k with miles in 20s. I couldn't understand that before but in the last few months dealing with you, picture became 100% clear. Bottom line paying attention could make you 10s thousands of dollars more, but small percent of dealers do pay attention now a days. Thanks for the excellent lesson. We'll see you on Friday!