Market Conditions Commentary
 
Market in free fall. I felt like a dentist, pulling teeth all day
by Robert Hollenshead
Oct 27 2013 4:24PM

It is inevitable this time of the year but this is worse than normal.  This past week is the worst week we have experienced in recent memory which the gas crisis of 1972, 1979, the bank crisis of 1991, 2001, 9/11 2001 and the bank crisis of 2008.  In each of the past instances there was still a market for a good car.  What we have now is free-fall.  It really doesn't matter what you have there is nobody interested.  There is no base line.  There is nobody in the lanes.  It is dead.  The model seems as if time has passed it by.  I sold at the lowest conversion all year, 85%.  MMR is wrong by thousands in most cases especially with cars over $20,000 and units that don't VIN decode which is more than ever before.I felt like I was in jail Thursday and Friday.  I now know what it is like to be a dentist as I was pulling teeth both days trying to get them sold. 

After four decades wholesaling cars, buying off the street and primarily selling at the auction under the hammer, I can honestly say it feels as though the business model is done.  We have up to $30,000,000 tied up in inventory,  transport, recon, pay fees at the sale, and get subjected to a post-sale process that is irrational and beg the dealers we pay up front for the cars for titles.  Since we pay them up front for the cars, they really don’t care when they get titles so we are left out to dry waiting to cash them in.  The process costs too much, has too many superimposed obstacles, and there is less activity in the lanes than I ever remember.  Dealers can’t afford to pay the fees and keep coming back for more.  Once a guy buys a car at the auction, pays the sale fee, post sales it, transports it and does his retail recon, he is welded into the bitch to the point he will blow $3,000 if he doesn't retail it. 

The real killer is the fact that there would always be a crowd following in a real car in the lane regardless of time of year, time of day, day of week or any other set of circumstances.  It is no longer the case.  I have recently had a pile of one of a kind impossible to find creamers that get to the block in broad daylight on a perfect number to find absolutely nobody in the lane to bid.  As long as I have been doing this, selling hundreds of thousands of cars, this is the first time that this is the case.  The auctions that sell a $20,000 average price unit is now converting under 40% for dealers which is dysfunctional.  Folks that buy into this as something that is sustainable don’t know how to count, it will not work for the buyer and the seller.

This in conjunction with the management systems dealers are now following in regards to selling anything for whatever they can get for it “retail” (many cases less than wholesale) in order not to wholesale cars.  This has had a horrific effect on the auctions as the only thing that makes it way to the auction is absolute industrial waste.  Have you looked at the presale inventory at auctions around the country?  It looks like industrial waste or a rental car.  The lanes have a desirability index of minus 298.  There is little to no motivation to come, look, and participate trying to buy cars and then get hit with a sledge hammer cost of acquisition.  It is not sustainable and we are now witnessing the incremental death of the most beautiful, fun, exciting, business I know of; hustling cars at an auction.

I have a prediction that I have thought about for a long time and I truly believe we will see a shift in this direction.  It is a hybrid, subscription based, hyper CR based simulcast live auction, employing an auctioneer,  that will not require the buyer to put his boots in the lane.  I will be starting this model prior to the end of this calendar year.  We have everything we need to fire away and we will be pulling the trigger.  The auction has actually forced us into this mode due to the fact that they refuse to give us numbers.  As crazy as it seems, and nobody believes it but it is true, we are unable to get numbers.  After years of begging and falling on deaf ears and with no rational logic I am unable to get numbers.  This has forced us to consider history, include what is spectacular about the hammer, the emotion, the will to buy and sell in a competitive environment, and execute on the spot, to create a new model.

If we are going to survive in the new environment we have to make the move.  I have invested millions in the development of the products we are sitting on and I really believe all dealers will love it.  This model is based in a subscription, no buyer fees.  We use  the fundamental logic,  will, and ability to arrange all units logically, eliminate time burning, eliminate game playing, eliminate hunting for a needle in a hay stack, eliminate after-sale circle jerk,  eliminate the lack of communication, and have the intestinal fortitude to sell everything to ensure the participants know that they will never be subject to a Turkish Bazaar of endless silly negotiation. 

The listing services, buy it now (for $2,000 over market) model has been well vetted over the past number of years and is proven to be time/energy eating monster that can never convert more than a fraction of the listed inventory.  This combined with an absolute reality, the buyer and the seller can never feel like they got actual market value in a none-competitive bidding environment.  You never really know what would have happened with a hammer and an auctioneer.  This hybrid will always use an auctioneer and create the emergency to defecate or get off the pot in broad daylight and know you bought it for the value that the live open market has determined. 

I really believe this model will change the industry as we know it.  It maintains all the positive aspects as to why we love it and eliminates all the cost and illogical insanity that has been superimposed on us.  Professionals with skin in the game will be the benefactors. 


6 Readers' Comments

1
Renay Valcich
Mllersville
MD 21108
11 years ago
Great posting! I will send it to everyone I know!
--Renay

2
John Wolfe
Fort worth
TX 76107
11 years ago
I keep hearing you say "Auction won't give me #'s" next para "I sell 90%" and sounds like your ave price is mid 20's or north. Obviously that's a dream formula for any auction, so WHY have they (Adesa/man/et al) decided to not want your business that would generate huge buyer fees, and % that of a factory sale. What's their reasoning, there must be a reason.

3
Robert Hollenshead
MANHEIM
PA 17545
11 years ago
It is a perplexing question that I have no answer other than the one they give me, "we have other customers". I have not had a domestic number that hit the building prior to 12PM in three years because they have other customers. If you are familiar with the auction, numbers beyond 11AM are not good and in most cases, worthless. Why would suppose that they are unavailable to a 500 unit per week seller? I can't answer the question John. But I have asked it 100 times, just no logical answer, therefore we will find our own answer.

Would you find that your first numbers coming in well after noon acceptable?

4
Kip Rowe
Homestead
FL 33030
11 years ago
Good stuff Bob... I agree the current model is broken and MMR means nothing in the real world. In some cases MMR is based on the few cars that did sell not what all the car brought under the hammer. I look forward to a new way to do business !

Thanks,
Kip

5
Mark Kreider
17545
PA 
11 years ago
Knowing how long and how much you've invested in this product I have no doubt it will wok great. Based on a logical informative real world condition report With a clearvand simple purpose . Quickly and accurately describe a vehicle including equipment, history, and desirability.

6
John Wolfe
Fort worth
TX 76107
11 years ago
I have identical problem w man, just smaller version, hence why I'm asking. I left, took my business to a new Indy auction, great results, use Man to cleanup cars that missed.

I heard "franchise dealer" at Man so often during my prior battle to be moved fr shit lanes to good lanes, I became one in ea of big 3. (Made no diff w man, they told me now I
Just a bigger wholesaler fronting as franchise), but Adesa did take the bait, and began showcasing all those closed factory sale sourced cars, let us pay $100 cash transport assistance (bc franchised dealer) and the wolfe ford/dodge/chevy lane ran like sewing machine at Adesa.

But your deal, with that % and price point is the type of acct that man would use as their poster boy, the reason to us smaller punks why we can't get a good slot, bc they gave it to you, and if we'd be willing to do what you do, then we could talk.

So the real reason is, they're trying to contain you, they don't wNt you do have any more leverage than you do no