Ready, Set, Buy!

There’s no denying the Internet has truly changed the face of car sales. Most dealers know by now that it’s a great way to expose inventory to a wider audience, but the Internet’s reach can work to a dealer’s advantage in a different way.

Online auctions give dealers a way to look outside their local and regional markets for a wider variety of used cars that might not otherwise be accessible to them. This can be especially advantageous for special finance dealers who now must consider inventory selection a precision operation. With credit tighter than ever, SF dealers need to be cautious in selecting inventory and must focus on having a variety of vehicles in stock that fit their finance companies’ programs.

Online auctions enable dealers to find exactly what they’re looking for without ever setting foot outside the dealership. The amount of work, time, travel and expense incurred in acquiring fresh inventory can be greatly reduced.

Online auctions vary in format. Some are essentially Web broadcasts of live, physical auctions; dealers watch cars go through the lanes and bid in real time, side-by-side with dealers in the lanes. Other auctions are conducted entirely online, with no physical auction lanes. Some companies offer access to both formats.

ADESA’s LiveBlock allows dealers to monitor ADESA auctions nationwide via Web broadcast, and all ADESA locations are available through LiveBlock. They can “attend” multiple auctions simultaneously by opening each location in its own browser window. ADESA’s DealerBlock auctions, on the other hand, are contained entirely online. Vehicles are posted and bids are accepted within designated auction periods, while some vehicles may be purchased immediately for a “buy it now” price.

Manheim allows dealers to monitor live auctions and access online-only auctions. Simulcast (Manheim’s online platform that allows dealers to monitor live auctions) patches dealers into the lanes of Manheim auctions nationwide and allows them to monitor up to six lanes simultaneously. OVE.com (Manheim’s online–only auction platform) is available 24 hours a day, seven days a week, and some OVE.com listings carry a “buy it now” price.

GMAC SmartAuction and SmartAuctionOpen offer live auctions from 9:00 a.m. to 3:00 p.m. Eastern, Monday through Friday, which are conducted online only. From 5:00 p.m. until 11:30 p.m. Eastern, Monday through Friday, SmartAuction and SmartAuctionOpen offer “buy it now” sales. According to Bill McIver, national sales director for SmartAuction, purchasing through SmartAuction and SmartAuctionOpen gives dealers the first crack at vehicles before they ever go to physical auction.

OPENLANE is another company that provides entirely virtual auctions. However, OPENLANE does not have a hard close at the end of an auction day like SmartAuction. OPENLANE auctions are available around the clock all week long from a variety of consignors, including dealer-to-dealer sales through iDEAL (Inter-dealer Electronic Auction Lane).

So, which format is the best? That’s largely a matter of preference. Dealers who are akin to the lane experience might prefer using ADESA’s LiveBlock or Manheim’s Simulcast.
Dealers who want greater flexibility with their schedule might opt for the strictly-online venues, which let them buy outside regular hours.

Ready
Regardless of which online buying method a dealer chooses, there are certain steps that are necessary before logging in to buy. There are generally a few forms that must be completed for dealers to register. None of the auctions profiled here have any signup or subscription fees, and all are accessible to licensed franchise and independent dealers. Several auctions are affiliated with certain finance sources. If dealers do not use those affiliated finance sources, a bank authorization letter may be required. An auction may set a daily spending cap or give dealers a credit limit based upon their individual buying needs and credit information.

Online auctions offering closed manufacturer sales will require franchise dealers to identify themselves to gain access to their particular manufacturer’s sale. In the case of GMAC, SmartAuction is for licensed GM dealers only. For non-GM franchise dealers and independents, GMAC offers SmartAuctionOpen, which operates in essentially the same manner.

OPENLANE requires a copy of a dealer’s license with their registration form. Dealers registering with ADESA will need to provide their Auction Access Number and are required to pick a “home auction,” typically the physical ADESA auction where they do the most business. 

Manheim requires an Auction Access Number as well. Registering at Manheim.com will give dealers access to both Simulcast and OVE.com. If a dealer has never purchased from a particular auction location, Manheim recommends calling customer support or the auction location before bidding to make sure they have the dealer’s information.

Once dealers register, the next step is learning how to use the features of the online auction site.

Dealers registered with SmartAuction or SmartAuctionOpen can go through a Webcast training session, or if they prefer, a trainer will come to the dealership to go through a live demo.

ADESA has created a new dealer relations team to assist dealers in learning to use ADESA’s online features. “We’re really making an effort this year to focus on education and the training of the dealer, really make them familiar and comfortable with our site,” said ADESA’s director of e-business sales and operations, Summer Ernsberger. Currently, help is available via phone, but training via WebEx will soon be offered.

The Wholesale Institute is Manheim’s traveling workshop that provides dealers with hands-on training for Simulcast and OVE.com. Dealers actually conduct searches and make purchases online with an expert standing by to help. Classes take place at Manheim auction locations nationwide.

OPENLANE provides a quick-start guide as part of a welcome package. Additionally, every dealer is assigned an account representative who can walk them through the site and show them how to use it. The representative can even assist in searches and bidding if needed. “We’ve built the company around an online transaction, and dealers have somebody – a face, a name – that they can associate with the company and with all their purchases,” said Ed Berkowitz, vice president, Open Auction, OPENLANE.

Set
Once the formalities are taken care of and dealers know the ropes, it’s time to start shopping. This may be the most important part of the process for special finance dealers—performing searches. All of the auctions offer multiple search parameters, some more numerous and varied than others, but all include at least the make, model, year and mileage. Dealers may also be able to search by distance, price band, seller or type of vehicle (off-lease, off-rental, repossession, dealer consignment, etc.). As McIver of SmartAuction pointed out, searching by distance can help dealers save on transport costs.

ADESA’s search feature will return results for DealerBlock listings and will show vehicles on the Run List for the live ADESA auctions. Since not all lanes at ADESA’s physical auction locations are wired for LiveBlock yet, dealers will need to check the Run List results to see which vehicles will be available through LiveBlock.

Manheim’s PowerSearch tool returns results from Manheim’s total online inventory—Simulcast, OVE.com and auction pre-sale lists.

OPENLANE’s search features will let dealers search specifically for first-run or price-reduced vehicles, if desired.

Each auction also has tools available that enable dealers to save searches and have notifications sent via e-mail when vehicles matching their set criteria become available. For dealers who are always on the lookout for certain types of vehicles for special finance, this is a good way to save time. Dealers using SmartAuction or SmartAuctionOpen can use their search results to compile a bid list of vehicles to monitor throughout the day. Similarly, OPENLANE users can compile a watch list, giving them a single location for managing the vehicles they want to bid on.

Vehicle detail pages provide dealers with a wealth of information to help them make the decision to bid on or buy a vehicle. Listings on SmartAuction and SmartAuctionOpen contain inspection reports, equipment, mileage, seller information and photos. For GM vehicles, warranty, recall and service history are also available. From the vehicle detail page, dealers can order a vehicle history report and get a shipping estimate. They can also view photos of any damage. “We do monitor the inspections and we have certain criteria. A bad inspection can obviously lead to trouble for both the buyer and the seller,” said McIver. “And we do format all the inspections to look alike … it’s all presented in the same manner.”

ADESA DealerBlock listings contain condition reports and multiple photos. An AutoCheck vehicle summary report is provided on every listing at no charge. Information for LiveBlock vehicles is displayed as the vehicle moves through the auction lane and includes mileage, equipment and damage information. Condition reports for LiveBlock vehicles utilize a standard report format. Dealers can also see limited information displayed for the next few vehicles on deck.

Vehicle listings on OVE.com will contain information like mileage, seller, photos and Manheim Market Report value. Each listing also has a vehicle history report and seller’s disclosure. Manheim performs a courtesy walk-around on all OVE.com vehicles to make sure the vehicle is accurately represented by the seller.

Icons posted next to OPENLANE’s vehicle listings will tell dealers if a car is being sold as-described or as-is. There are also icons to identify vehicles that are first-run or price-reduced vehicles. A vehicle’s detail page contains multiple photos of the vehicle including photos of any damage and repair estimates for that damage. Condition reports are standardized. “Because dealers are buying online, we’ve worked really hard with the sellers and the inspection companies to say these are the requirements that we need to meet in order for dealers to buy online with confidence,” said Berkowitz. Buyers can order a vehicle history report from Carfax or AutoCheck; in some cases OPENLANE may have already ordered a report.

Buy
Once the shopping list is done, it’s time to buy.

Each auction has some kind of transaction fee associated with making a purchase. In the cases of SmartAuction, SmartAuctionOpen and ADESA, it’s a flat fee.

Transaction fees for Manheim differ. OVE.com has a flat fee plus a facilitation fee based on the price of the car. In some cases, Simulcast will have its own fee on top of the buy fee. The “view fees” button on the listing shows all the fees associated with a particular vehicle. “Everything’s mapped out online, so there are never any surprises,” said Amanda Young, director of customer relations for Manheim Online Solutions.

OPENLANE charges a buy fee on a sliding scale depending on the sale price of the car. Bidders can see up front what they will pay in fees if they win with a particular bid amount.

In most cases, dealers will be bidding in $100 increments. However, the bid increments during live auctions could change according to what’s going on in the lane. For example, on Simulcast, if someone in the physical lane takes the bidding to $50 increments, that will automatically change for the Simulcast bidder as well.

SmartAuction, SmartAuctionOpen, LiveBlock, DealerBlock, Simulcast, OVE.com and OPENLANE all have the option of setting an autobid or a proxy bid. Dealers simply input the maximum amount they’re willing to spend on a vehicle. The system will continue bidding for them up to the sale price of the vehicle or their proxy limit, whichever is first. If they win, the auction will notify them.

For Manheim Simulcast, bidding must start in the lane before the proxy is engaged. If announcements are made on the block, the proxy bid is extracted as a protective measure for the buyer, since the buyer would be unaware of the information at the time the proxy bid was set. The auctioneer and the block clerk at the physical auction site don’t know when they’re dealing with a proxy bid; only the dealer who entered it knows it’s a proxy bid.

Since Simulcast lets dealers watch up to six lanes at one time, sound for each lane can be muted to avoid hearing six auctioneers at once. Dealers have the option of adding cars to a watch list. The system will give them visual and audio alerts when a car on the watch list is on deck. Simulcast also has a light system, just like in the physical lanes, to advise dealers of a car’s condition.

Vehicles purchased on OVE.com go through a facilitating location, which is a physical auction location to which the seller delivers a car. The buyer sends payment to this location and picks up the car from there as well. This also gives buyers the option to add on recon or post-sale inspection or detailing, just as they could if attending the physical auction.

Dealers using SmartAuction or SmartAuctionOpen have the option of setting a watch price, meaning they enter what they’re willing to pay for the vehicle without actually placing a bid. This lets the seller know he has an interested party but not a sound commitment. If there’s no activity on the listing or the reserve is not met, he may lower his price to meet a dealer’s watch price, at which time the system will automatically put the car on that dealer’s bid list.

ADESA allows consignors to take “if” bids. If their reserve was not met, the auction can facilitate one-on-one negotiations between the consignor and the dealer outside the sale to reach a deal. “We try to mimic what goes on in the lanes,” said Ernsberger.

In addition to bidding on auction vehicles, buyers on OPENLANE can place orders for in-fleet vehicles. This works especially well for a dealer who has a certain type of vehicle that works well in the special finance department and wants to acquire several of that type. The dealer can place an order for a number of fleet vehicles with an up-front guaranteed price. Within five to seven business days, OPENLANE sends a confirmation with the VINs for each vehicle. “You know within five days that these are the specific VINs and vehicles are all within $300 of wholesale-ready, so they’re in very good condition,” said Berkowitz. Another option available to dealers on OPENLANE is the use of a custom trading network, which allows a group of dealers to come together and sell cars amongst themselves before making them available to anyone else.

At the Checkout
Multiple payment options are available with any of the online auctions. SmartAuctionOpen is aligned with several floor plan sources, including Automotive Finance Corporation (AFC), Dealer Services Corporation and Manheim Financial Services. While going through one of the affiliated finance companies makes the settlement process after purchase very simple and quick, dealers need not be using any of those finance sources in order to purchase vehicles from SmartAuction. Payment can also be made through an ACH transaction or wire transfer from the dealer’s bank. According to McIver, GMAC has plans to offer an ever-increasing array of financial services to all dealers, not just GM franchisees.

Dealers purchasing through ADESA can do floor planning through AFC, but other options like ACH and checks are available. With Mainheim, dealers start on cash and later can provide a letter from their bank in order to establish a credit limit. If they have a bank they’re already using for floor planning, the auction will work with that bank.

With OPENLANE, dealers can pay through floor plan companies and even some smaller regional banks. If dealers go through a floor plan provider integrated with OPENLANE, the auction will do all the back-end work. However, dealers can work with their own floor plan providers; the auction will work with that provider to get them enabled on the system. Payment can also be made by check, wire transfer or ACH transaction.

Taking it Home
The last hurdle for dealers to get over is how to get their purchases delivered to the dealership. Each online auction has some kind of resource available for dealers in need of transport services. In all cases, of course, dealers can opt to take care of transport on their own.

SmartAuction and SmartAuctionOpen provide dealers with links to Ready Auto Transport (RAT), McNutt Auto Transport Service and Axis Group, Inc. In fact, dealers can obtain a quote from any or all of the providers before ever bidding on a vehicle.

OVE.com partners with several transport providers, including McNutt, RAT, Freight International and U-Ship. Dealers can quickly obtain a quote from any of the affiliated providers. Dealers purchasing through Simulcast can inquire with the particular auction location for transport providers. Many Manheim representatives will have lists of local transport providers they will share with buyers.

ADESA’s DealerBlock is partnered with Ready Auto Transport and can provide a hard quote for transport rather than an estimate. Dealers can find out the transport cost before they bid on a vehicle. There are options on LiveBlock for dealers to work out transportation directly with the auction location after the sale.

OPENLANE does not provide links to other transport providers. Instead, they offer their own fully integrated transport service as a one-stop shopping service for dealers. Dealers are able to see while bidding on a vehicle what transport costs would be through OPENLANE.  If there’s damage on the vehicle, regardless of whether it occurred in transport or the vehicle was not as represented, dealers only have to make one call. OPENLANE offers full-protection regardless of the source of damage. Dealers can even use OPENLANE’s transport services for vehicles they did not buy through OPENLANE.
 
While some dealers prefer the convenience involved in using an auction’s site to make arrangements for transporting vehicles, dealers have other options. There are many good reliable transport companies available in the industry. And if they don’t know where to find them there are online broker services that allow dealers to quickly connect with transport companies. Dealers can research carriers, review ratings, and on some sites arrange the entire process online.

Returns
Given that dealers are buying vehicles without the benefit of physically kicking the tires, it’s important for them to know what recourse is available if a vehicle turns out to be something other than what it was represented to be. The arbitration processes for SmartAuction and SmartAuctionOpen are modeled after the physical auctions that dealers are already accustomed to, said McIver. Any item must be greater than $400 to be eligible for arbitration. However, instead of giving the buyer only one or two days to notify the auction of a problem, buyers on SmartAuction and SmartAuctionOpen have 10 business days to notify the auction of a problem requiring arbitration. The auction will make the necessary adjustments to make the situation right for the buyer. In a worst-case scenario, McIver noted, the auction might arrange to have the car picked up and refund the buyer’s money. However, such a scenario is unlikely. “Our buyback rate has consistently been less than two percent,” said McIver. “We monitor both the buyers and the sellers … we want it to be a win-win situation for both the buyer and the seller.”

ADESA maintains separate arbitration policies for LiveBlock and DealerBlock. LiveBlock arbitration policies is in line with their physical auctions. DealerBlock’s arbitration policy, like SmartAuction’s, has a minimum damage amount of $400 per item.

Arbitration policies differ slightly between Manheim Simulcast and OVE.com. The arbitration policies on Simulcast are specific to the facilitating auction, i.e., sale day rules at the physical auction. The arbitration policy for OVE.com mirrors the National Auto Auction Association arbitration policy with certain exceptions made for the online marketplace, including arbitration rights for undisclosed damage in excess of $400. OVE.com offers a buyback guarantee subject to certain conditions. All the policies, terms and conditions are on Manheim’s site. “Dealers should be very comfortable with and know the buyback policies … [and] arbitration policies before they ever get online and buy or sell a car,” said Young.

Arbitration policies on OPENLANE depend on the classification of the vehicle. For vehicles sold as-described, which covers the majority of vehicles sold through OPENLANE, damages over $400 are subject to arbitration.

More and more dealers, special finance and otherwise, are embracing online auctions as safe and reliable options of getting the cars they need without losing time or money on travel and without limiting their choices.

“The used car market is more dynamic today that I have ever seen,” McIver stated. He noted that dealers can use an online auction to stay abreast of the market, even if they are not buying, and added that the number of independent dealer sign-ups on SmartAuctionOpen has increased dramatically in the last three to four months.

Ernsberger agreed that online venues are seeing huge growth. She speculated that transactions on LiveBlock have increased by about 35 percent and DealerBlock is up by 100 percent. Similarly, Manheim has seen Simulcast transactions grow by roughly 30 percent, while transactions on OVE.com jumped from 1,500 transactions per week in January 2008 to 4,000 transactions per week in January 2009.

The shift in the economy has brought dealers quickly to online channels, noted Young. Buying sight unseen and transport costs are no longer the obstacles they used to be. She maintained that buying from online auctions is not as different as dealers might think. She advised dealers to follow three rules for their first online purchase:

1. Buy from someone you trust
2. Buy out of your backyard
3. Don’t pay too much for the car.

Said Young, “The rules for success are the same online as they are in the lanes.”