Car auctions

Car auctions have become an integral part of the market of purchase and sale of cars in the world. In Russia this phenomenon has not yet settled down , but it may soon become one of the most popular forms of trading. What trends are distinguishing for the turnover of cars in Russia and what is international experience of auctions in this sector the experts of OJSC AHRF Consulting explored.

Russian car market in 2014

According to information of the “AUTOSTAT” agency during 2014 were sold 2.34 million of new passenger cars. In comparison with 2013 a decrease of indexes in the market was 10.3%.

During 2014 about 6 million of used cars were sold. About 93–94% of cars were sold , changing hands through ads in newspapers or by websites (the largest of which are Avito.ru and Auto.ru). The remaining 7.6% (in Moscow and St. Petersburg – up to 25%) are sold by the “trade-in” system in the showrooms of official dealers. The total volume of the market of used cars is estimated by experts up to 60 billion dollars.

 

According the information of the Analytic Agency “AUTOSTAT” , the share of used cars sold through dealership in the Russian market is growing. For example, in 2012 the volume of dealer sales was 300 thousand pieces. (5.5% of the total market) , in 2013 – 350 thousand pieces (6.1%). Last year, through dealership centers have been sold 400 thousand cars with mileage, which is 6.6% of the total volume of the market of used cars in Russia. According to the forecasts the share of sales of the cars with mileage through dealership in 2015 will increase up to 8%.

For dealer most attractive is the age range of the cars with mileage – up to seven years. The share of sales just in this segment increased from 13% in 2012 to 17.4% in 2014.

Illustration 2 The market of used cars

Cars with mileage

Source: http://www.autostat.ru/news/view/20396/

 

According to public opinion , the majority (76%) of buyers sale the used cars lower stated prices. On average, the price reduction is about 10%.

 

Car auctions of the world

Auctions market is developing during the last 70 years. In the process of evolution the car auctions were transformed from small companies , created on the basis of the premises of stables and production workshops , to large multinational corporations with high-tech workshops for pre-sales preparation and restoration of auction cars , modified by e-commerce system of e-commerce and well-thought-out rules of carrying out auction transactions.

Globally the most active players in the market of auction car sale are recognized the companies in the USA , Japan and the UK.

 

United States

According to the National Association of the USA Auto Auctions (NAAA) in 2013 through the auction companies of the USA , which number is more than 300 , were sold 8.2 million cars for the amount of 75.7 billion dollars.

Scheme of the most car auctions in the United States involved a participation in bidding only legal entities – brokers. To purchase a vehicle an individual has to address intermediary companies , accredited at the auction. Buyer, signed a contract with an intermediary , must make an advance payment, and then gets access to the information system of the auction , where regularly appears information on selling cars. Electronic auctions are held with the price increase.

With individuals directly work auctions , selling cars of leasing and car rental companies.

One of the largest in the United States are Manheim auctions , through which up to 50 thousand cars per day are sold. It is the largest network of auctions of the world , which has its representative offices also in European countries. In the United States the Manheim system has more than 120 trading sites. Manheim auctions offered for sale cars from official dealers in America, with invalid indemnity , as well as vehicles belonging to insurance companies , leasing and bank seized property.

Another major American auction is a Copart INC. Copart Auction specializes in sales of cars , motorcycles , trucks , boats and launches , snowmobiles , construction machinery. Cars at the auction deliver insurance companies , shops selling damaged transport , firms engaged in repair of transport as well as dealers. To participate in the auction may dealers or individuals under the mediation of dealers. Total of the auction sales is over 1 million cars per year.

 

Great Britain

Most of the cars sold at auctions are car fleet of companies and , as a rule , have a good story and are in good condition. Car dealerships also use auctions to sell excesses of cars. Auctions in the UK are also used by banks and state bodies. Dealers who care about their image , are members of the professional organization of auctioneers (NAMA).

One of the largest European companies is British Car Auctions (BCA) (www.british-car-auctions.co.uk) , founded in 1964. Today, through natural and online auctions the company sells more than 12 million cars every week. Annual turnover of the company in recent years amounted to about 4 billion pounds.

To date the European representative offices operate in the UK , Austria , Belgium , Denmark , France , Germany , the Netherlands , Portugal , Spain and Sweden.

The main suppliers are car manufacturers , financial and leasing companies , car rental companies , state institutions and dealers , operating in the wholesale and retail car market.

 

Japan

In accordance with the legislation, as buyers the permission to participate in the auctions have only auto dealers who get the appropriate license and pay the fees , all negotiations and bids an ordinary buyer can carry out only with their assistance. Each dealer may have his own terms of purchase , but on the whole the scheme of the transaction looks like the follows: the buyer chooses the car and draw up the application for it. After that it is required to pay a deposit (its amount determines the dealer) , provided that the deposit is paid out , the dealer starts to take part in bidding.

When the car is successfully bought at the auction , the buyer pays the full cost of it (including the expenses for shipping , insurance , etc.).

In Japan, due to auctions (USS , HAA , AucNet) sold more than 90% of used cars. In the country work more than 30 auctions , with more than 200 sites for cars across the country. Each year more than a million vehicles are sold for export.

 

Auto auctions in Russia

Car auctions in Russia have not yet greatly developed due to the fact that the auction business model has not become popular among the population.

In addition a negative factor is the transparency of transactions at auctions and the inability to reduce the price for tax evasion.

At the same time the crisis period , characterized by a reduction in demand for new cars due to the falling consumer credit volum , as well as an increase in proposal of mortgaged cars, could give a stimulus to the development of the auction trade in Russia.

In Russia several companies make attempts to organize auctions. The US Manheim tried to enter Russian market , later a representative office was closed. In 2008 the attempt to establish a major auction for the sale of cars was made by the “Favorite Motors” (car online auction Yoshida) , the investments were 120 million dollars. The scheme of work included the work with individuals and provision of a vehicle for the diagnosis and for the further sale , the auction commission was 5%. Currently the company operates as an ordinary second hand dealer of cars.

In 2014 several companies make attempts to enter the market with a business model based on working with dealers-buyers (Carprice , LLC “IAuto”).

 

CarPrice

The project appeared in the market in June 2014. The site is actually a clone of projects SellAnyCar (Dubai) and wirkaufendeinauto (Germany). These auctions, in their turn , repeated the idea of the US Manheim.

The scheme of work is based on car sales to dealers from different regions , connected to the system.

Now the project is unprofitable. According to the founders of the company , the business can be profitable when selling thousands , not hundreds of cars a month , and with the same number of registered dealers in the system.

 

Car auction of auto dealers (LLC “IAuto” , http://iautobank.ru/)

To take part in the auction can both individuals and legal entities. Legal entities can buy and sell cars , paying a commission in the amount of 15,000 rubles per car.

The basis of the business model – selling to car dealers at prices lower than the market ones (about 80% of the market price). Dealers are connected in a single network (currently working with 27 car dealers).

Auctions are held parallel online and offline , all the cars put up for online auction are on the of site IAuto. Trades are held with increasing of price.

Conclusions

Despite such considerable advantages for the development of car auctions as a large used-car market, the ability to attract a large number of potential buyers, and so on, the market faces significant challenges.

The main problems of selling cars at auctions are as follows:

• Lack of culture and experience in selling cars through auctions. According to interviewing , now about 95% of cars sold through websites of ads , another 5% – by trade-in system;

• transparency of transactions, impossibility to undercharge the transaction;

• necessity to sell the car at a price lower than the market one because to attract buyers the price must be decreased;

• necessity of physical presence and technical diagnostics of car in a place , determined by a company that holds the auction;

• in most cases impossibility of “test-drive” and a physical inspection of the car for the buyer (when the site is remote in terms of location);

• lack of confidence in companies , carrying out diagnostics.