Greg,

Great to see you have initiated a new level in the Wholesale Automotive Industry. I have had the idea for years to start such a bulletin board forum like this, but lacked the time, resources, and motivation. You are just the person to take the lead on your great idea.

I have a new topic for a discussion thread: "Unethical Practices by Wholesale Auctions". (Yes, I have a few more controversial topics, but lets take them one at a time.)

"Unethical Practices by Wholesale Auctions" is a topic I would like to see thrive with the focus of dealers posting their comments, experiences and suggestions for eliminating such practices.

While relatively new to the industry (since 2001), I do recognize the origins of the wholesale automotive industry has serious issues with unethical behavior on the part of auctions (and other players in the arena.) While this may be the historical culture of the wholesale market, and has been since the inception of the wholesale automotive market, that does not mean there is not a time and place to identify it, talk about it, and make efforts to eliminate it. Or maybe, there are some out there that don't think we should eliminate it, in which case, we want to hear from you too !

I certainly know first hand some management staff at the largest auctions believe unethical behavior IS acceptable and anyone who is exposed to it must live with it or get out of the business.

Let me start with the first primary example of what I refer to as an "Unethical Practices by Wholesale Auctions".

Manheim's Simulcast Auction Format. Simulcast has some great features and benefits, and is some of the best technology in the industry. As Manheim likes to market it, “Just think of how dealers can sit at their home or office and purchase inventory.” Yes, this is true, but . . .

But what about us little guys in the marketplace, where every hundred dollar bill counts ? This is where Manheim's Simulcast steps on us little guys.

Manheim's auctioneers consistently bid up Simulcast bidder's against no real bids on the floor, then, when the Simulcast bidder stops bidding, Manheim's Auctioneer simply cancels the highest floor bid, leaving the Simulcast bidder the highest bidder, and wallaha, SOLD ! That Simulcast Bidder just paid $500, $1,000 or $1,500 more that the market truly had to bear.

Unethical ? I think it's a good question. No one at Manheim wants to even talk about it.

Now, for some in this market place, maybe every hundred dollar bill does not count. Anyone buying inventory who does NOT use their own money, that is, they purchase inventory with money that comes from someone else, typically the Dealer Principal they work for, may not care they paid more than the market really had for that unit of inventory. But, I would bet if you asked their dealer principal, the person with the money, and they would not be happy with the unit of inventory purchase.

Again, remember, I am one of those little fish in the big pond where every hundred dollar bill counts. That’s why I started this thread topic.

I have considered that possibly I am the smallest minority on this issue. But that is what this forum is about. Let's test it and see what others think of the this issue, and what others can tell us about their experiences that may be another blatant form of Unethical Practices by Wholesale Auctions. I certainly have a few more.

Lets hear what others think until Manheim swings their big hammer and squashes this thread.

Frankie C.

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Fake bidding has been going on as long as there have been auctions. If the auctions doesn't get enough to meet the seller's minimum, or at least close enough to get the seller to consider selling, you aren't going to buy it no matter what you bid. Just because you bid against yourself isn't a big deal as long as you don't bid more than you are willing to pay for a car.
I would be more concerned with inaccurate CONDITION REPORTS and the unwillingness for the auction to stand behind some $10 an hour "pot head" that writes C/R's all day.

I posted here in a different forum my lengthy battles with Adesa auctions. If you want to talk ethics then look at them. My lawyer (yes I attempted to sue them) told me he had never seen an agreement so one sided. He advised me to NEVER do business with another Adesa Auction and that I should have never signed such an agreement or set foot inside one of their sales.

How about what CarMax has done to the price of vehicles? It amazes me that any retail customer would shop there. Selection yes, value NO!
Gayle,

I have to STRONGLY disagree with you. When buying vehicles it is the mission of the buyer to pay the least possible. Paying extra money because of an auctioneer/ringman/shill flim flam IS A REALLY BIG DEAL. I don't have a problem with bidding against invisible buyers if the current bid price is below the stated "protect." But how many time will a buyer sell for less than the originally stated "protect." The bottom line is that there is a real trend toward online auctions. But apprehension because of perceived or suspected chicanery will put a cap on the growth at some point. When I go to the brick and mortar auction I fell I have a better grip on who the players are, what games are being played, who function as shills, etc. When you go to the same auctions you get to know ring men, and auctioneers and become an "insider." One stands a better chance of paying the least and not being taken advantage of under those circumstances. The convenience of online auctions can outweigh the "perceived lack of control" but perceptions of fake bidding and other concerns will stymie their growth at some point.

I've been buying and selling at auction for 38 years. the people who are taken advantage of the most are the people who don't understand the game and how to make it work in their favor. Transparency levels the field for everyone.
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"Just because you bid against yourself isn't a big deal as long as you don't bid more than you are willing to pay for a car."

This is a lame response. Typical of someone who is either not responsible for spending their own money (as they are in a state of denial), or, someone who represents Manheim, or someone who commonly engages in such practices (or a combination thereof.)

Anyone who actually believes this is naive to the business operations of purchasing inventory. David characterizes it best when he wrote "The people who are taken advantage of the most are the people who don't understand the game and how to make it work in their favor." Can you imagine the Buyer / Used Car Manager at any XYZ Franchise telling their Dealer/Principal Owner "Don't worry, I may have been Buy Bid up $1,000 on all 30 cars I purchased today for you, but none of them went over your stated top dollar to pay !"

In fact, when I confronted a top level management staff at Manheim about one verified incident in which his auctioneer participated in such an act, he had exactly the same lame response. (I confronted him just to see his position on the issue. I never expected an acknowledgment that it is unethical.)

David characterizes it best, "When buying vehicles it is the mission of the buyer to pay the least possible."

Yes. Fake bidding has been going on as long as there have been auctions. This, I acknowledged in the post originating this thread as "This is the historical culture of the wholesale market." My question, "Does this make it right ?"

David also characterizes it correctly in his theme that any astute buyer is far more likely to identify and subvert Buy Bids or Shill Bids while physically present in the lanes.


Speaking of The Big River is South America "Da Nile", try attending Manheim's workshop they call "The Wholesale Institute" and bring up this systemic issue of unethical practices with Simulcast. I did and found Manheim professionals standing in the front of the room with so much denial they would have made Freud happy.
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I just watched that happen at the auction today, the block guy thought it was funny while the online bidder just kept bumping himself. Not good
With all due respect the "gross profit is a state of mind" might have been somewhat true years back, but the Internet drives gross profit today, and will do so even more in the future. As a person who also sells at the auction, I LOVE people who think like Lawrence and Gayle. Years ago I set out to make the auction process work for me. I accepted the tactics and strategies that Frank mentions as just part of the process. I figured out that as a seller that if I sent a large package of vehicles to the auction once or twice a month, and put them all "on the money" to sell, I could get the best possible auction numbers. I'd get up in the auction box with the auctioneer and wave around a handful of $100. dollar bills. I'd announce "If you are the last bidder on one of my vehicles, and I don't sell it to you, you get a "C" note!" Everyone knew when my vehicles ran through they wouldn't have to worry about bidding and not buying. As a consequence I sometimes sold a vehicle short, but that was rare. The auction would not only give me the best numbers, but would come pick up my vehicles for free and wash them prior to sale. And the best part of all this is as a buyer, the auctioneers would "drop" a car on me occasionally. They'd protect me from shills. A ring man might tell me "the auctioneer doesn't have any money yet" if he thought I was going to make a mistake. The relationships that can be developed don't work for you when you buy online. That's why I maintain that online auctions will never reach their full potential until they solve these issues.

Someone mentioned CarMax earlier. I was quite active in the wholesale business when CarMax and AutoNation "buyers" were coming into the market, ruining things for the rest of us. Yes, we'd "bid them up and drop them off the cliff" just for "grins" or out of frustration.

Any dealer, or dealer buyer, who doesn't care what they pay because they think its just a matter of adding gross and the buyer will just pay it is not a true used car person, in my opinion. Its art and science and we make OUR money when we buy the vehicle, not when we sell it. The LAST thing we would do is price our vehicles based on a set margin, regardless of inventory cost. Its a completely different way of looking at the business. The "gross profit is a state of mind" mantra also leads to charging full retail and cost plus for recon, which is a "whole nuther issue." The Internet and the concept of "efficient markets" has rendered this practice "null and void." For reference read Dale Pollak's "Velocity."
This is an issue that has no end. You will have people who love the process as it is (I make the system work for me) & those who don't make the process work for them. Most old school car dealers loved the dealer to dealer face to face (My business is booming how's yours?) & auction people face to face (Get me my money & I will throw something your way under the table?).
The reason this old process is never going to work online is that there is no face to face interaction. Online auctions can work & should work without the Auctioneer & the Ringman. This eliminates the quick sell (to my dealer buddy or to the auctioneer or other auction people) & the phantom bidder. This also should make buyer & seller fees less because there is no payout to the Auctioneer & Ringman. Don't have the online bidders compete with the bidders who are there in person, have differant sale days for each type of auction. If your old school, go physically to the auction, if your not old school, stay at the dealership & buy inventory & get something else done that day!!!!
Condition reports for online auctions are an issue that also has no end in sight & we all can go on & on about that!!!! This issue is worth it's own discussion forum!!!!
Since when is the big river DA NILE, located in South America????
I have seen this in person also and I will not buy from the computer. I know sometimes the auctioneer needs to keep interest in the car being sold, but to run it up to the asking price with only one bidder is not good business. This may artificially inflate some market prices. Manheim should stop it and market the fact it is a true auction. That would be good business. Mike
Lawrence,

I know where you are coming from. I've been in this business for 38 years. I have had a business that has taught 4 square desking since 1994. The manuals I have written on the subject have been translated into Japanese and I conduct desking seminars in Japan every June. I have had to honestly admit to myself that even though there are still "traditional"buyers out there, the trend is all Internet. Read Pollak's book!

It hurts me that the business has taken the turn that it has. There are still profit opportunities, but if you think because you can make the occasional "whopper" gross that its all a state of mind I think you are denying the trend that is overhauling our business whether we like it or not. Consumers will price shop using Internet search tools. Dealers who price substantially higher than the market won't even get a look from these ever more sophisticated buyers. In my own case I narrowed my search down to one vehicle using cars.com's search tools. I sent an email to the dealer with an offer. There was no verbal contact until my price was agreed to. I flew from LV to Scottsdale and picked up the car. My research tells me more and more people are doing this. If you limit yourself to "traditional" buyers you will be selling to a shrinking consumer group and ignoring the growing consumer group. I wish I could say otherwise.

Regarding when one makes their money... I still maintain that a key to profitable pre-owned sales begins with buying vehicles right more often than not. Years as a "jipper" or "double wholesaler" taught me to look where particular models were both weak and strong. I once had a deal going where I would buy all the LS400s with cloth interiors out of Orlando. I would ship them to Ft. Worth and pick up $2000. per car. Unfortunately, there weren't that many cloth interior LS400s out there at the time. Common sense would indicate that if a used car manager identified the fact that certain models were cheaper in a certain market, the gross profit potential is greater. But your vehicles have to be priced individually. If you slap the same markup on each vehicle you will be too low on some, too high on others. Its all about inventory turn these days!

For those who would like to buy online without a "slam bam," "is we is or is we ain't" approach, may I suggest OpenLane. Some of their vehicles have "buy it now" prices. Some of their prices seem high and their pics do not reflect any recon. But you can cherry pick miles and color!
Frankie

Welcome to the wholesale side. You didnt even touch on the fact that half the time you are standing in the lane you might be the only bidder or bidding against someone who works for the seller. Auctions are the most crooked end of the business and my opinion due to the fact that most of the people there are retail rejects. Think of who is at the auction bidding against you most of the time. Probably someone you used to know in the retail side that lost his/her job and now works for someone wholesaleing. Most wholesalers I know became one after failing in the retail end. People like you and I are a much easier mark than an educated customer that walks into your store. I dont think the auctions will ever clean up the problem due to the fact that they have buyers and sellers working directly for them in the lanes on a daily basis. The auctions I attend rep as many cars for themselves as any dealer in the market.
For those of you that think gross is a state of mind. Call your lenders up and tell them that although you paid too much for this car it is really nice and see if they move your advance. Wake up. Gross today is driven by down payment and lender advance. If you paid too much for the car you wont make as much when you sell it no matter how positive you are. If you dont believe that. I suggest you pack your cars an extra 1500 this month and get back on to tell us how your grosses went up 1500. It just doesnt work that way any more. If you cant buy a vehicle in the book you wont make money on most customers. Everyone gets lucky once in a while.
DAH! give me a break, have you ever sold anything on the block? Do you know what a floor or reserve price is? The auctioneer's job is to bring the price to the reserve or floor and let the feeding frenzy propergate it self. The auction works for the sellers not the buyers. Athough the auction's arbitration policy is someting you should be aware of. I have never had any issues that havent been properly resolved. You as a profesional shoud know what your market value is. When you bid on line or in person then you should have a maximum price you are willing to pay. If you have an issue with any particular auction then either bring it to the attention of the proper personel. If you dont ike the answer then shop some place else.

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