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carauctionMakes no sense to me.

Why conduct auctions and only sell 60% – 65% of the property, leaving as much as 40% unsold?

Manheim COO Janet Barnard recently asked somewhat rhetorically, “Why is our conversion rate stuck at roughly 60 – 65 percent industry-wide?”

She furthered, “Buyers and sellers come to auto auctions to buy and sell … to think that actually doesn’t happen half the time is ludicrous to me.”

Janet, that strikes me as ludicrous as well.

Worse, the same car might be put up for auction once, 7 times, 15 times … until eventually it sells, or the effort is abandoned.

Janet says the current practice is “a waste of time for everyone.”

I concur.

What’s the solution?

Simple. It starts with sellers who need to bring cars to Manheim to sell — not maybe sell. Maybe selling results in maybe buying. Once it becomes selling, there is buying.

Essentially what changes is Manheim becomes — instead of a with reserve auction — a without reserve auction.

“Oh no, you can’t do that!” say the car auction veterans. The buyers will pool their bidding, and otherwise conspire with each other to lower prices. Yet, if that was the case, why wouldn’t every auction need to be with reserve to prevent such actions?

“But, these are professional buyers … this type of thing isn’t a risk at other auctions with occasional ‘amateur’ buyers.” True, but the without reserve format would attract far more bidders, lessening the chances of pooling and the like. Too, strict enforcement would have to accompany a without reserve auction, prosecuting those who chose to act illegally.

It has been proven over and over again that without reserve auctions attract more attention, more bidders, and higher prices. In this better format, Manheim would not only solve their low conversion rate, but increase their clients’ return via higher sale prices.

The fundamental and longstanding misconception in the car auction business has always been that “this car” is worth “this” even though nobody is willing to pay “this.”

Even 6-year-olds understand that the lemonade in their sidewalk stand is only worth what someone is willing to pay for it.

A car dealer with a lemonade stand would claim each cup was worth $25 and then throw it all out at the end of the day — citing that “they didn’t know what this lemonade was worth.”

Of course the car dealer is the one who didn’t know what the lemonade was worth — the market was clear that $25 was too high. Said another way, if it was worth $25, “then why didn’t anyone buy any?”

Manheim will continue to have closing rates in the 60% to 65% area with their current with reserve auctions. Just what with reserve auctions are known for … maybe selling and thus maybe not selling.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.