Scott Allen

JOHN MELLOR interviews Scott Allen, the head of Dealer Auction in Australia, on the eve of its launch Down Under.

After a decade of using the service as a dealer in the UK, and then 14 months as general manager of Dealer Auction UK, Mr Allen outlines how Dealer Auction transformed the disposal of unwanted traded cars for franchised dealers in the UK and put new money onto the bottom line of dealers.

John Mellor: How did Dealer Auction get started?

Scott Allen: Dealer Auction was started in 2008 by two traders in the UK who realised that dealers needed a much wider audience for their trade cars as well as a much more transparent process and quicker stock turn.

They also realised that wholesalers using the internet could get access to a wider range and variety of stock from dealers that they didn’t have existing relationships with.

It was all geared around dealerships to put money back into their pockets because in 2008 we had the global recession.

I was a DP in a dealer group and I was selling to two or three wholesalers. In another part of the group they were selling to a different group of wholesalers. So cars were coming out of my dealership and coming back into the same group for a lot more money. Dealer Auction was partly borne out of that.

The Dealer Auction system allowed us to auction the car internally within the group. The group I worked for loved that. As long as they knew the car was being offered to all our sites for 24 or 48 hours then they were happy. If no-one bought it then it went outside the group auction to the open auction; as long as it had been offered to everyone in the group first.

JM: What else did you like about the system?

SA: From my point of view as a dealer principal I took it on because at that time due to the recession I was providing a daily cashflow forecast to my finance director and I could no longer afford to keep trade cars on site for seven, 10 or 20 days.

We needed the revenue back into the business so much quicker. In addition, dealerships in the UK don’t have the luxury of large storage yards.

With Dealer Auction being an online platform you could auction the cars in a one-day or up to a seven-day auction. So that sped everything up.

If month end was a Tuesday and we had a number of trades come in over the weekend we could easily load those cars onto the site for a one-day auction and that gave me the chance to significantly improve the cashflow of my month.

Normally we opted for three- or four-day auction as the optimum but no more because we wanted a quick result.

JM: How does Dealer Auction help the bottom line?

SA: Dealer Auction was set up for dealerships to make more money because they were being squeezed from every point and this system changed our world.

As a dealer, we were starting to make a good amount of money through the trade line.

For years, all we ever worried about was that, as long as we did not lose on the trade line or we made a little money, then we were happy. But all of a sudden we started making more and more money per unit.

It also made us look at this stock in a very different way.

We had trade stock worth millions of pounds. All of a sudden with Dealer Auction we were looking at traded stock with a different mindset. We had thought we were just disposing of them. We were not selling them. That was the real key. We moved from just disposing of the cars to selling them.

The biggest thing was the audience. So rather than grouping cars together and selling them to a few people we were selling to a much wider audience.

So we had year-on-year growth through the auction platform and our revenue increased dramatically because we were not only in front of more buyers but Dealer Auction’s sales negotiators were following up and closing the sale if the cars missed the reserve.

Anecdotally, we knew of dealers making £100,000 ($A180,730) a year in trade profit from Dealer Auction and dealer groups making £600,000 ($A1,084,370) a year through the platform.

JM: Does Dealer Auction make it easier to keep track of what is happening to your traded cars?

SA: The appeal really was the transparency that was brought into wholesaling and the revenue it made.

Where we had those relationships with three or four traders, all of a sudden there was an auction going on with 20 to 30 or 40 people in dealerships looking at our cars.

What we also liked as a DP was the transparency at the end of the month. Dealers loved that they would have 100 cars come into their group and they would get an invoice from Dealer Auction for 100 cars. Now as a DP if you only got 99 back, you would have to track where’s the other one gone. So the transparency is very open.

There is potential for dodgy behaviour in some of those sorts of ad hoc arrangements and this cuts all that off absolutely. It negates it altogether. It’s gone.

JM: I imagine being in the cloud means buyers can bid from anywhere at any time.

SA: Absolutely. Between 7.30 at night and 11pm it is really active because buyers are bidding from home. Some of the sales managers even run it online when they are on holidays because they want to control the result. Last Christmas day, people were bidding from 47 countries because they were all on holiday but they did not want to miss out on good cars.

One thing I have learned is that there are all sorts of different ways people bid. One is to stun the market by just putting £10,000 on it to own it that way. Some take it right down to the last minutes.

JM: What happens to a car that is not as described?

SA: The photos and reports are very detailed but in practice the buyer checks the car at the point of collection. You can renegotiate at that point or walk away.

The way it works in practice is the truck driver collecting the car calls the buyer and he takes them around the car. In the UK each car has an allowance of £100 for contingencies like a dint in the door.

JM: It seems to have transformed the wholesale business model in the UK.

SA: Yes, it has absolutely. Franchise dealers are not only selling cars to a wider audience they are getting huge increases in revenue, increased stock turn and more efficient time management.

Wholesalers have access to a much wider variety of stock now because they are buying from so many places that they could never physically get access to before.

JM: Did it help you to look at other parts of the business?

SA: Definitely. The reports from Dealer Auction broke it out into what every car was making or if we took a loss on a car. Then we could find out why we took the loss; did we appraise it correctly, did we buy it dear and did we not write it back? Is there a story behind it?

If you are getting it right then every car should either break even or make money. If that didn’t happen then where did we go wrong?

Also Dealer Auction quickly proved to us that, if we had been missing such a revenue opportunity within our trade line, then we needed to adopt a fresh approach and take a hard look at every other aspect of the business.

It really opened our eyes by prompting us to examine other revenue streams and we ultimately implemented many other improvements to outdated processes all across the dealership.

By John Mellor