Car auction companies manipulate economics to increase value

It all started yesterday when I received a package in the mail from Auctions America, which is a division of RM Auctions, one of the largest classic car auction companies in the world. It was a catalog for the upcoming auction in Auburn, Indiana which is to take place later this month. They call it a catalog. I call it a “coffee table book.” It’s that nice.

I doubt that I’m the only one that they deemed worthy of sending this impressive catalog, let alone via Express Mail. It made me wonder about the investment that these auction companies are willing to make in order to promote the cars at their auctions, and how they ensure that this investment has the best possibility of paying off.

For them, the auction itself is job number two. Marketing is job number one. And they do an amazing job of marketing. They consistently succeed in bringing some of the best cars in the world together with some of the most motivated (and capable) buyers in the world into one small room for a few hours. That is the perfect formula for setting record after record, which is exactly what we have just seen for at least the fifth consecutive year at Monterey in California. The total numbers are not in yet, but we do know that on just one evening over $86 million worth of cars traded hands.

Once the buyers and sellers are in the room, the marketing job is done and the laws of supply and demand - with a little bit of psychology thrown in - take over.

Let’s say that you are in the market for a 1966 or 1967 Corvette. A diligent internet search would identify at least one thousand for sale at any given time. A quick search shows that two hundred and thirty two have crossed the eBay auction block in the last thirty days alone. My purely unscientific intuition tells me that that’s a lot of supply of 1966 and 1967 Corvettes, no matter how many buyers may be looking for one.

Now switch venues to a high-end collector car auction. There might be a total of six 1966 and 1967 Corvettes. And out of the hundreds, or thousands, of bidders there might be twelve who are there for the sole purpose of returning home with one of these cars. Suddenly the demand exceeds the supply. You don’t have to be an economist to know what happens in that case. This is also where the psychology kicks in. These buyers have no intention of going home empty handed for many reasons. They may have waited up to a year for this auction and their time is too valuable to spend on the internet searching for a car. They’re not used to losing, and besides, there are no bragging rights in telling your friends that you lost the car by one bid. Finally, if they do not come home with the car, at any cost, the time and money spent in attending the auction will have been wasted.

These are the reasons that auction companies spend small fortunes on marketing. All they need to do is get buyers and sellers in the same place at the same time and then let economics and human nature take their courses. This is one way that an auction company adds value to your collector car.

There’s also another way. Whether you’re the buyer or seller, they streamline the sale. They will handle just about anything that you want them to. For a fee of course. You needn’t attend the auction if you’re not inclined to. They will handle the transportation of the vehicle and all paperwork, including assuring that all title issues are in order. This applies to both the buyer and seller, both of whom respectively pay and get paid, usually before the auction event even ends. 

To many dealers and well-heeled collectors, anonymity, as either a buyer or seller, adds value, if not to their vehicle, to them. For personal reasons, many collectors prefer that no one knows their business whether they are buying or selling. Naturally, dealers would prefer that potential customers not discover how much they paid for a car. The auction process is fairly discreet. Many dealers also like to sell cars at high-end auctions because they feel that buyers are willing to pay more at these auctions (for all of the reasons mentioned above) than they would be if they saw the car in the showroom or on the internet. 

Now don’t go rushing out to consign your classic car for the January auctions in Arizona, or next years auctions in Monterey. Everything that we’ve just discussed pertains primarily to high-end and/or collector cars that were produced in limited numbers. Buyers of these cars take a tremendous financial risk when they acquire them, and the costs associated with sending them to auction are a very small percentage of that risk. For most of us with collector cars, the cost of sending a car to an auction can be a significant percentage of the cars value. Do the math and decide whether the auction company adds value, or takes away from it.