Launched in 2000, more than 3.4 million vehicles have been sold through SmartAuction (www.smartauction.biz) since its inception. In 2009, approximately 440,000 units were sold, representing 45 different vehicle makes. This compares to 34,000 vehicles sold in 2000, the online auction's first year of operation.
SmartAuction reached 1 million cumulative sales in August 2004, 2 million in May 2007, and 3 million upstream used-vehicle sales in September 2009. With more than 10,000 registered SmartAuction users, approximately 4,000 franchise and non-franchise dealers log in daily to SmartAuction. Typically, SmartAuction has about 12,000 vehicles for sale daily.
SmartAuction remarkets vehicles for a variety of major consignors, such as Avis Budget Group (its largest rental fleet consignor), Enterprise Rent-a-Car, Dollar/Thrifty, US Bank, CenterOne Financial Services, Ally Bank (formerly GMAC), Bank of Oklahoma, General Motors Corp., and Fiserv.
In addition, SmartAuction provides its online remarketing capabilities to 100 independent physical auctions in the U.S. Created in late 2007, the SmartAuction Midstream model provides an online remarketing platform for vehicles grounded at physical auction locations, allowing units to be sold on a 24/7 basis.
To learn more about SmartAuction's initiative to increase the number of vehicles remarketed online by commercial fleet consignors, AF interviewed Mark Newman, managing director of SmartAuction.
AF: explain the evolution of SmartAuction from a GM-specific online auction to an industry-wide online auction, remarketing vehicles for all dealers, rental companies, and commercial fleets.
NEWMAN: SmartAuction started in 2000. The platform was initially designed by GMAC to manage the anticipated high volume of off-lease vehicles. We were concerned we would not have enough capacity in the physical auction platform to handle the increased off-lease vehicle volume. SmartAuction was a way to build additional capacity to remarket what was a "bumper year" for off-lease vehicles. What we discovered was dealers liked buying online, too, because they had "first dibs" on the vehicles. Upstream remarketing also provides dealers with early access to product. It eliminates the need of consignors to aggregate product and ship it to an auction to wait for a sale, which could take up to 30 days. We also found online sales provided significant cost savings as an alternative to shipping the vehicle and running it through a physical auction.
We built a very robust online marketplace by bringing more and more dealers to our site. We were able to take our original off-lease model and apply it to other types of product offered by other consignors.
SmartAuction is not open to the public. It is a B2B site with eligible dealers required to have a dealer license. Today, we have 10 major consignors and approximately 10,000 dealers on the site. The site is primarily designed to sell wholesale used vehicles from consignor to dealer with an increasing focus on dealer-to-dealer transactions. However, some rental car companies use SmartAuction for stop-gap fleeting. During peak rental periods, some car rental companies buy each others' vehicles. For instance, if Avis is defleeting in Florida and Enterprise may need certain vehicles because it is in a different cycle of its fleet, it may buy Avis vehicles on SmartAuction.
AF: How can commercial fleets use SmartAuction?
NEWMAN: Depending on the model of the corporate fleet consignor, SmartAuction can offer value in remarketing commercial fleet vehicles. If you are using a dealer as your return location, there is an opportunity to remarket the vehicle upstream - that is, at the grounding location - and save the cost related to moving the vehicle downstream to marshalling yards or other storage locations.
Other fleets may handle vehicle disposal using marshalling locations other than dealerships. We provide the ability to connect fleets using marshalling facilities to SmartAuction. By investing substantial money in our platform capabilities, we integrated into SmartAuction the premiere independent auctions all over the U.S. If a fleet doesn't have a dealer grounding relationship, it can leverage these auction locations to remarket its product online. We now have 100 major independent auctions using the SmartAuction Midstream platform to bulk-post their inventory onto SmartAuction.
We have made a great deal of progress in the rental fleet business. We believe the corporate fleet business is ripe for more upstream remarketing. We are looking for ways to work with fleet management companies to leverage both the online platform, where they have grounding locations and facilities, as well as our SmartAuction Midstream platform, which provides another mechanism for fleet disposal.
AF: How are the floors or reserves assigned to vehicles?
NEWMAN: Consignors price their own vehicles. We share with our consignors analytics of vehicles sold on SmartAuction and many consignors use our analysis as an integral part of their pricing activity.
The way SmartAuction works, a vehicle can be purchased on our site with a single bid. If we establish the wholesale price of a particular vehicle to be $10,000, the floor will be $10,000. If one dealer chooses to bid $10,000, that vehicle will be sold to that dealer for that one bid. But that dealer can be outbid by another dealer who may bid, let's say, $10,100.
What we aim to do with our own vehicles is price them as close as possible to the true wholesale value of the vehicle. In addition, SmartAuction has what we call a Dutch auction feature - something traditionally associated with Dutch flower auctions. The floor price of the vehicle keeps dropping on successive days until a buyer hits the bid button and agrees to purchase at that price.
Based on consignor input, we can decrease the floor price of a vehicle every day during the normal five-day posting to spur interest. On the site, vehicles with price reductions will be displayed in green. Interestingly, sometimes on day two or three, a few dealers will start bidding on a car with a reduced floor price, and bid the car up above the higher day one floor price.
[PAGEBREAK]AF: What is the average time a vehicle is on SmartAuction before a consignor moves it to a physical auction?
NEWMAN: Most of the vehicles are posted on our site for about five days. In some cases where consignors have sufficient physical storage capacity or only a few vehicles to marshal, it can be longer. We can vary the length of time by posting location. On average, vehicles on our site sell in 1.7 days. Many vehicles are sold on day one. Within two days, most of the vehicles on our site sell.
Last year, we achieved very close to 60-percent conversion rate on our site. This is one of the highest conversion rates for an online auction in our industry. Our approach has been to sign up a limited number of consignors and bring dealers to our site who have an appetite for that consignor's product. We also work with consignors on a number of fronts to increase their sales rate on our site.
AF: Is there an actual sales day when competitive bidding commences, or are bids simply accepted over a period of time with a cutoff?
NEWMAN: The auction is always open, whether for a live auction sale or for "buy-it now" vehicles only. The live auction is Monday through Friday and bidding begins at 9 a.m. EST. Dealers can input bids throughout the day. What we tend to find is that most dealers go to the auction in the morning, build their bid list, purchase any vehicles that have an attractive "buy-it now" price, then come back at lunch time and look at the inventory and decide, "I want to bid on these 10 or 20 cars."
Starting at 2:25 p.m. daily, the site goes into "extended bidding." At that point, if no competitive bid is received from 2:25 p.m. to 2:30 p.m., the auction closes. If active bidding is still ongoing, the auction extends five minutes with each successive bid until 3 p.m. At 3 p.m., the highest bid received owns the vehicle. Once the auction closes at 3 p.m., the vehicles sold are removed and vehicles with a "buy-it now" price remain eligible to purchase throughout the night and into the next day's Live Auction sale.
We already have buyer and seller account information, so if you sell a vehicle on SmartAuction today, you will have the money in your bank account tomorrow morning. If you bought a vehicle today, the money will be out of your account by tomorrow morning. We electronically debit and credit through ACH. One thing we have done with SmartAuction is ensure we have creditworthy consignors. We also have creditworthy buyers, because we settle every day at the close of auction. If you are buying a vehicle, you need to either have financing or the cash in your bank account to settle with us. For consignors, this is a huge benefit because you can sell inventory every day and have the ability to receive payment the next day.
AF: How is transportation handled?
NEWMAN: We have two transportation links on our Web site. We selected vendors with national coverage, but are not in the transportation business per se.
Typically, the buying dealer is responsible for arranging their own transportation, which they can do on the Web site or on their own. What we tend to find is most vehicles sell within a 500-mile radius. We have dealers who use our Web site for transportation, but many dealers arrange their own transportation, separate from the purchase transaction.
AF: How does the arbitration process work?
NEWMAN: If you buy a vehicle and there is undisclosed damage or content was inappropriately disclosed, we have an arbitration process. Most dealers file claims via the Web site to initiate an immediate review of the transaction or use an 800-number to begin a very rapid escalation process. Damage or claims over a certain level are rapidly escalated to a group in Troy, Mich., comprised of experts in arbitration. Having a dedicated call center of experts knowledgeable with this process is also a major advantage.
SmartAuction adopted the National Auto Auction Association (NAAA) arbitration standards, with additional improvements around time to arbitrate and aggregate damage over a certain level. We also recently began refunding reasonable transportation costs to the buyer on buy-back vehicles.
AF: What is SmartAuction's outlook for 2011?
NEWMAN: Last year, we experienced significant growth in our diversified portfolio, vehicles that came to us from consignors other than GM or Ally (GMAC). We see that part of our portfolio growing on a year-over-year basis. One specific example is the addition of more than 1,500 Chrysler dealers this year. SmartAuction is also about to unveil a major step forward in its use of analytics to give buyers and consignors more guidance within the Web site. We feel this will be ground-breaking within the industry. We will provide the benefits of our own proprietary pricing models to consignors; customize vehicle inventory lists daily for buyers based on their unique histories, and cross-promote them both within the site to increase sales.
The benefits of the upstream remarketing model are being seen by more and more consignors, including dealers selling their own vehicles online versus shipping them to a physical auction. We definitely bring value to consignors, and we see the time being ripe to work with the corporate fleet accounts.