In the following interview, Mike Richardson, President and CEO of Anglo American Auto Auctions, discusses the state of the auto auction industry, the growing fleet consignment market, and Anglo's expansion plans.
What do you project to be the total consignments for Anglo American in 1988?
Mike Richardson, president and CEO of Anglo American Auto Auctions (1988)
The use of auctions by fleets and lessors to dispose of their vehicles has been increasing. To what do you attribute this?
I think there are a number of reasons. Quality corporate salesmanship is probably the principal one. Early in 1982, when we had acquired only two auctions, we created a corporate sales force. In fact, Tony Moorby, now our executive vice president, was persuaded to join us from the U.K. and he, with two assistants, courted the fleet, lease, and daily rental majors selling Anglo rather than the individual auctions. No such selling had been done within the industry at that time and it was badly needed and well received. Within 24 months the number of fleet/lease vehicles sold had increased by 400 percent.
I should explain that the idea of corporate selling to the fleet/lease industry did not just occur to us. The opportunities to be gained from it in the United States were the prime reasons for our development here.
Our market studies carried out between 1979 and 1981 showed very clearly that the U.S. auction system provided probably a better service to the dealers than we did in the U.K. Just as clearly, they indicated that the relationship with the fleet/lease segment had not been developed and we felt that our skills, practiced over many years in the U.K., could be successful in the United States. I believe we have proved that to be true.
Another reason is that the fleets have been getting bigger. Leasing has increased substantially and, we believe, will continue to do so and companies are providing more vehicles to their employees.
The advent of odometer tampering legislation, in a form that has persuaded people that it is here to stay, has provided auctions with more volume simply because it's safer for the vendor. There are inherent risks with some other forms of disposal that many fleet/lease companies simply don't want to be exposed to.
Lastly, but not in order of importance, auctions are now more widely providing the sort of services that the fleet/lease industry needs and are thus becoming more attractive.
The basic services provided by many auctions to dealers some years ago are vastly inadequate for the fleet/lease user of any size. In addition to creating a good marketplace, providing auctioneers, and taking care of the money, the industry now provides sophisticated reconditioning, computerized inventory controls and accounting, transport, and, in some cases, marketing expertise. I believe that Anglo has introduced some of this sophistication and has always considered the needs of the fleet/lease industry to be extremely important and that accounts for our 30 percent consignment volume.
What percentage of Anglo American's business is dealer and what is manufacturer business?
Current statistics show a relationship of 40 percent dealers, 30 percent fleet/lease, and 30 percent manufacturers.
We don't necessarily regard that as the optimum split and would rather see something like 50/25/25, which is the percentage goal which we set for ourselves in 1982.
At that time, the traditional U.S. split was something like 85/10/5, and it took us until 1985 to get Anglo to its goal-line. Since then, of course, the availability of manufacturer and fleet/lease volume has been much greater and we have taken maximum advantage of it, which has produced today's stalls tics. We now have to persuade some of the 75 percent of franchised dealers who are reputed not to use auctions to mend their ways and then we can get back to providing our buyers with the formula of mix that we believe is best.
What criteria should a fleet manager use when selecting an auction?
Well, I should think that if he wishes to remain in employment he should make very sure that he is going to be paid for what he sells. It has been known, and recently, that financial failures have occurred to auctions outside the National Association. Perhaps the lowest sales fees are not always the cheapest in the long term. It takes very substantial backing to support today's volumes and prices, but I think most fleet managers are well aware of that.
After being certain of being paid, the next criteria are paperwork and price.
Computers, thank goodness, are now taking the burden of producing accurate, useful, and timely paperwork. The necessary demands of the fleet managers have accelerated the development of hardware and software in the auction industry, and I would think there are now few auctions which cannot meet the needs. The cost of this computerization is becoming substantial. Anglo is about to change its system to the new IBM A/S400 series and I don't even want to discuss the "how much?" of it. The good news is that we shall be able to produce any report thrown at us and I can tell you that some fleet managers can be very imaginative.
Price is the product of every other thing that goes into the creation and organization of an auto auction. The fleet manager needs an auction which wants his business. Sounds silly, but there are some which, at least, didn't. I know, because we bought two of them. They are under new management.
After establishing the desire, the fleet manager should then look at location; strength of management, including experience in the industry; facilities, including reconditioning and storage; and as much as anything at the flexibility of management to meet new challenges and the ability and will to develop the auction to accommodate future volumes.
Marketing strategies have been the responsibility of the fleet manager and parts of our industry have been happy to leave them there. It is my firm opinion that our industry is full of unused marketing talent and that the fleet manager should seek it and make better use of it.
Those expensive computers that I referred to are capable of producing invaluable marketing information which must be fully utilized. There has to be an end to the "us" and "them" relationship between fleet manager and auction. The auction should be an extension of the fleet company itself, each thoroughly understanding the needs of the other to pool expertise and information to get the price of that vehicle up. As the sizes of the fleets increase and the numbers of vehicle retailers diminish, cooperative marketing will be vital to maintain price levels.
What are the expansion plans for Anglo American?
I take your question to mean how many more auctions are we going to buy. I really have no idea, but that is not intended to give the impression that we have no direction.
Within a very short time Anglo will have 25 operating subsidiaries and that, we consider, is a sufficient number to achieve our penetration objectives and to properly service all our clients relative to the marketplace as we see and forecast it at the moment. That view must be taken in conjunction with our "Auction Managed Fleet Plan" system which effectively adds some 25 auctions to ours to provide the service I mention.
We want to run a successful and very efficient auto auction group and that will not be achieved by physical expansion too far or too fast. We are aware of the effect of the law of diminishing returns and that effect could occur if we don't take the time to assimilate our latest acquisitions, if we extend the lines of communications too far, if we overload corporate services, or in any way fail to service our customers.
In any case, and the reason for my first comment, there are many other ways of expanding and we are as active in those as we may not be in acquisitions.
Internal, horizontal expansion means doing more business with the same client base and there is a lifetime of work to do just there. As I have read, and believe, the majority of new car franchised dealers don't do business with the auctions. That is our failure and we have to put it right. We have failed to pay sufficient attention to the most obvious supplier of desirable, immediately available vehicles who is also the best buyer of all our clients' products including, particularly, vehicles from the fleet/lease sector.
There are many fleet managers who don't use auctions, out of distrust, memories of the past, or they simply haven't been sold on the benefits of using one of today's auctions. Our sales department is expanding.
Vertical expansion starts with recognizing that our name ends with auto auction not auto auction. We can and do sell trucks. We can and do sell parts and equipment. We can and will sell contractors' plant, agricultural equipment, and anything else that will utilize our facilities and talents.
We may even sell for the government one day if we can ever get them to pay a decent fee and reduce the paperwork to manageable proportions.
Since Anglo has acquired most of its auctions, what has it done to standardize the sales rules among different auctions within its chain?
Each of Anglo's operating subsidiaries is required to exhibit a set of sales rules. They are standard on those items which indicate our legal relationship with our clients and the federal laws to which we are subject. They are flexible on certain points which differ relative to local customs and each varies relative to state law.
We believe that each auction has an individual personality which is valuable to its clients and have not, therefore, introduced any form of standardization which is apparent to a customer other than purely legal issues.
Some of these legal issues are important and it has been necessary to emphasize them. Auto auctions rarely run afoul of the law in the U.K., principally because there is a sufficient volume of case law to establish the auction's position. In fact, if memory serves me correctly, the whole legal relationship can be found in a book called "Bateman's Law of Auction." I asked for the U.S. version of it and received a page and a half of case law.
I have to believe that that results from auctions not resorting to litigation to resolve problems, which is good, but the failure to establish their position causes some serious problems. Auctions act as agents to both buyer and seller and the recognition of that fact is fundamental to auction operation. Our rules make that clear as an example of standardization.
What method does Anglo employ to ensure that its fleet clients receive the maximum income from a sale?
It starts with the desire to want to look after the fleet customer. Let me tell you where this fleet/lease commitment came from.
In the 1960s, two things happened in England. First, the government in power proposed a restraint on wage increases beyond 6 percent. They also imposed punitive taxation rates. Companies started giving employees cars and two things resulted from this: It increased employee remuneration packages and they didn't have to pay tax on the benefit of the car. The proliferation of business-owned vehicles as a percentage to the total registration in the country went up to 84 percent. It's hardly any wonder that we came over here with a great deal of knowledge of fleet/lease, the way they think, and what they want. Maximum price is one thing, but they want a lot more than that. They want service, they want speed, they want accuracy and integrity.
A great number of these fleet managers never see their vehicles. They ask us to come and pick them up. We try to get all our pickups done within seven days. The vehicle condition report needs to be accurate. We suggest what we think a vehicle is worth. We don't insist on it, but we use it as a guide.
The integrity comes with the question of reconditioning. There is no absolute rule in which one should or should not recondition a vehicle. It is a matter of opinion. By and large, reconditioning will improve value up to a certain point.
The true purpose of an auction is to sell vehicles across the whole spectrum to people who are going to retail and cut out the middle man. Over the past 10 years, I've seen the percentage of wholesalers bringing cars to auctions go down from about 80 percent to about 20 percent. The people who buy cars don't want to recondition them. They want them in front-line ready condition.
After this, they need the security of money. They need to know that they are going to get paid. They need somebody to absorb the arbitration problems.
If you are going to maximize value, you need to take a look at the computer printouts and determine where the best value for a car is. Without Anglo's Auction Managed Fleet Plan, the market would be confined to wherever we own an auction. Because of the Auction Managed Fleet Plan, it isn't. The market is as many auctions as are in the program. With 35 to 40 auctions you can pretty much guarantee that we will send a car to its correct market. That's a service that has not been provided to the fleet/lease sector in the past.
Do independent auctions have more latitude in making changes and responding to market changes than chain auctions?
No, I don't think they do. There is a fallacy here that infers a change in the day-to-day operation of a network-owned auction to that of an independent, which is simply not true. The network corporate office provides support to its group in such forms as personnel care and benefits, data processing, public relations, national advertising, corporate sales, etc., and of course provides policy and direction. This is derived from intelligence supplied from the field. Anglo's auctions are as independent in their operation as any, and will respond to market demands as quickly as any. The one difference is that a network general manager will have to seek corporate approval for capital expenditures required to finance a major change, and that, I think, is where the networks respond much more quickly.
In fact, I believe that the ability and will to invest major sums to create facilities that can cope with present daily demands is the prime contribution that the networks have made to the industry. More importantly still, the networks tend not to wait to react to a forecast change as most of the independents do, but to proact by producing facilities and systems which their clients can grow into as the changes occur.
Anglo, for instance, has spent more on the development of its auctions than it did on their acquisition. Much of that development has been proactive to the manufacturers and fleet/lease segments' projected needs so that we now have land for storage, computers and software for control, and reconditioning facilities already available to adequately handle the new volumes and attendant marketing and control requests.
The networks provide an advantage to the independents by this proactive development in that the latter can evaluate the networks' programs and can respond with less risk expenditure.
What are your thoughts concerning the creation of a national auction pricing guide?
This is a difficult question to answer. The answer that I'm going to give you is a personal one and does not necessarily reflect the views of other people, even within Anglo.
Their view is that we are sitting on a gold mine of information and we should put it to use. Price guides that exist, we believe, are either politically influenced and therefore inaccurate, or are based on information two or three weeks old and therefore also inaccurate.
We have never considered producing a price guide. We never intend to tell a person what a vehicle will be worth after a period of time. We will leave that to others. We are capable, however, because of the almost one million vehicles a year we handle, of producing national statistical data and dispensing it on a weekly basis. This would give our clients a very accurate representation of the value of vehicles and the trends that are occurring on a weekly basis. I've been under considerable pressure from people in this organization to publish such a guide either electronically on a computer disk or as a straightforward publication for some time.
I personally believe that this is something which should be undertaken by the National Auto Auction Association.
The association is an exceptionally strongly bonded group throughout its membership. Its regional and national conventions are better attended than any other trade association in the country. This is due in part to the efforts of its organizers, but also indicates a need for information and guidance on a marketplace and legislative environment that has changed more in the last four years than in the last 40.
The association has not responded fully to those needs, although most have been attended to by a few of its members, simply because its income from fees has been insufficient to finance the escalated costs.
If we in Anglo consider our information a gold mine, then how much more valuable is that which could be provided by all the association's members?
The association would derive the income to provide the support which its members need. The information would be of greater value to the whole industry and it could be produced in different forms to be of greater value to segments of the industry with unique requirements. Perhaps an important peripheral effect would be to inhibit the proliferation of pricing material from auction networks which, I believe, would result in confusion.
So yes, there should be a national auction pricing guide ... and the National Association should produce it.
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