Internet Auctions Get Active

The skepticism was as rough as a car running on flat tires when a group of whiz kids in 2000 unveiled their plans for an online auto auction.

Called Autodaq, the new enterprise stemmed from a business proposal developed at the Stanford Graduate School of Business. But the fresh-faced graduates looked shaken at a National Automobile Dealers Assn. convention, as critics grilled them and assailed their idea.

“We could have launched it differently; maybe we were too confident,” Peter Kelly, an Autodaq founder, says in retrospect. “Maybe we were a bit ahead of our time with an online auto auction.”

Then came the dot-com crash, demonstrating things could get worse. “The first couple of years were rough,” Kelly says.

In 2002, Autodaq merged with AutoTradeCenter.com. In turn, it became ATC-Onlane. Of Autodaq's four founders, three of them — Adam Boyden, Andrew Iorgulescu and Kelly — now hold top posts at ATC.

They can look back with some satisfaction, knowing their original business plan wasn't so crazy after all.

ATC today is the largest online auto auction company in North America for dealers who buy and companies that sell used vehicles wholesale.

Consumers may need to kick the tires before purchasing a vehicle, but dealers are getting accustomed to bidding for cars online.

Easing potential apprehensions are photos of vehicles, third-party inspections, title guarantees and an arbitration process to handle any post-purchase disputes.

ATC facilitates the selling of 300,000 vehicles a year that dealers buy from various sources, including fleets, rental returns, repossessions and off-lease programs.

More dealers are logging on each year, says Kelly, ATC's senior vice president-strategic initiatives, estimating 23,000 dealers will do so this year compared with 18,000 in 2006.

Moreover, he says, dealers are spending more time online searching for cars, “and that translates to more purchases,” he tells the National Remarketing Conference and Used Car Expo in Las Vegas.

An ATC-auctioned vehicle sometimes is hundreds of miles away from its buyer. In 2004, the average distance was 450 miles (724 km). Today, it is 499 miles (802 km). A typical sale is within a 150-mile (241-km) radius, Kelly says.

Buyers pay transport fees, based on mileage and region. In some cases, vehicles have been transported from Maine to California.

“But if you are talking about a $10,000 car, then a $700 transport cost can eat into profits,” Kelly says. “We're trying to get better in that area. We've attracted more carriers. Having the right one can reduce costs.”

ATC just acquired CarsArrive Network Inc., a carrier firm with automated shipping services. Dealers and shippers will be able to track and manage deliveries through a central Web portal with real-time capabilities.

Among companies selling cars over the ATC auction network is Chase Auto Finance, the largest U.S. bank automotive lender. Chase annually sells about 13,000 vehicles online, some 12,000 of them through ATC.

“We rely on ATC to get dealers to the site,” says Lynn Wolver, Chase's national vehicle remarketing manager.

Chase sells another 12,000 vehicles annually at conventional auction facilities. About 90% of the vehicles Chase sells are from its off-lease portfolio. That includes vehicles leased through a captive-financing relationship with Subaru of America Inc.

Chase sold 4% of its cars online in 2004, the first year it began doing so. Now, it sells 58% through the Internet.

“We have found that it takes a lot of time and energy to manage your Internet channel; as much as a physical sale,” Wolver says.

It is important to get inspections done quickly and to price vehicles appropriately, she says. “We've seen good results using market-based pricing.”

Using online metrics, Chase tracks the number of dealers viewing and bidding.

“If we see a vehicle had 15 views and no one bid on it, we know something is wrong; usually the price,” Wolver says. “We can then immediately adjust the price to get the bidding going.”

Wolver says online auction benefits include less paperwork; quicker sales (an important consideration for depreciating assets such as used vehicles); and various cost savings, such as not paying to ship a vehicle to an auction facility. She estimates a total savings of $570 per unit.

Other ATC clients include Chrysler Financial, Honda Financial Services, Mazda American Credit, Mercedes-Benz Financial and Volkswagen Credit.

ATC anticipates more dealers participating in online auctions, especially an impending generation of dealers who grew up using the Internet.

“The growth points are in our favor,” says Ed Huang, ATC's marketing director.