Law of Diminishing Returns

First runs for cars at auctions usually yield higher price offers, says a Citi Financial Auto and AutoIMS study.

Using 2007 Adessa Inc. data the study indicates 83% of vehicles sell at auctions on their first runs through the lanes and fetch prices averaging 103% above market prices.

“If the cars have to be run a second or third time,” says study co-author Layne Weber, “the price dropped quite a bit — to 99% of market.”

The report notes Manheim Market Report vehicle values decline every extra time vehicles run through auction lanes.

Factory-consigned units average the least price drop between initial and second runs — less than 1%. Fleet-lease car prices drop 6%; captive lender units 5%; and dealer-consigned cars 7%.

Weber and co-author Don Meadows advise dealers against first putting up for auction the weakest unit in any group being sold at the same sale. A better car could be hurt if it came into the lane afterwards.

The study also indicates higher prices are generated at auctions in the middle two weeks of the month than in the first or fourth weeks.

Weber warns dealers against holding vehicles too long once they fail to sell after two shots at a single auction. “Data show no advantage in keeping coming back to auctions in the expectation of getting better prices than the first time.”