Fleet News

BCA: a model of efficiency in a changing market

BRITISH Car Auctions picked up two titles at the Fleet News Awards, recognising its commitment to quality service and innovation. The company's director, customer affairs Tom Madden reveals some of the reasons behind the company's success.

There's a surprising quotation framed in the boardroom of British Car Auctions, which reveals much about both the market that the company serves and its own role in that market.

The quotation is by George Hoffer, an economist at the Virginia Commonwealth University, who specialises in automotive retailing. He argues that used car auctions should be published in textbooks to illustrate economic efficiency, as they bring together thousands of vendors and thousands of buyers yet charge relatively small fees.

'The used car market at wholesale is almost perfectly competitive,' said Hoffer.

And while it may raise eyebrows in some quarters that an auction house is framing quotations from a university academic, anyone acquainted with a modern auction centre will know that few industries epitomise the 'bricks and clicks' approach of the ideal modern business as well as an auction.

BCA, for example, exploits the internet to market its sales and deliver valuable sales records data to both buyers and sellers, yet still creates the excitement and buzz in the sales forum that auctions have generated for years.

The company publishes its catalogues in electronic format, and through its website's innovative Auction View enables potential buyers to identify guide prices from used car specialists CAP and Glass's while also inspecting sale results of identical cars at recent sales. From a fleet perspective it also proves a priceless tool for assessing the health of the market and setting realistic reserve prices.

Yet despite this sophistication in an industry once caricatured by men in sheepskin coats, fleet vendors increasingly appear to be looking for new routes to market, with large vendors such as Motability Finance using physical auctions as one of their final options when disposing of cars.

BCA would be forgiven, however, for viewing such initiatives with more than a little irony, particularly in the light of Hoffer's comments.

The used car market is almost perfectly competitive at wholesale level because it reflects absolutely the fundamental supply-demand equation so beloved of economists, and every rival disposal channel promises vendors the same benefits delivered by auctions for years – access to as wide a buyer base as possible.

Cultivating this loyal buyer base is something that BCA centres have been doing for decades and perhaps contrary to expectation, the company is ready to adopt the e-world with relish, despite its huge investments in physical auction centres.

Tom Madden, BCA's director, customer affairs, said: 'Five years ago we had already launched our first website and I would have expected the market to be further advanced today than it is. The internet has limitless potential and its progress will be infinitely faster.

'Our customer base is increasingly online, especially our buyers, and as a non-direct marketing company we probably have the best direct marketing programme in the motor industry.'

The company does operate both online sales and sealed bid auctions, primarily on behalf of car makers selling low mileage nearly new stock to their dealers. They are prepared to buy unseen because they trust the manufacturer and have the back-up of failsafe return clauses if the cars bought fail to meet their trade description.

However, in the wider used car market, while buyers may increasingly use the internet as a research tool, for them no online mechanism can deliver the same informed feel about a typical three-year-old, 60,000 mile ex-fleet car as they achieve from their own visual inspection. And nor can remote bidding replicate the information gathering and market intelligence on offer when face-to-face with peers in an auction hall.

As an interim step between bricks and clicks, the development of BCA's Live on Line system meets the requirements of both sets of buyers, giving customers who do not want to leave their offices the chance to bid online for cars that they can see go under the hammer in front of a live audience at the auction hall.

So why the negative perception among large fleet vendors who refer to auctions as the disposal route of last resort? Perhaps it is a case of shooting the messenger, with fleet vendors blaming the auctions for the state of the used car market and declining residual values, when in fact the auctions merely reflect the state of the market, with telling immediacy.

When the hammer goes down, vendors know that they have achieved the best possible price for that car on that day in that place. This certainly leaves space for 'what ifs', and understandably there is an envy and frustration that well-prepared cars only achieve trade prices at auction, then fetch £1,000 more a few miles down the road on the trader's forecourt.

However, as Hoffer would no doubt confirm, no wholesale market in any industry ever achieves retail prices.

A handful of leasing companies have made a success of retailing their end-of-contract cars directly to the public, but even they concede the margin of retail price over wholesale trade price erodes significantly when the cost of premises, staff and warranties are taken into account, without considering the cash flow disadvantages of having a depreciating asset generating no income sitting on their forecourts.

And even then, they turn to the auctions to dispose of cars that don't meet their own retail criteria, for whatever the age, mileage profile or condition of a car, an auction will almost always find a buyer, and the vendor simply has to accept that the price bid is the best price available.

BCA gets smart with huge investment in repairs and refurbishment

Strolling around the pre-sale compound at BCA Blackbushe, it is hard to believe that many of the cars have been driven at all. Pre-sale preparation levels, including smart metal and interior repairs, are of such eye-catching standards that a car with 100,000 miles on its clock looks as fresh as a nearly-new model.

The entire pre-sale operation is an area where BCA has invested heavily, helping its clients meet their disposal responsibilities with speed and efficiency.

Pushed to a race, Madden estimates that a defleeted vehicle could be collected, prepared and sold within five days, although the demands on the contract hire sector delay this process.

'For contract hire and leasing companies we now collect, inspect and report our damage assessment to the client,' he said.

The leasing company then negotiates any damage recharges with its own client before releasing the car for sale. Inspecting and storing these cars is becoming an increasingly important issue after years of record new car sales and booming fleet sales, hence BCA's commitment to develop and expand its physical auction centres.

Enfield, Birmingham and Glasgow have recently seen the benefit of substantial investments, and it's a programme that is continuing on a European-wide basis. BCA Europe now operates sites in Austria, Belgium, Denmark, France, Germany, the Netherlands, Norway, Portugal and Spain.

With a further 23 locations in the UK, the company has the facilities to serve both small fleets and the largest national and international fleet vendors, and while competitors continue to challenge BCA's market leading position, Madden is undaunted.

Consistently, over large volumes of vehicles sold nationally we will get the best price,' he pledged.

It's a pledge acknowledged by the Fleet News Awards judges who not only gave BCA the Vauxhall-sponsored Best Disposal Company award, but also the inaugural Dow Automotive-sponsored Platinum Award for the company within the entire fleet industry that consistently offers the best service levels.

They heaped praise on BCA's proactivity, consistent delivery of what it promises, and professionalism in driving its business forward and finding solutions for fleet clients, setting standards of which any company in or out of the fleet sector would be proud.

'Its relentless pursuit and delivery of excellence have set an intimidating precedent for every company to follow,' said the judges.

'Despite huge investment in its network, BCA has wholeheartedly adopted the new e-economy, demonstrating a stunning determination to focus on the desire of its clients to maximise the residual values of their vehicles.'

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