Auction Items

Earlier this year, Austin Singleton, owner of Singleton Marine Group, attended a boat auction prepared to purchase 30 boats. He ended up bidding on just two after finding that even the opening bid on each of the other 28 was higher than the top price he was willing to pay.

While disappointing, the experience didn’t shake Singleton’s strategy to beef up his bottom line by buying inventory at auction. In fact, it might have strengthened his resolve to follow his game plan.

“We are not chasing boats,” he explains. “If we go to an auction and don’t buy one boat, that’s great because if you go to an auction and buy five wrong boats, you’re in trouble.” By setting strict criteria, Singleton — and Anthony Aisquith, general manager for Singleton Marine’s Boat Liquidation Center in Atlanta — go after only the boats they know they can sell within about a week’s time. Such precisely targeted buying results in margins twice what they get on trade-ins.

That kind of success is why more and more boat dealers are turning to specialty and marine auctions to buy inventory, and why wholesale vehicle auction houses like Manheim and Adesa are seeing meteoric growth in their specialty business.

Distressed dilemma
Auctions are not without controversy, however. Some of the industry’s bitterness toward them stems from bad experiences. A few dealers who have worked with less-than-reputable auction houses have found themselves forced to take legal action to get paid for their boats, for example. There are also stories of liquidators selling inventory without proper title authority, resulting in an unpleasant experience for the boat buyer and bad press for the industry.

But most of the controversy revolves around dealer frustration with what they see as misdirected handling of repossessed inventory, believing that the industry as a whole would be better served if lenders and floorplan companies would send all repossessions to reputable dealers. That would ensure pricing would be competitive, they believe, in addition to giving the public a better buying experience, given that consumers buying directly from liquidators are on their own.
As one dealer told Boating Industry, given the condition of some of the boats sold at auction, “The customer who buys a boat from a dealer will be far happier and far more likely to stay in boating than those who buy from auctions.”

There is also a concern among boat manufacturers about having their brands eroded when new inventory is liquidated.

“We don’t want to see our boats being liquidated across the street from one of our existing dealers,” says Irwin Jacobs, CEO of Genmar Holdings.

To date, Genmar has worked to avoid this by exceeding its maximum buy-back agreements with its floorplan companies when dealers have gone out of business or stopped selling Genmar boats for whatever reason. The boat manufacturer has also tried to connect its floorplan companies with other dealers who could take on the repossessed inventory.

But ultimately, for both commercial and retail repos, it is the lender’s choice, and that choice is often using a wholesale auction house or a public liquidator. Steven Piccinati, repossession and remarketing executive officer, Dealer Financial Services, Bank of America, has no trouble defending his practice of working with a variety of auctions rather than directing repos to dealers.

“The first thing that an auction house does for me is secure the asset,” Piccinati says. “Second, to be able to collect a deficiency balance on a commercial account, I have to sell it in an environment where I can get multiple bids. Now, a dealer could say that he could get me multiple bids, but I can clearly and easily prove that at an auction.”

Piccinati admits that he is also concerned about a dealer’s natural tendency to push consumers toward their own assets rather than consigned assets.

“It is my belief that they would be very likely to move a customer to the assets that they are paying flooring on,” he says. “So I tell dealers that I’m sending everything to auction ... You have to bid against other retailers, but every one of those assets are available for you to purchase.”

Such reasoning doesn’t sit well with boat dealers who believe their industry expertise would result in more cost-effective and efficient services for the lenders as well as put more money into the dealer’s coffers. Still, most boat dealers don’t let their frustration stop them from leveraging the opportunities reputable auctions present.

A full pipeline of product
Both of the leading wholesale vehicle auction houses serving the boating industry, Manheim and Adesa, hold monthly auctions at various locations around the country that are also accessible through simulcast Web technology. The vast majority of these are dealer-only, with the rare exceptions taking place in those states that mandate that repossessed vehicles be made available to the public.

Manheim started doing specialty auctions in 2005 after significant numbers of boats, RVs, motorcycles and other powersports vehicles began to accumulate in its inventory. That business has grown by double-digits each year since.
Today, Manheim’s Specialty Auctions division has nine dedicated boat sales across the country, with a typical boat auction offering from 75 to 100 units. In 2008, Manheim’s top three locations for boat sales were Manheim Southern California, which handled 22 percent of its boat sales; Fort Worth, 18 percent; and Manheim Lakeland, Fla., 15 percent.

The company also will work with dealers to host on-site boat auctions.

“We will deploy a mobile auction rig set up with everything needed to host a sale at a marina,” says Karen Braddy, general manager of specialty and heavy truck equipment sales, Manheim, Atlanta. “We do about four or five of those a year.”
Adesa’s boat sales are part of its specialty auctions, although the company does hold two on-water boat-only auctions a year and is considering expanding this type of event. Adesa held its first specialty auction about 20 years ago in Cincinnati and now has specialty auctions in 11 locations.

“With repossessions at an all-time high for all specialty, we are seeing sizeable growth of 40 percent,” says Jane Morgan, president of Adesa’s Specialty Sales Division, Carmel, Ind. “Our largest marine product sale in Ocala, Fla., runs about 200 boats a month. Cincinnati is not too far behind them with 150 a month.” Texas is Adesa’s third-largest specialty market.

A crawl, not a sprint
As yet, Singleton hasn’t purchased more than three boats at auction, largely due to the buying criteria he and Aisquith have defined. In general, they are looking for boats between 20 and 24 feet that are not more than six years old. Price will depend on what they intend to do with the boat.

“We went into the last auction with three boats basically presold,” Singleton explains, “so we were willing to bid those up higher to get them. We have to figure freight as well, so we are extremely disciplined.”

In addition to knowing their market, Aisquith credits their success to having a separate used boat sales staff. “It really needs to be a separate team to be effective,” he says. “We are able to sell these boats within a week because that is all the team is concentrating on.”

Ninety percent of the Boat Liquidation Center’s sales are online, with the inventory listed on its site as well as, Craigslist and others.

Singleton and Aisquith buy primarily on site, but they have purchased inventory online. Although convenient, bidding online brings its own pitfalls.

“It’s a little iffy,” said Larry King, who buys boats for his son’s business, Commonwealth Boat Brokers, Richmond, Va.

King goes to four auctions a month. Having been at auctions where online bidders keep going when those onsite stop because they’ve had a close look at the vehicle, King prefers to check out the inventory for himself. Worst case, he says, are auctioneers who will look beyond the sightline of the online bidder to drive up a false bidding war.

“I always try to be in the back so I can make sure that I’m not bidding against a trash can,” he said.

Terry Hambrick, owner of T&S Marine, Oakwood, Ga., has been buying boats at auction for nearly a decade. Over the last several years, 80 percent of that is online, and like King, Hambrick cautions boat dealers to understand the risks.

“You have to buy the boat as if it has a bad motor, that’s my motto,” he says. “Then if it does, you can break even, and if the motor is good, you can make some money.”

He also advises boat dealers to realize that repo boats are typically stripped of equipment. And as King points out, most – if not all – will need service.

“The person who doesn’t have the money to make his payments isn’t going to maintain his boat,” King suggests. “You might get some 2008s that are pretty much ready to go, but most of them will need some TLC.”

About half of Hambrick’s customers ask him where the boat originated. Some think getting an auction repo equates with getting a good deal; others have negative connotations. “So I divulge it if asked,” he says, “but I don’t make a point to comment on it.”

Both Hambrick and King urge boat dealers to find out as much as they can about the products before bidding on boats. King goes to auction a day ahead to walk the lots, read the condition reports and talk to auction mechanics if available.

“You have to do your homework,” King recommends. “There is no substitution for it.”

Singleton agrees, believing that auctions present great opportunities for boat dealers who don’t underestimate the process.

“It’s a crawl,” Singleton concludes, “not a sprint.”

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