How to Buy Your next Classic Car at an Auction
“Ladies and Gentlemen, if you need me to slow down, hold your bid card up and I’ll slow down a bit. But, please, don’t worry about how much you’re spending: our cashier is keeping track for you”.
In the somewhat unlikely event you’ve just woken from a decade-long coma, the collector automobile hobby has become a big, big business during the time you were sleeping, and the classic car auctions have been leading the charge.
In 2014, sales of cars at auctions—RM Sotheby’s, Bonhams, Russo & Steele, Barrett-Jackson, Gooding, Mecum, and the like—topped $1 billion in the United States alone. Classic car auctions have changed in nature as well, morphing from stodgy, “men with paddles, in tents” affairs to become lavish, branded, and sponsored lifestyle events with rallies and concours components, often televised on TV.
According to data collected by Hagerty Insurance, just ten years ago (when you might have gone into that coma if this is news to you) the sales figure was a relatively paltry $282 million. That’s an almost 300 percent increase in a single decade. More amazingly, Hagerty’s numbers do not take non-U.S. auctions into account; worldwide, the figure is significantly higher. Experts say the increase is partly due to a higher volume of cars being sold, but also that those same cars are now fetching higher prices. Hagerty says that in the same period, the number of cars sold at auction rose from 8,600 to 19,600, while the average price of a car sold at a classic car auction also rose from $33,000 in 2004 to $61,000 in 2014.
So what does this mean to you?
You may have tuned into an auction recently to watch Shelby Cobras, Ferraris with pedigrees, glorious Duesenbergs, rare muscle cars, and old Mercedes roadsters cross the block and sell for lofty prices. Certainly, of course, there are cars for those of more modest means too. So, you may be wondering, “How can I get in on the action”? As a buyer, it means there is a lot more metal available for the picking, and as a seller, you can potentially get a lot more for your car than ten years ago. But while there are bargains to be had, there’s plenty of potential for disaster, as well.
Petrolicious asked the important questions, to make your first (or next) auction experience one to remember. Russo & Steele CEO Drew Alcazar, and Alain Squindo, Vice President, RM Sotheby’s helped to fill in some of the blanks about buying a car through an auction house. We’ll get to the selling part next week. Below, you’ll find sample questions from Petrolicious and the answers we’ve been able to get.
Should you buy a car at auction?
Auctions, by their very nature, are pure capitalism at work: the laws of supply and demand are never more evident than in an auction room. If there is a lot of demand for a particular car, chances are the price will be high. That’s great if you’re the seller, but it will cause the buyer to take a bigger hit to the wallet. If there isn’t demand, there may be a chance for a bidder to ‘win’ the lot for a low price. Good if you’re the buyer, but potentially disappointing if you’re the seller. Alcazar says, “An automobile auction is simply where all roads meet in the collector car business”. That sounds true to us, and savvy buyers often work with the auction house to get the information they need, plus a third party administering the sale, access to many potential acquisitions under one roof, and after-sale services (like transportation, insurance, etc.)
Which auction should I attend? There are so many of them!
It really depends on what kind of cars you are looking for. Each auction has its own unique character; meaning one may appeal more than another depending on your automotive tastes. For example, Squindo says RM’s annual Hershey sale focuses on and highlights outstanding Brass and Classic Era automobiles, whilst Alcazar likes to keep typical Russo and Steele auction a bit more eclectic, featuring equal parts European sports cars, American muscle cars, hot rods, customs, and competition cars.
What do the estimates mean? How do the auction houses derive them?
Pre-sale estimates provide the seller with a forecast range of value for their vehicle and the buyer with a guideline for their potential purchase. When a vehicle is consigned, an auction house specialist will discuss its research with the owner: market trends, forecasts, previous sales, as well as other specifics like the condition of the car (its physical state including cosmetic appearance, authenticity, and mechanical operation), comparable examples (the values of similar vehicles that have sold in recent months), and the vehicle’s provenance and/or competition history. This is a collaborative process that may take weeks (if not months), in order to balance the owner’s expectations with current market forces.
What if the reserve isn’t met and I still want the car?
In auction jargon, the reserve is the minimum price required in order for a specific lot to sell. This figure is kept confidential and is set by the seller in advance of the sale. If the reserve is not reached on the podium, the auctioneer will “pass” the lot. All is not lost, however, for interested bidders: at many auctions, they are invited to speak to an auction house representative for continued negotiation and a possible post-sale deal.
What does “as-is, where-is” mean? What if there is a problem with the car or if it turns out to be not as represented by the auction house?
Do your homework. Trust, but verify. All sales “as-is” and “where-is” refers to the fact that the bidder is responsible for inspections and verification of condition, authenticity, and completeness of any vehicle purchased.
Alcazar is pretty outspoken on the subject. “To be abundantly clear: cars are never ‘represented by the auction house’; in all actions, any statements or representations are strictly and solely those made by the seller.”
Squindo adds, “Every effort is made to ensure that all information contained in the catalogue is fully researched and historically accurate. Any additional information or corrections known at the time of the sale will be announced by the auctioneer and posted as an addendum on the lot’s webpage.”
The lesson here is for the buyer to do his or her homework on the car. Typically, if a problem arises, the auction house will typically—through a good faith effort and customer service objective—attempt to work with both parties to resolve a situation.
How do I pay for the car?
Most of the auction companies have similar policies. Payments for vehicles purchased at auction must be made on or before 5:00 p.m. of the next business day following the auction and in the form of certified funds. This can include cash, wire transfers and certified checks. You may also pay with a personal or company cheque as long as a bank letter of guarantee supports it.
What’s the role of the auctioneer?
To some, it may sound like a foreign language, but there is a system and purpose for the way an auctioneer speaks. Their patterns of words and intonation help to, at least to some degree, hypnotize bidders. Auctioneers don’t just talk fast—they chant in a rhythmic monotone so as to lull onlookers into a conditioned pattern of call and response, also intended to give the buyers a sense of urgency: bid now or lose out.
The auctioneer is the official conductor of the auction, and the person who accepts bids and declares lots sold or not sold. They help advance the bidding and maximize the ultimate sales price of the vehicle for the seller. Some auction houses like Bonhams or RM use an “English style” auctioneer – a more subdued and conservative call, something along the lines of, “May I have your bid, please…” Russo and Steele, Mecum, Barrett-Jackson, and other more distinctly American auctions use auctioneers with banter or very fast paced calling and advancement of the bids.
There are several schools of auctioneering where you can spend a few days honing your skills. Squindo says that RM Sotheby’s Chief Auctioneer, Max Girardo, attended the Reppert School of Auctioneering in Auburn, Indiana to learn the art of auctioneering, including how to take bids, maintain rhythm and control of the room, and market vehicles from the auction podium.
The “winner’s curse” states that no matter how much you pay, if you win you’ve paid too much. Thoughts?
The winner’s curse states that in such an auction, the winner will tend to overpay. Squindo and Alcazar are unified in the belief that there is no such thing.
“It is the auction environment that truly determines fair market value: what one person is willing to pay for a vehicle on a given day. We encourage interested bidders to review comparable recent prices in advance of an auction,” Squindo says.
“Collector cars appeal to the senses more than any other investment…it’s difficult to put a price on the feeling you’ll get behind the wheel,” Squindo says, and further cautions against the “bargain” purchase. “Beware the bargain purchase. Often, once these vehicles get home, one quickly realizes why the other bidders dropped out at what may have been perceived as a low price,” he says.
How can I thoroughly inspect the cars before the auction?
The auction houses have moved into the 21st century, and a bidder can begin his or her homework in advance of the sale. You can purchase a catalogue, and also go online where a wide selection of images, a complete and carefully researched description, and, on occasion, a video of the car might be made available.
Once there, examine each car closely. Is it original? Is it the correct color? Educate yourself on the model or take an expert with you. Understand the VIN codes or have somebody along who can. Is the engine correct? Does it leak, smoke, or make bad noises? Is the body straight? How good is the paint? Look for documents. If the owner is there, ask questions about the car’s history and work that’s been done.
Most auctions have a specialist to discuss any specific questions they have regarding their vehicle of interest and its condition. Whether you are on site for the auction preview or elect to bid remotely, a specialist will happily inspect the vehicle and provide a detailed, professional condition report. Often, by expressing interest ahead of time, a short test drive is also available for interested bidders.
“Post-block is not the time to discover something you later decide you don’t like,” Alcazar says. “Once you’re the winning bidder, you own it. There is no recourse.”
Are auction fees negotiable?
Certainly not for the buyer. At most auctions, there is a “buyer’s premium” that is a set percentage of the final bid price (otherwise known as the hammer price). “There is little incentive for any auction house to negotiate buyer commissions due the simple fact that the “under bidder” is willing to pay full price for one bid less,” Alcazar says. “Even with a $1000 bid increment, the house commission is only $100* so it makes little sense to do so. No auction house negotiates buyer’s premiums for this reason.”
If this sounds like a great way to find your collector car, you’ll be joining thousands of others each year who do the same—car auctions are no longer a niche business.
Just don’t forget: besides the purchase price, you’ll have a buyer’s premium, taxes, registration fees, and, possibly, shipping to pay. Bid on a car if you love it, but set your top price and don’t go above it.
Don’t let the “red mist” of a bidding war break your budget.
Many thanks to Drew Alcazar, CEO of Russo & Steele, and Alain Squindo, Vice President, RM Sotheby’s
* Assuming a traditional 10 percent buyers premium
Image Sources: Darin Schnabel © 2015 Courtesy of RM Sotheby’s and Russo and Steele