Thoughts on being a dealer (warning: long post)

[Matt Harwood]

I didn’t want to hijack Motoringicon’s lovely Cadillac ad with my dissertation, so here are my thoughts on dealers, pricing, and the market, continued from http://forums.aaca.org/f151/1936-cadillac-convertible-coupe-fully-restored-314657.html

Posted by John_S_in_Penna: So many asking prices these days begin with greatly optimistic numbers--especially when dealers are offering the cars. You may have noticed that at the Hershey car corral.

I found that the 2010 Krause Publications annual price guide vastly undervalued Locomobiles when I bought one that year, but for cars more often seen, such as Cadillacs, they have a bigger database and I've found them to be more accurate.

I'm not passing judgment on Mr. Icons' Cadillac, because he has offered some interesting cars here in the past, and this certainly is interesting. When considering a car for purchase, it's best to consult experts in that particular make and era. But take sellers' asking prices with a bigger "grain of salt" than you take the price guides!

Posted by ewing:

I always enjoy the discussions around any particular car for sale and the debate over the asking and worth prices. It takes a willing seller and a willing buyer to arrive at a final sale price. The wider the range the longer it takes to sell, unless the seller can find that one buyer that wants the car for reasons that go beyond 'market value' into emotional wants.

What I'd be interested in ( and dealers would have these numbers), is what cars original asking prices are set at, and what they ultimately sold at ( and how long it took to get the sale).

Of course I'd never expect to see these numbers published because of buyer/ seller privacy arguments. But it would be interesting to know how asking prices are arrived at and what typical 'margins' over actual final sales are in the ask.

But I'd really like to see some stats on this.

Any dealers out there willing to publish these numbers?

Just curious.

I think part of the problem is that yes, many dealers (myself included) have cars that are priced above what most folks think is "market price." Don't worry, I definitely know when a car is over-priced, and I tell every single client I work with the same thing: people will pay 100% of market price for an average car, but they won't pay 105% of market price for a perfect car. Buyers are smart and careful.

Now, with that said, how do I set prices? Well, when it's up to me, I do my homework. I ignore price guides and instead try to find auction results of similar cars. I knock off 10% from the published auction results (because of the fees that auction houses charge) and take an average. I look for cars sold within the past 3 years, not stretching back to the glory days of 2005-2008. I also look at what else is on the market, how old those cars may be on the market, and assess the relative merits of them as alternatives. And like all of you, I have a "gut" instinct for what I think cars are worth.

A good example is a 1940 LaSalle convertible coupe I have coming up in a few weeks. It's been restored, but it's not a perfect car. The color is modern with some metallic in it, and the interior is a gorgeous rough-hewn leather that looks awesome but is certainly not correct, either. It drives well and looks good. So I looked at auction results and saw some of these, including one at B-J recently, sell for more than $80,000. Others were in the $60,000 range. All the evidence I could find said this was a $40-50,000 car. But my gut said there's just no way it's worth that, and I told the owner we'd market it somewhere in the $30s. He agreed, and everyone will be happy, I think. That's my preferred process: I set the price based on the market and my knowledge of it.

The other side of the business is an owner of a car who sets his price based on his knowledge of the market, his invested costs, and yes, even his gut instincts, and I respect that, too. Most enthusiasts, you guys included, are pretty savvy, and I'm sure you can understand the displeasure of thinking that you might be upside-down on something as valuable as a collector car. For all my clients, I do the same market analysis, make the same suggestions, but owners are free to set their own prices and I do my very best to market the cars.

The problem there is that many buyers assume that since I'm a dealer, I should be able to get more for the car, and they set their prices accordingly. While I appreciate the confidence in my abilities, price is still king and I work hard to convince my clients that market price should be the ONLY price. And yes, admittedly, some guys look at my commission and try to make it up from the buyer, only to find that the car doesn't sell. Price is king, that's the long and short of it.

I should also point out that I'm just starting out in this business. My dealership is about 18 months old, and to get some inventory, I took on every car I could find at any price. It filled out my website and gave me some spectacular eye candy that drew people to me. It's marketing, we all know that, and I like to have visitors to my site drawn by a big ticket car. While they're there, perhaps they'll see something else they like better. That's the goal, anyway. Now that I have some good inventory and a track record, I occasionally do turn away clients saying, "At that price, I can't be of service to you." I hate to do it, but there are other cars out there.

For cars that we actually own and market, my philosophy is simple: you make your money when you buy the car, not when you sell it. If I can get it at a good price, I can sell it at market value and make money. If I buy it at market value and have to mark it up, it'll never sell. So it's quite rare that you'll see over-priced cars on my website that I actually OWN.

I don't know this particular Cadillac convertible, but it certainly looks beautiful. I'm guessing that Motoringicons is at the customer's mercy in terms of pricing here, and the asking price is could easily represent what the owner spent just on restoration. I will say that as one of the market comparables I would dig up on it, the same fellow who owns the LaSalle I mentioned just bought a 1936 Cadillac V12 convertible coupe on Ebay for $66,000 (which I think we can all agree is a screaming bargain), and I would rate it as a 3+ or 2-. A very nice tour car, but not as nice as the yellow one above. I'll also say that if I bought that V12 on eBay for myself, I would have compared it to the yellow car above and probably put it on the market at, say, $89,900 and see what happens. Not as nice as the yellow car, but a V12 versus a V8. I would have a pretty nice margin there and would also have the ability to mark it down if it didn't sell at the initial price. Many times, I don't have that luxury with a customer-owned vehicle.

There's also the philosophy of selling cars with a big price tag knowing that people are going to want to haggle. Nobody pays sticker price, right? Have any of you EVER bought a car without at least asking about a lower price? Of course not. So some dealers put a big price on there knowing they'll ultimately discount it anyway. Personally, I don't like doing that, because I think people see a price that's out of their reach and don't bother, even if the dealer would be willing to sell for a price that IS within reach.

You can see that as a dealer, I'm highly motivated to sell cars at a market-correct price. If the price isn't market-correct, it doesn't sell. Motoringicons, from where I sit, is a first-rate guy with great inventory. He's probably subject to some of these same market forces I am, and is probably as frustrated by them as I am. I don't look at other dealers as competition, either--this pie is plenty big enough for all of us, and I'd rather foster relationships with them so that we can work together rather than trying to cut each other's throats. After all, most of my sales are between private parties on cars that are never even put on the open market, and having other dealers as part of that network can only help.

So those are my thoughts and experiences, John. There's not a single margin number that I can cite, and it all works pretty much the way you'd expect. I'm certainly not getting rich doing this, it's all about quality of life. I pride myself on my honesty and integrity, and never forget that what guys are really buying from me is fun. I do everything I can to ensure that they get the fun they expect from a car and to minimize any headaches that will affect future enjoyment. I couldn't be a part of this hobby if I were exploiting people, because the people are what make this the best hobby on Earth. I love the cars, and I'm lucky enough to (barely) make a living doing something I enjoy.

[Guest Crusty]

Interesting Matt, thanks for sharing!

[1937hd45]

Yes, that was a long post. I really can't get interested in 1936 Cadillacs, just not my type of car, but I do know Motoringicons and would trust his discription of a vehicle. Price/value is something the buyer/seller settles on. You aren't selling new Hondas, so "Book Value" isn't something cast in bronze, each car is unique.

[motoringicons]

Matt- Thank you very much for your great post. You certainly "hit the nail on the head" on many points. I will be the first one to agree, that, the 1936 Cadillac Convertible Coupe I have listed is priced high. As you stated, I am at the mercy of the owner. This is his one and only old car, he has owned it for 40 years, restored it twice, blah, blah, blah and it is a really nice and fresh car on all levels. That was his starting price-not mine. However, I know he realizes this price is not going to happen (even though he keeps reminding me of a similar year LaSalle that sold at the RM Hershey auction for about the same amount), and, if a real cash offer was put in front of him-even if it wasn't close to the asking price-he might just take it. I suggested asking a lower, or reducing the price, but he wants to keep it where it is for now. What can I do? Like you, Matt, I would much rather have cars that I can price right near "what they are really worth".You have certainly listed some great cars at reasonable prices recently and they have sold quickly. I find cars that are priced right get a lot of initial interest and sell fast-making everyone happy! For example, the 1937 Packard Super 8 Club sedan I have listed, is, in my opinion, now very reasonably priced given the quality of the car. It is being sold on behalf of an estate that initially wanted a lot more for it. At the first price, in the upper 60s, it generated some interest but no buyers, now, at the current price, there is serious interest from a number of people. If I could have listed it at this price several months ago, it would have been long gone.

1937hd45- I agree with you. Thanks for the nice words. I prefer our old 1912 Ts to this Cadillac any day of the week!!!! It's been awhile since we had them parked together at the old Ridgefield show! Just drove mine in the snow the other day, always fun to look back at the skinny tracks it leaves behind...

Edited February 3, 2012 by motoringicons (see edit history)

[trimacar]

Matt, well said. I'm not, nor have never been (is that enough negatives), but in the 45+ years I've been collecting cars, I've bought and sold almost 200 cars (and yes, I have a list!).

You state, and anyone who thinks of buying a car he might sell later knows, that you make the money when you buy the car. That is so, so true. And many times, you know instantly when you see a car and hear the asking price that the outcome will be good for you.

I will slightly disagree on one thing. I've paid asking price for cars. Usually, it's a situation where the seller is on edge, or a cantankerous fellow, and the price is very fair to start with. In those cases, I've chosen not to take the risk of P-ing off the seller, and just taken the car.

I've also sold cars that I knew, the instant the potential buyer said yes, that I sold it too cheap. That happened on a 1931 Model A roadster that I bought along with 8 other cars out of a collection, to move it, I sold it over the phone and when the guy picked it up, his face was hurting from smiling!

Great comments, well said Matt...

[Guest ewing]

Thanks Matt, your commentary on pricing is how I would imagine it would be ( or should be!).. I liked your comment that you have told some sellers that you can't help them (ostensibly on unrealistically high pricing)... and that at the end of the day , you are selling 'fun'. I think that is part of the reason potential buyers get frustrated when they see crazy high prices, and the natural reaction is to make openly critical remarks. They are trying to get sellers to realize that while there are buyers out there that want the car, they don't want to be insulted with monster asking prices that don't make sense.

At the end of it all, its buyer beware, as there are lots of stories of cars that looked the price and had ugly mechanical issues that somehow got lost in the pricing equation.

True car hobbiests get tired of guys that set their price on the RM or BJ auction price of a 'similar car last year', and from what you say, sounds like you hear that too often too.

If the seller isn't really motivated,... it sounds a lot like the joke about the vacuum cleaner sales guy, who priced them at a million dollars each. When he was told that was an insane price, he replied, I know, but I only have to sell 1 !

Edited February 4, 2012 by ewing (see edit history)

[stealthbob]

Kids in a candy store don't worry about prices.

To me that is a PERFECT way to describe the prices we see at BJ and other auctions....

[J3Studio]

Insightful post.

[poci1957]

I should also point out that I'm just starting out in this business. My dealership is about 18 months old, and to get some inventory, I took on every car I could find at any price. It filled out my website and gave me some spectacular eye candy that drew people to me. It's marketing, we all know that, and I like to have visitors to my site drawn by a big ticket car. While they're there, perhaps they'll see something else they like better. That's the goal, anyway. Now that I have some good inventory and a track record, I occasionally do turn away clients saying, "At that price, I can't be of service to you." I hate to do it, but there are other cars out there.

There's also the philosophy of selling cars with a big price tag knowing that people are going to want to haggle. Nobody pays sticker price, right? Have any of you EVER bought a car without at least asking about a lower price? Of course not. So some dealers put a big price on there knowing they'll ultimately discount it anyway. Personally, I don't like doing that, because I think people see a price that's out of their reach and don't bother, even if the dealer would be willing to sell for a price that IS within reach.

Good post Matt, very interesting. I am a long time old car hobbyist/historian/restorer but my regular job is at a chain of Illinois Ford dealerships. In the retail car business over the last 5-10 years the internet has changed the tone of car retailing considerably and I would be interested in your opinion on it. In our area some dealers who depended on people coming in person for their large inventory have declined and others who cultivate a good web site with competitive prices have expanded. Of course people should still come in person to make their final purchase, but how much of your business would you say is primarily internet driven and how much is walk in? 90% vs 10%? More? What about people who have locked in on a search for a specific model vs those who can be swayed to another model? 50/50?

Our experience has been that if you have good web activity (and most people now start their shopping online) any attempt to start high is to have the customer dismiss your car immediately unless it is totally unique and desireable. So our experience is that your price better be in line if you are to attract people on line. You can then justify your price with mileage or condition after the customer is interested, but you cannot start too high. Your thoughts?

Of course the admitted flip side is at the TV auctions people tend to pay more AND pay the buyers premium, apparently without a second thought. Auction fever I guess, I wish I could get free spenders like that in real life Todd C

[Matt Harwood]

Good questions, Todd.

To be honest, we have 0 walk-in business, and our showroom is only open by appointment (eventually I'd like to change that, but we're still small). About half of our inventory actually stays with the owners of the cars, but I'm working to change that. I prefer to have the cars with me because it makes it easier to show them. If the owner is in another state, I have to coordinate with him to show the car. I like having the cars so I can show them at the buyer's convenience and perhaps he sees something else in the showroom he likes. The flip side is that a lot of guys like the security of keeping their cars at home and continuing to enjoy them. I do whatever the customer prefers.

Fortunately, unlike new car dealers, even cars like a Model A are relatively scarce compared to a used car, so while price is certainly one of the big factors, sometimes we have one of only a few examples on the market. Yes, sometimes you can price yourself right out of contention, and I work very hard to prevent that. For example, we just listed a 1931 Model A woody wagon for $34,900. The first call I got on it (during halftime at the Super Bowl) the first question was, "Why is it so cheap?" Well, in doing some looking around, it is the cheapest on the market, but there's also some kook with TWO for sale at $100,000. I'm guessing he's not getting any calls. So price will often determine whether the phone rings or not.

I've also had more than a few "browsers" who aren't sure what they're looking for, but fall in love when they see something. One of our own forum uses spotted a car we had for sale, but it sold before he could make a move on it. He asked me to contact him if we ever got any other affordable convertibles, so I showed him the black 1948 Plymouth we had. He agreed with me that it's an awesome car, and is coming to pick it up in the next few weeks. He wasn't sure what he wanted, but was open to "browsing" and found something that I think will make him very happy.

We also get a lot of internet browsers. I can track how long people stay on our site, how many pages they visit, etc. Right now we have about 70,000 page views a month, and the average visitor stays for 5 minutes. He's looking at a few cars. Maybe he's interested in something specific, maybe he's just looking around for something to catch his eye, or maybe he's comparing to something else. Whatever he's doing, I'm happy to have him there because this is very much an impulse-buy hobby. How many of us have set out to look for one thing only to end up with something else? It happens quite frequently.

So at this time, I'd say 70% of our business is Internet-driven, 15% is from print ads, and the rest is a combination of word-of-mouth, networking, drive-bys, and other things that are harder to quantify.

And yeah, auctions are nuts. Auction fever is very real. More than one of our clients has purchased cars at auction only to wake up later and say, "I paid how much for what?!?" It definitely happens.