By on September 5, 2014

Jack Baruth has a very thoughtful post on selling his green stick, apparently an Audi. (See No Fixed Above: Stick it to ’em.) Here I delve into his logic as a devil’s advocate.

A key observation throughout his post is that most (newish) used cars move through dealerships, and for many there is an auction through a Mannheim or Adesa in between the trade-in and the used car lot. The same is true in Japan: the graphic above is of a car auction in Osaka, though on-site buyers sit at computers with a huge display of the two virtual “lanes” with no audible action. (For more see my post on a June 2014 visit at Auto Auctions, Japanese Style.)

1. Now you and I may want a stand-out color, but I think if Jack talked to marketing people, this blandness comes from careful study of what color choices consumers make – not from dealers and auctions. After all, there remain regional differences in color preferences across the US, and particularly for high-end cars there’s a significant bespoke demand. Dealers only see a small and potentially unrepresentative slice of the market. Furthermore, color decisions have to be made well before the start of production, long before dealers get a chance to order. Things can and do go wrong in paint shops (I’ve been through BMW Spartanburg with PPG as guide, gloating over a problem their rival BASF was having). Things get tested in advance. Color choices must be made on a predictive basis.

As it happens, there’s a good history of the professionization of colorists, of how such predictions are made: Regina Lee Blaszczyk’s book, The Color Revolution, MIT 2012. She spoke at the Business History Conference a few years back at the Hagley Museum outside Wilmington; DuPont was central to mass-market cars being available in color, and their museum has some wonderful examples. Be warned, though: a lot of her book is about the fashion industry and about the technical side of developing color systems and color cards, and on experimental psychology with color perception, and not just the impact of wartime camouflage experts bringing their skills to Earl Harley’s design studios where they could play with DuPont’s new Duco paints.

2. Back to used cars. I think Jack argues that the variance of niche markets is high. Jack was fortunate in that he got a “high” draw, finding that match with someone else who really wanted a stick shift in a green package. High variance means that when you may have the opposite experience when you try to sell your pink Cadillac – wasn’t that a Mary Kay cosmetics thing? – and you may get a bad draw. Indeed, the only pink Caddy I know is used purely for its decorative value, such as that is, parked outside the Pink Cadillac cafe in Fancy Hill, Virginia. That use surely reflects a low market value, not a high one – be warned!

3. Jack is very correct in noting that dealerships need to turn their inventory. What he fails to point out is that he personally bore the same costs. So let’s detail those:

  • Jack surely continued to insure his car,
  • he accumulated (pro-rated) property tax and paid various annual registration fees,
  • he lost the use of the part of his garage in which it sat,
  • he lost the opportunity of having that new drive he wanted today rather than months from now,
  • he continued to face the slow but inexorable depreciation from which all cars suffer, and
  • he had to personally put in time first marketing his car and then acting as his own salesman.

Now personally Jack may have had fun being a used car salesman, and playing with Craigslist and similar services, so those weren’t costs, they were benefits. Would that be true for you? Particularly if it takes 6 months to sell your Pink Cadillac? And if you can’t sell your old wheels immediately, the other costs add up: the longer you wait, the lower the net price you are actually charging.

A dealer sitting on an inventory of 200 cars can’t ignore such costs. You shouldn’t ignore them either, and you may not be so lucky in making a good match.

4. Indeed, I suspect the buyer of Jack’s car must have had money to burn: if you are lusting after a lime green car, why would you tell the seller that? Instead you’ll make a lowball bid: when markets are thin, the buy-sell (ask-offer) spread is high. You can find a bargain if you’re patient as a buyer, and are good at bluffing when you’re holding a losing hand. You can lose a lot if you’re impatient as a seller, and not a good horse trader.

5. Conclusion: Jack offered one anecdote of coming out well in a thin market. Here’s mine of doing not so well, shopping for a vehicle with niche specs on a Chevy Cruze early this year.

Sticks aren’t popular, and for a daily drive in DC they were less popular than dealers had hoped – I know why, having made a day trip from the mountains of Virginia into stop-and-go traffic in my Cruze. My guess is that the dealer may well have accepted them as part of their allotment (standard factory “push” marketing, where dealers must accept unpopular combinations of features). So even though we made it clear that a stick was what we wanted, we also made it clear that we weren’t going to hang around if they tried to get a premium from us. We got what appeared to be a very good price, I spent quite a bit of internet time checking things out. Our hand was weakened a little when we didn’t want black, not many in inventory, but we were OK with a couple different colors [green and blue but not dark blue] and there were enough around. So we didn’t have to give back anything at that point.

When we went to pick up the vehicle and saw the actual interior, it was clear from our faces that it was no go. Black. Not just black, but some sort of textured “cloth” surface. And all the cars they had were that same black. All our negotiating power disappeared: instead of getting a better price than with an automatic, we ended up handing back a chunk of the margin, though we still paid less that what any of the other dealers we visited asked for. (They had to make a dealer trade, so out of pocket costs may have eaten up that difference.)

So thin markets are thin markets, patience and negotiating skills matter.  But those niche cars are out there. You don’t have to pay to be bland, but it does carry risk.

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24 Comments on “That Green Car: Winning And Losing At Your Own Auction...”

  • avatar

    On one of the themes from the article: Why aren’t more cars factory order? Why hold most of the stock at the dealer end? Very few people need a car THAT day when they go shopping.

  • avatar

    I’ll address your bullet points, then your final quandry with the interior colour.

    1. Jack surely continued to insure his car,

    You must have insurance on a titled, plated car, he did not necessarily park it and LOSE the use of said car (wash).

    2. he accumulated (pro-rated) property tax and paid various annual registration fees,

    Wrong, Ohio is not a VAT-style tax state where you must pay taxes on the “book” value of your car/trailer EACH and EVERY year like West Virginia and other places do. How many years of extra registration fees did he pay while waiting to make the sale?

    3. he lost the use of the part of his garage in which it sat,

    You’re assuming it was garaged while for sale, not parked at the edge of a grocery store or other high-traffic, eye-catching location, nor in use.

    4. he lost the opportunity of having that new drive he wanted today rather than months from now,

    Exactly how do you qualify/quantify the value of a “new drive?” Won’t said “new drive” also depreciate over time as you claim in the next point?

    5. he continued to face the slow but inexorable depreciation from which all cars suffer, and

    See above, but really, if you want an APPRECIATING asset, you do NOT buy a car.

    6. he had to personally put in time first marketing his car and then acting as his own salesman.

    It’s not that hard to list a car for sale, whether CL or autotrader/pay listing or on model specific forums, etc. I’m sure he *really* had to “sell” the lime-green Audi to whomever actually showed up interested in buying it.

    Lastly, I’m sorry, but if you didn’t negotiate or mention the interior colour when buying a NEW car, then that’s on YOU. Granted there are NOT many options out there for interior colour on a new vehicle, but you were remiss in your research and communications if you did not get the exact vehicle you wanted, especially NEW.

    I’ve BEEN on “dealer trades” with my father growing up, AND done a couple with him as an adult. YOU don’t give anything back on a dealer trade, the dealers work out the difference in value betwixt the two cars they are trading, and one cuts the other a cheque.

    • 0 avatar

      @SexCpotatoes :
      I am with you and will add a couple of additional thoughts.

      1) once a color is in the plant for a given model year, it’s there to be ordered (or not) as actual customers or dealers see fit. colors are sometimes planned and then deleted very late in the game. companies very frequently use a “launch color” to drive interest in something which is otherwise not likely to catch a customer’s fancy. examples of this would be :
      BMW’s Laguna Seca Blue (Smurf) and Phoenix Yellow (baby sh!t) on the E46 M3 and echoed in similar hues on the new M3/M4 launches.
      Lime Squeeze green on the Fiesta when launched in the US.
      Molten Orange on original Raptor.
      Tangerine Scream orange on Focus ST.
      Molten Orange (again) on the Fiesta ST.

      these unique colors are usually added-cost options which largely out-sell their original projections.

      Jack’s S5 was a unique, special order (not from the existing color palette) color, akin to BMW Individual or Porsche’s color-to-sample offerings. This is not something that the company has to worry _one_ bit about because they pass the much higher cost on to their customers with high 4 figure or low 5 figure price tags.

      2) Pink Cadillacs (or other brands as well) are still a Mary Kay thing. they’re probably not that valuable on the used market, but they’re also probably something that their owners keep and cherish as they are a bold signifier that they are really good at their job.

      3) I am not aware of any state which has vehicle tax based on when you sell the vehicle. you pay up front for the full year and if you sell the car and therefore don’t use it all, you lose it. as long as Jack didn’t have to re-register his car while he waited to sell it, there’s zero added cost here. don’t think things don’t work like this in the UK either as one always sees mention of how long the MOT (inspection certificate) runs for as a selling point on vehicles, so I’m pretty certain they also don’t do pay-as-you-go registration costs.

      if you wanted an oddball combination of options/colors/trim for your Cruze (or any car for that matter) you should have ordered it exactly as you wanted it. Knowing of course that if you order a combination that would not be desirable later on when it comes time to re-sell it. but that was the whole point in the first place I guess.

      or found a dealer willing to use the company system (which will always be more effective and deeper-looking than any searching you can do yourself or via customer-facing web sites) and find the (near) exact car you wanted. if you box yourself into a purchase through expiration of an existing lease, need to replace a departing company vehicle, someone going off to school, etc, etc, you take your chances.

    • 0 avatar

      +1 to SexCpotatoes and Faygo.

      I’d also point out that the Cruze is not an enthusiast car.

      My last two cars were used with sticks.

      1. a then 5 year old ’99 Accord LX with 67k in very good shape. I paid $5500, at least $2500, maybe 3k under blue book. I don’t honestly know why I got such a good deal. The guy who sold it to me, who makes his living in car auctions, and was offering it on the [original] owner’s behalf told me $5500, and I said, great! I drove that car to 200k.

      2. A then 4.5 year old Civic LX, 35k, which I bought from a Toyota dealer. I bargained them down from, I can’t remember whether it was around 12k, or 11.7. I now have 72k on it, and all I’ve had to do with it was to replace a thermostat. I don’t remember what blue book was at the time, but I don’t think I was far off. I might have bargained harder had I read Jack’s piece first, since while I quite enjoy driving the car, it’s not exactly an Audi or a BMW.

    • 0 avatar
      Jack Baruth

      The way it actually went was like so:

      I hired a broker to sell the car for me. He charged me almost nothing to do it and he took care of everything involved. I never spoke to a buyer of any type during the process.

      It took me about 45 days to sell the car, during which I incurred approximately $75 in additional insurance costs.

      The only hassle I had was having the car PPI’d before the sale could complete.

      Your mileage, as always, may vary. :)

  • avatar

    I sold two company trucks in the last year. One was a 97 Dodge 4×4 diesel, one was a 2000 Ford 4×4 diesel.Both trucks were in very similar condition and configuration, KBB “good to very good” with refreshed interiors in the last 4 years. The only difference (aside from make) was that the Dodge had been my personal truck and it had a stick shift.

    I thought the Ford would go faster than the Dodge, but it sat around for nearly 2 months and I had to drop the price to get it to move. I sold the Dodge for around $1,500 more than the Ford and it left the second day. I obviously under-priced it, because I could have sold it at least 3 more times the first week, including to an out-of-state buyer who offered me $500 more than asking price if I would would a day so he could get here (it had sold by then).

    All of the prospective buyers wanted the stick.

  • avatar

    I thought Baruth’s post was clear enough, and the subsequent extensive comments interesting, and really don’t see the point of this post. What are you really trying to say, Mr. Smitka? Let us in on it because it’s a really fine point that’s hard to see. Could have just been added as a comment on the original article.

  • avatar

    What does happen with traded in Mary Kay pink cars? Now that I think about it I don’t recall seeing one that is more than a couple of years old, EVER. I assumed that the winners of these cars got them on a relatively short lease and then they went somewhere….

    Mary Kay is strongly associated with their pink cars and I am sure they don’t want 10+ year old clapped out versions in the ghetto making their brand look trashy.

    So does Mary Kay repaint them before trade in, sell them overseas, wrap them in pink vinyl that peels off? Somebody has to know.

  • avatar

    I suffer from just the opposite. I always seem to want loaded-up or popular trims that don’t get discounted. When I looked at the Cruze, I was going for a 2LT or LTZ with the RS Appearance package, full navigation, and a Crystal Red Tintcoat or Tungsten Grey exterior with the light beige interior…*very* easy for a dealer to sell, and without a discount. Maybe that’s why there was none on this side of the country that fit that description.

    When I decided on the Jetta SportWagen, I really wanted the Toffee Brown Metallic (yes, brown diesel wagon), but again, there wasn’t one anywhere closer than 1,200 miles, and I just wasn’t going to drive all that way or lose all of my negotiating power by having it shipped. So Black Uni on Cornsilk Beige it is…

  • avatar

    I’ll throw this in the mix. I have a 40-car pe-owned lot, majority 10 years old or newer, average pricing $10-25k per unit.

    My partner and I buy eclectic stuff all the time – sticks, weird colors, weird option combos – and I really don’t have much of an issue moving any of it. This includes an ’08 A4 Quattro w/stick and a ’12 Mustang Premium coupe custom-painted pearlescent pink. Both those units sold within 30 days to internet buyers who HAD to have THAT car, and brought all the money. In fact, the most languishing inventory we have are always the generic wares – midlevel trims, average mileage, average colors, etc.

    One cardinal rule I live by is hit ’em where they ain’t. I buy my imports from an off-circuit rural sale, my cheap cars from a highline sale, and my highline cars from a sled auction. The two cars I mentioned above were from that rural sale where 15 year-old 4×4 trucks in decent shape still bring high single digits.

  • avatar

    I just sold a Grape Ice Spark to a woman who was ecstatic for it to be the same shade of her eye shadow

  • avatar
    Mike Smitka

    On color, I subsequently came across an article in the Mar 24 Automotive News: David Barkholtz, “Shoppers’ search priority? Color, not price” on Mini redesigning their web site to prioritize color over other search options.

    I live in a rural area, so actually seeing cars is a challenge – 40 minutes to get to the closest GM dealership. So my experience is definitely idiosyncratic. Until I actually saw a car with that particular interior I could not know how ugly it was.

    Virginia is also different in its taxing and licensing; I got a small check back when I junked a car. Lots of variety.

    Why do so few Americans order cars? Why do manufacturers take so long to actually deliver them? It’s a good question, I’ve seen efforts to shorten lead times that either didn’t work or had no impact while making life for the assembly plant manager harder. Japan is different, but too much complexity to put in a comment.

    Finally, Dave Pollack with Velocity (and at least one subsequent book) provides a fascinating introduction to the impact of better information on the used car market, and is now selling software to implement better pricing by dealers, explicitly including the various costs of holding inventory.

    Niche vehicles still reflect small numbers, but numbers are bigger when it’s a national market. Four buyers, two sellers vs four sellers, two buyers produce different dynamics. But if buyers are willing to drive 500 miles – higher-value vehicles – then such small number situations matter less.

    • 0 avatar

      You mean Dale Pollak, not Dave Pollack.

      Since you’re apparently familiar with Velocity, you should also be familiar with the Consumer Decision Journey. If you were, you’d understand that most American car shoppers buy because of a catalytic event in their lives, which means they need a car within 90 days at the latest, and typically much sooner than that.

  • avatar

    This guy makes no real point and on top of that is boring.

    • 0 avatar

      Agreed. I think redav provided a very lucid and thorough rebuttal to Baruth back in the original thread.

      Smitka’s writing shows why “academic” is often a pejorative.

  • avatar

    I bought a bright yellow Ford Ranger back in July 2006. It was a leftover with a July 2005 build date. It was also pretty much the only vehicle near me equiped the way I wanted (4wd extended cab xlt – everything else was either a stripper or fully loaded).

    I traded it in, and a few days later a friend of mine saw it back on the road with a logo from the dealer I traded it into. So it may have sat on the lot for a long time when it was new, but it sure didn’t sit long used despite it’s unusual color.

  • avatar

    I got distracted by the Ein poster on the wall and, er, didn’t really see how this plays much of a devils’ advocate to Mr. Baruth’s earlier article. It did have strong wafts of Mr. Ruggles coming off it, the barely-hidden “all private car sales are bad and scary–visit your local dealership today!” which is odd, ’cause I’ve skimmed Mr. Smitka’s writings on his (very interesting) blog and not found him to share his fellow economists’s sentiments.

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