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San Antonio Business Journal
Auto-industry blues fueling local auction firm’s business
San Antonio Business Journal - August 7, 2009
Last August, Charlie Massey opened the doors to his latest venture: ELCO Auctions Asset Marketing Solutions, a full-service auction company.
His timing was impeccable. The doors to Massey’s auction business opened just as a wave of woes was about to hit the auto industry.
To date, ELCO has conducted five auto-dealership auctions in the state of Texas — including the auction of the Quality Suzuki/Isuzu dealership in San Antonio back in April. Massey has agreements for two more auctions pending. ELCO marks Massey’s second go-round in the auction business. Thirteen years ago, he founded Alamo Auto Auctions, which was a fixture in the field from December 1988 to October 1996 — at which time Massey sold the business to Indianapolis-based vehicle-auction firm ADESA.
Not only has Massey come full circle in the auction game, he now finds himself back in a familiar niche — auto-dealership auctions.
Excluding the cars, which are taken back by the manufacturers, ELCO will “sell everything, down to the bare walls,” Massey says.
Thus far, the buildings themselves have not been part of the auctions either — with most owners opting instead to hire a real estate broker to market and sell the property, Massey says.
But that could change. With more and more owners finding themselves owing more against a property than its current value, there is the chance that the seller could fare better at auction.
For its work, ELCO receives a percentage of the gross sales of the auction — out of which Massey pays for such expenses as marketing and advertising, collections and payments of all sales taxes. For its initial year in business, Massey estimates that ELCO will post sales in excess of $1 million.
Come 2010, however — and given the continuing shake-up in the auto industry — Massey is projecting sales of between $4 million and $5 million.
The auctions can gross sales of anywhere from $100,000 to over $1 million — with some mega-dealership non-asset auctions grossing over $2 million, Massey says. It’s all dependent upon the inventory that the dealer has in stock to sell.
The auction is a clean process through which buyer and seller deal directly with each other, and it’s an effective means for helping the auto dealers recoup at least some of their investment in the business, Massey explains. Indeed, when executed correctly, an auction will create a market in which the seller can come within 10 percent of fair market value of an asset — maybe even better, Massey says.
“This should be an avenue of first resort,” advises Massey. “(Sellers) get a faster, better return, and can then put that money back to work.”
Meanwhile, buyers get a deal on an item that is still often below fair market value.
And while ELCO will “sell just about anything,” the firm got an “immediate toehold on the auto side,” Massey says.
“The company grew out of opportunity and necessity,” he adds.
Given the shaky state of the auto industry, it is a segment that may keep ELCO busy for quite some time.
Market movement
Alamo Auto Auctions was founded in an economic environment in which changes in the tax codes and the collapse of the real estate industry resulted in some major blows to the auto industry, Massey recalls.
This time around, it was the collapse of the financial sector that created the need for a firm like ELCO. But in both cases, the woes in the auto industry came down to a simple equation, Massey says: “There was movement in the market.”
Massey speaks as someone whose been on the other side of the table. In fact, in between funding Alamo Auto and launching ELCO, Massey owned and operated a Ford dealership and a Chevy dealership in Corpus Christi.
He still has the Ford dealership. He sold the Chevy franchise back to General Motors in 2008 — just before the recession flamed up, and in time to get ELCO up and running.
ELCO’s first customer was Massey himself, who auctioned off the non-auto assets of his General Motors (Chevy) dealership.
The vehicles themselves were included in General Motor’s purchase of Massey’s franchise.
After watching Massey’s success, another dealer in the process of closing one of his shops sought out the auctioneer as well.
“If ever there was a time you could say that (someone) did everything from start to finish, (ELCO) did it,” says Robert Cantwell, who hired Massey to liquidate the non-auto assets of his Chevy dealership in Sinton, Texas.
Like Massey, he sold his franchise back to General Motors.
“It floored me how well it all went,” Cantwell adds. “One could not ask for better results.”
And from there, business for Massey has kept coming — some of it from referrals and some as a result of simply “bloodying your knuckles knocking on doors,” as Massey puts it.
Despite the required legwork, it’s a business that definitely has an upside.
“It’s an exciting and fun business,” Massey says. “While there is a lot of work involved, the excitement is like nothing I’ve ever experienced in business. It’s commerce in the raw!”
From sixty to zero
On the auto side alone, there may be more raw commerce headed Massey’s way.
The National Automobile Dealers Association (NADA) has concluded through industry analysis that some 1,200 dealers could close in 2009 as a result of poor economic conditions. But NADA says plans by General Motors and Chrysler to phase out dealerships could double or triple the number of dealers that actually close.
Paul Taylor, chief economist for NADA, says there was a net loss of 760 dealers in 2008.
“Five months into 2009, we were down by more than 500 dealerships net,” Taylor explains.
“It is economically impossible to keep the ball rolling,” says former Chevy dealer Cantwell.
As more dealerships get shuttered, there is also the issue of what to do with the real estate left behind.
The reality is that some of these defunct dealerships will sit unused for a while, real estate insiders say.
Just how long will those properties remain unused has much to do with three factors: Location, location, location.
“If the dealership is well-located and desirable real estate, it will find a new use,” says Warren Richardson, an associate in the retail division of United Commercial Realty San Antonio. “It might not happen overnight, but over time these types of dealerships (the properties) will find new life.”
In some cases, finding that new life will take owners with creativity and vision, Richardson adds. Getting the city involved “to help attract new businesses or developers with incentives,” could also be key.
Sums up Richardson: “It is going to be in everyone’s interest to see these properties find new uses.”
© 2009 American City Business Journals, Inc.