is the bubble due to burst?

John,
Yes, that would be a great pact. If you're there with an enthusiast that isn't incredibly knowledgeable (my wife) you spend all your time talking about what matters. That and the interesting people watching.

George

 

I thought everyone would enjoy that report. ; )

George

 

How is that a ploy? That's good business by the auction house for the benefit of the consignor. And it shows good faith that they're willing to take money out of their own pockets for the benefit of the customer. I wish more businesses were like that.

And how is it an illusion? The selling price is the selling price and that's what is disclosed. How is that any different than if the reserve was met in its entirety?

The overwhelming downside of this market is that people who have absolutely no clue at all feel the need to comment on things they know nothing about. If there were ever a reason to wish for things to go back to "how they were," it's for that.

 

I think it's unfair to say some people who comment on the behavior "have absolutely no clue at all."

The reason it is an illusion is if the auction house takes actions (like what was described) to try and show more robust activity to encourage more action in the market by others...

It is like two traders trading shares back and forth to spike volume and "interest" in a stock... or buying up shares above the ask to try and encourage an increase.

The overwhelming downside of this market is the frankly irrational emotion people put into the prices and values of cars. Fear of prices going up, driving prices up further. Fear of having to pay more "in the future" for these cars, driving people to buy... and all similar talk reeks of speculation. if prices didn't zoom up, there wouldn't be as much activity or discussion because people wouldn't be buying these cars because of price but rather because they love the cars.

Criticizing the messengers or those who highlight the very real, and frankly obvious, behavior of late, is favoring a "the emperor has no clothes" approach. Don't get upset at the messengers or belittle their views, get upset at the human psychology behind these absurd price swings.

 

Dave, please logically explain to me how an auction house selling a car and fully disclosing the selling price is a "ploy" and and "illusion."

You should know by now that I am fully aware how little clothes the emperor really does have (on his body and in his wardrobe) and sooner that others understand this, the better off we all are. There have been lots of questions raised that are excellent but there has been a ridiculously amount of grossly uninformed opinions put forth as fact.

 

But at the end, the market knows what the buyer was willing to pay for a car, i.e. sale price + buyer's fee = total sale price. The fact that an auction house is willing to trim their concession such that a seller walks away with the same cash that they would've had if their car had been bid to the reserve is irrelevant to market pricing.

The only "deception" involved, which I believe is an unfair term that I'm using, is that by conceding some fees so that a seller lifts their reserve, the auction house is juicing their % of cars sold stats, which is a key stat to have when trying to entice buyers to consign their cars at your auction vs a competitor. But that's their trade off to make. They're effectively trying to optimize/balance volume (i.e. % of consigned cars sold) vs price (the decision to concede, or not, some of the seller fees). Seems like smart business to me, not deceptive.

Your trader example would be more akin to having an auction house use shill bidders when a car first crosses the block to generate "action". Others with more experience can comment the degree to which this happens at the better auction houses either by the auction houses or by the sellers' themselves (through friends/contacts).

To me, auction houses are merely aiding and abetting buyers' willingness to pay ever increasing prices for some seemingly mundane cars (e.g. I just can't get on the 911 bandwagon), thereby fueling bubble perception. Their role is not dissimilar than when I cajole a friend into opening his wallet for a Porsche cabrio purchase, or my friends encouraging me to buy another Ferrari. Nobody held a gun to my head and forced me to make the purchase, but they sure helped me get excited about it.

 

In response to your question to Dave, I originally chose to use the word "ploy" since the action of making up the difference between high bid and reserve is self-serving to the auctioneer rather than an act of charity towards the consigner. What this action does is to avoid a No Sale which would lower the auction house performance metrics relating to conversion rate and total sales when competing with other auction houses for sellers at future auctions.

As for my original use of the word "illusion," I believe Dave has already stated it best in his second paragraph: "The reason it is an illusion is if the auction house takes actions (like what was described) to try and show more robust activity to encourage more action in the market by others…"

Aside from undermining auction house metrics, too many No Sales tend to dampen auction momentum, bidder exuberance, and may jeopardize bids for similar cars yet to cross the block. In the "Chasing Classic Cars" segment I cited earlier, it was unclear whether the auctioneer communicated the auction house subsidy for the car in play to the audience. But Mr. Carini did comment this action to his client when it occurred while the car was still on the block and bidding had seemed to stall.

 

My point was the notion of increasing the volume of transactions by facilitating the trade (the sale to the buyer). The sacrifice is short-term but helps sustain an illusion of interest.

Note that I didn't raise this behavior was occurring (I didn't originate the comment, and frankly I have no idea what is going on... so I am one of the uninformed there)... I was more focused on supporting the discussion around any and all of these practices rather than silencing the discussions. The uninformed opinions come from all sides but, unfortunately, opinions are part of a healthy discourse and it's up to people (like you) to point out the counter arguments. I've learned a lot by following the discussions and I'm guessing you have too, as we all come to this from different perspectives.

I do think that activity that greases the wheels of transactions (no pun intended) can be deceptive. It happens all the time... and systems are constantly gamed to dupe the masses. You're correct that the disclosure makes it less deceptive (and likely avoids it from becoming fraudulent / illegal) but I think it is still unhealthy for an efficient and effective market.

 

Most of what I've added in this conversation and others comes from first hand knowledge that I know to be true. This does two things: 1) adds factual information to a sometimes complex discussion and 2) provides a counter argument from the what seems to be the minority, i.e. those who have been there, done that which is hugely disappointing for a board of this caliber. Again, back when were all enjoying our largely anonymous hobby, we didn't have to endure crap like this (I'm a grumpy curmudgeon, I know).

Back to the point: if you read the auction rules disclosed clearly in the fine print of the catalogs and websites, you will see that the auction house is under no obligation to charge consignors the same commission across the board - whether by flat fee or percentage. What I can tell you first hand is that they never negotiate on the 10% buyers premium (notice the word "premium" - look of the legal definition of premium and commission as these words are not uses accidentally). Therefore, you should always assume a seller's commission of 0% and the buyer paid 10% on top of the hammer (unless the BP is stated to be another number as it's sometimes 8% or 12%). There are no games and the dealings are very transparent for those who pay attention. Anyone looking from afar and pretending to understand is just playing a fool's game. There are lots of nuances that need to be understood before anyone can pass judgement on the system, especially with words like "ploy" or "illusion."

Let's talk about actual prices. The consignor can drop or lower his/her reserve at any time, if they even have one. Is that somehow considered deception? After all, it boosts the number of sales and the sell through rate. Oh, I forgot: heaven forbid that anyone ever take a car to auction because they actually want to sell it. I am sure you're seeing where I am going with this.

Just my $.02 but since no one else is calling a spade a spade, I will carry the torch.

 

Let me say this then. There are many fools in this game because current prices, and acceleration in prices, reflect fools parting ways with their money. There are rich fools and poor fools, and sometimes they trade places. Bubbles capture both sets and don't discriminate. My expertise is in the markets and I have identified and witnessed many bubbles in the past. I did not need to know the intimate details of the specifics of any of the assets being traded, or even the specifics on how those assets were traded, to identify those bubbles.

You make good points and show great knowledge of the details. But the optics or "view from afar" matters when many people participating in a lot of these markets don't know carbureted from carbonated.

In fact, this typifies bubbles. Non-experts enter the market and start buying up whatever the asset is because they see prices going up. Think about the real estate market a few years ago... everyone and their uncle became experts at IDing properties, sprucing them up, and then flipping them. They didn't know why the prices were rising, and they didn't know the effects that various games played by realtors and mortgage lenders had on the market, legal or otherwise. If people did some digging they could see what was going on.

My problem with the approach outlined, if true, is that anything that juices transaction volume helps support the market or at least the perception by outsiders of how that market is doing. In fact, you may be 100% correct in your assessment that this has no ill effect. I don't know how often auction houses step in today vs. 12 months ago, to try and bridge the gap between buyers and sellers, and I don't know how much attention is paid to the No Sale / No Buy stats. I do know that if the general media picked up a downtick in the volume of auction sales that successfully went through, the major upturn in auction participants would start to drop off a cliff... and quickly...

You are almost certainly correct that the experts and those that are well versed in the details, could see past the statistics and would not be swayed. But to an outsider, and many of those outsiders have become the marginal buyers at these prices, the momentum indication of seeing volume of completed transactions drop, would be meaningful.

 

Happy new year
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The problem, and it's explified throughout this thread, is that the marginal buyers feel like they're experts, talk like they're experts, and play like they're experts. They get burned and burned hard. Part of what I try to do is explain that there is a lot more than meets the eye and people need to understand the world they pretend to know from afar.

And the comments from the peanut gallery don't help anyone.

 

^^^^^^^^ RIGHT YOU ARE.

 

There may or may not be a bubble but I'm firmly convinced there is nothing devious or deceptive in auction houses choosing to reduce or forgo their commission to make a sale happen (they do have enough other deceptive practices!). They are a broker and just like your local broker (whether a car broker or a real estate agent) can choose to work for less to make a transaction happen. The full sale price is disclosed but how it's split up is between seller and auction house/broker is their business. Look, do we know what was the seller's commission on that 250 GTO that sold last year? Do we know what commission the seller of the Pinnacle Collection will pay (not full, that's for sure)? Nope, NO to both! Yes, we'd be curious to know but it's between the auction house and the sellers. Look, if they are doing this in booming/bubble environment, they'll be doing it a lot more when the market slumps and they are fighting to survive.

 

They don't make up the difference between the reserve and the high bid at all. That money is already in the deal. All they do is decide to take less for the house. After all, they're making enough money and they feel it's good business for both sides if they take it on themselves to give a little in order to transact a smooth sale.

Let's say you were selling a house and after agreeing to terms and conditions, the buyer's inspector found something about the house they didnt like. You don't want to spend the money to fix it, as it comes out of your pocket, and in your opinion it's a trivial thing. But the buyer insists. You're at a stalemate but then your realtor says that she will pay for those repairs in order to make sure that there are two happy parties at the end of the day. Would you call that a "ploy" or "illusion?" I would simply call that good business and I bet you would too.

I wonder how many people commenting on these things have ever bought or sold a car at RM, Gooding, or Bonhams. I'm going to guess very few based on these comments.

 

+1. You can look at this practice as a form of discounting for the sake of the sale. Imagine taking your car in for service. She needs a repair. Original estimate is $5,000.00 for the repair. Car owner balks, feels the estimate is more than they want to put-into the car at this time. Repair facility offers a 10% discount, which typically goes against an advertising budget set for the facility. Owner saves $500.00. Facility makes the sale. Car gets needed repairs. Technician has work. Everyone walks away happy.

Auction houses are just facilitators between 2 willing parties. One party wants to buy a car. The other party wants to sell a car. The business of the auction house is to bring these two parties to agreeable terms - for a fee (that's the business part). If the auction house wants to discount or amend their due fee, that's their right. And because their purpose in theory and in business is to bring 2 parties to agreement, anything they can do via discounting on their end is only a gesture of good faith for those 2 parties - and just plain good business.

 

Dave, since you are, by your own words, someone whose "expertise is in the markets and I have identified and witnessed many bubbles in the past," I would have to conclude that you're a very wealthy individual. By no means would I say that I am even remotely good at identifying bubbles but I have made a fair amount of money in my life by capitalizing on trends. Therefore, if I were a "expert" on bubbles I would be worth many billions of dollars, like you must be.

As an expert on bubbles, you would know by now that absolutely no one who knows what they're doing is getting caught out by this or any other bubble. If you're an Internet expert on bubbles and have no real experience with classic cars or the auctions then you're likely going to get hurt, like anyone else doing financially risky things. If you are buying cars for the right reasons and really do your due diligence, then all of this is highly inconsequential. As I've said a million times: cars are not investments; if you're buying for investment you're playing a dangerous game. But a man of your means obviously knows that so why I am wasting my time by typing this?

 

exactly correct.....

the car is the block... the auction house has expended the effort. letting it roll off with a no sale (and no selling commission) is better than cutting a deal ?

 

Great comment!. Dream, drool and drive your cars, that is joy and shows the real car enthusiast. Auctions are great fun too and nice meeting point for other car people.

Ciao
Oscar

 

New people are coming into the tent, such as they had a concours in Dubai, and probably have had one in China already, awakening the elite in those countries to new investment possibilities. A few years ago there were 40 multi=billionaires in China, now there are 240. Don't you think when they consult Brits or Americans on what should be in their portfolios, the answer is something like: "Well , let's see if that condo in Aspen is available, or that one in Malibu, and let's see if we can get a Gulfstream V, and the latest Riva and, oh yes, you need a Ferrari or two to take on an event called the Colorado Grand, or to a place called Pebble Beach and then..." Don't worry, the new rich have plenty of people helping them spend their money.

I got a clue when I saw a Gooding Pebble Beach auction ad in the investment section of the NY Times, so basically classic cars are being pitched to those looking for objects to invest in that will almost be guaranteed to appreciate. Since there is a limited number of V12 Ferraris built before 1970 but an increasing amount of people who want them for their portfolios, they will continue to rise in value.

 

There are over 246GTs for sale in Hemmings. The prices seem soft. I believe there are more than 4 for sale next week in the auctions. Perhaps the market is getting a bit soft for the Dinos.

 

I meant there are over 12 246GTs for sale in Hemmings

 

Wow, just wow.

I typed more but I think this covers it...

 

This absurd report is what should be the focus of everyones attention... how this can be even distributed/published without embarrassing the publishers.

Is this REALLY how blind (some) collectors are today or is it just a huge miss?

 

Thank you for taking the bait and making my point: as much as you say that "bubbles capture everyone," you yourself were on a team that identified the last bubble in housing. Thereby proving my point that if you know what you're doing, a bubble won't catch you out. Lots of very smart people in this game who know exactly what they're doing.

Furthermore, wealth and intelligence don't go hand in hand. If you're not being greedy and you're smart and observant, you'll exit from a bubble economy properly. All bets are off if you're either stupid, greedy, or both.

Lastly. I hope that you see the irony in your saying that I'm defensive. I know that everyone else does.

I'll ignore all the other stuff because I know that you were overly emotional while writing that. But I do thank you for illustrating my points perfectly. And for the record, I usually like your posts on the subject as they're pretty much that "fresh out of B-school" textbook learning type stuff, which is not well represented here. So please keep posting.