Net profit in Turners' online move
Turners Auctions is starting to see its new strategy of cutting out the middleman paying off.
Change was forced on New Zealand's largest auction house after it lost a significant contract with insurer IAG to rival Manheim. The resulting reduced sales of damaged vehicles hit auction revenues, and at the April annual meeting the company said losing the contract cut full-year net profit by 15 per cent.
That's now been made up by improved sales of other goods through new channels.
Turners still holds around 50 auctions a week, selling everything from tractors to trucks, and is the largest single seller of motor vehicles. But it is now regularly selling over 1000 items a week on Trade Me.
The strategy is to grow market share by creating more channels to sell second-hand cars and other goods and to sell used cars direct to the public rather than to dealers. This, in turn, helps its finance business grow by selling more vehicles with add-on finance and insurance products.
Rather than just relying on selling via auction, Turners is using the online audience reach of Trade Me, which had 717,364 average daily visitors in October, while also trying to raise traffic on its own revamped web platform launched in April. Online tender and auction functionality on the website is currently in testing.
Chief executive Todd Hunter, who was confirmed in the role mid-year, said the previous business model was a bricks and mortar operation, primarily trade focused and assisted by an online presence. The new strategy was an online marketing operation, primarily focused on retail customers, supported by its bricks and mortar footprint.
It's still early days but last month Turners advised the market of improved second-half trading and said net profit this calendar year will better last year's by around 10 per cent. The company had previously said its 2013 net profit would be closer to the 2012 result of $4.2 million.
Trade Me head of marketplace supply Craig Jordan said it has had a close relationship with Turners in Christchurch for some time including helping it sell a Russian-built MIG fighter jet formerly owned by Christchurch property developer David Henderson. The auction was one of the most-viewed in the site's history and the plane eventually sold for $59,454 to New Zealand Seal Services director Manfred Bennett who stuck it on the roof of his company building.
"Turners Christchurch was the most active on Trade Me as a bit of a testbed and they've now started to roll it out more broadly. There has been a big upswing in recent times since Todd came on board, he gets the channel," Jordan said.
Hunter said there was an enormous opportunity for the company to grow its market share in the second-hand car sector, which is picking up again (see box).
Turners estimates less than 10 per cent of used cars are purchased through physical auction.
By selling directly to end users and cutting out the middleman, the company aims to get higher prices for vendors. Around half of vehicles it sold last year were to dealers who typically pay less than consumers and it wants to significantly decrease that number.
"We have customers on the vendor side - big fleet companies and lease rental car companies, who want us to get more for the things we're selling. By going direct to the end user rather than selling to someone who sells to the end user we're focusing on more margin on their behalf," Hunter said.
He said it wasn't about disenfranchising car dealers and compared the situation to Air New Zealand still using travel agents to sell airfares but also selling direct to the consumer.
Imported Motor Vehicle Dealers Association chef executive David Vinsen said the retail trade had had a love/hate relationship with Turners for a long time. While dealers don't like the push towards dealing directly with the public, they continue to deal with Turners for buying and selling vehicles, he said.
"It has been quite bitter in the past but then Trade Me came along and usurped the role of Turners as the industry whipping boy," Vinsen said. "We understand Turners is doing what it needs to do and we respect that, even if not all the members like it."
He said there has been a 30 per cent year-on-year rise in the imported car business and there are likely to be 105,000 used cars brought in this year, over 95 per cent from Japan. While he has some concerns over a slight build up in unsold stock, the market was buoyant on the back of the improved economic conditions.
Turners is poised to take advantage of the upswing and has introduced BuyNow and CashNow to boost direct sales. Under BuyNow customers can purchase cars any time at a negotiated price rather than waiting for an auction to take place. Its success rate for selling finance contracts doubles under BuyNow compared to auction because sales people spend longer face to face with the customer. Some 11 per cent of its retail sales last month were through BuyNow.
Its fleet division also purchases used cars for resale under its CashNow brand. It imports around 2,000 used vehicles from Japan and bought about 6,000 cars domestically in the past year. "There's a whole lot of people who don't want the hassle of selling their car. They just want to deal with someone they trust," Hunter said.
The more aggressive buying and marketing strategy for used cars resulted in operating profit for its fleet division improving 63 per cent to $981,000 in the first half of the financial year, while revenues rose 24 per cent to $21.2m. And while sales of Japanese imports were flat in the second half of the year, the margin per unit improved through BuyNow. Hunter estimated the average selling price through BuyNow was about 4.5 per cent higher per sale than through auction.
He said the listed company, which has Dorchester Pacific as a major shareholder, will reassess the new strategy in three years.
The numbers on used cars
Used vehicle import registrations were 47,675 in the first half of 2013 compared with 38,780 in the same period in 2012.
New light vehicle registrations — 52,160 in the first half of 2013 – continue to exceed used import registrations which hasn't happened since 1994.
There are around 1.3 million used vehicle transactions every year in New Zealand.
Trade Me has about 50,000 motor vehicles (not just cars) listed via auction each month, plus about 75,000 listed via classified advertising.
Trade Me sold around 7,000 motor vehicles via auction in the past month. It's harder to pinpoint how many are sold through classified ads but the company said it would be in the thousands per month. The average age of imported used cars is now 8 years following government-led changes to emission standards.
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