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Car auctions boom in weak economy

Car auctions are lucrative business for auction houses at the moment.

Darryl Jacobson, MD of Burchmore's, says business at the company is buoyant. Its three national branches — based in Johannesburg, Cape Town and Durban — are selling about 3000 cars a month.

Business is just as good at Aucor, another auction company. “Business is booming generally,” Aucor MD Shannon Winterstein says.

Sales at Aucor's car auction unit doubled in the year to date.

Aucor, which also specialises in mining, industrial equipment and property, sells more than 1000 cars a month. Winterstein says the company used to stage two auctions a month whereas it now holds five.

Jacobson says Burchmore's has also seen more potential buyers attending auctions.

The boom in car auctions is a result of the turbulent local economy, high levels of indebtedness, high interest rates, and rising food and fuel prices.

Chris de Kock, sales and marketing director at WesBank, says: “People borrowed money when interest rates were low, and now that those rates are going up, they are battling to pay off the debt.

“Our numbers have reduced slightly, but on average I would imagine that the number (of repossessed cars) has remained constant at 6000 a month.”

Ken Neilson, auctioneer and manager at Eagle Auction, says: “Our business gets better when times get harder.”

He says financially troubled individuals were trying to sell their cars through auctions because they could not meet their financial commitments.

Jacobson says he has never seen such demand for auctions from individuals.

Many customers are downgrading their vehicles — bringing their cars to Burchmore's so that they can get a better cash price for them.

Auction houses offering niche services — such as mining and industrial equipment and property — have not fared as well.

Winterstein says Aucor had seen a 20% increase in industrial equipment coming through. In its mining unit, however, business is “normal”.

Selling is becoming more difficult

He says that it is becoming more difficult to sell all types of property.

Alliance Group CEO Rael Levitt says the commercial property business is experiencing “strong” growth.

With economic conditions likely to remain gloomy, car auctions seem likely to stay robust for the next few months at least.

Winterstein says: “It will take time for the market to absorb what we've got.”

First National Bank chief economist Cees Bruggemans says he expects economic conditions to remain difficult, with high debt burdens, low disposable income, curtailed access to credit, and less generous salary increases.

Burchmore's says it is poised for growth. It has increased its sales force by 50% in eight months, according to Jacobson.

To boost its capacity in Durban and Cape Town, Burchmore's plans to add 40 000m² in total, the company has a total of 70 000m² floor space.

Eagle Auction's Neilson is more cautious.

“We have to work within the bounds of what we have,” he says. He says the company may recruit staff in future.

Jacobson seemed less worried about boom and bust cycles. He said his company had a different business model in that it also sells cars on the floor just like a car dealership.

The company sells cars at wholesale prices rather than retail prices, Jacobson says.

Source: Business Day

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