Going Once, Going Twice, Sold

AFV Auctions, Other Actions
“Successes and Challenges in the Resale of Alternative Fuel Vehicles” was produced by consulting firm eMobility International (formerly Dorfman & O’Neal) for the DOE Federal Fleets Program. The 34-page report is available at www.afdc.doe.gov/pdfs/usedafv.pdf. Auctions are not the only way to stimulate used AFV sales, the report says. Recommendations include creating a system to track potential buyers and sellers and establishing a Web-based sales forum. Other ideas pertain to expanding manufacturer rebates and incentives, and restricting eligibility for use of high-occupancy vehicle (HOV) lanes to dedicated AFVs. Above all, it recommends cultivating a closer working relationship between the DOE’s Clean Cities program and the GSA.

AFV auctions bring buyers and sellers together

More than 3,000 AFVs are expected to change hands this year at GSA vehicle auctions such as this one conducted in Denver on June 18, 2002.

What is GSA? Formed by federal legislation in 1949, the U.S. General Services Administration was assigned to improve administrative services of the federal government. In the early years that included storing government records, disposing of war surplus, preparing the nation for emergencies, and other functions no longer part of the GSA mission. Today the GSA provides policy leadership and managed space, products, services, and solutions, at the best value, to enable federal employees to do their jobs. GSA manages federal assets valued at nearly $500 billion, including buildings, telecommunication and computer systems, and a fleet of approximately 185,000 vehicles. GSA employs more than 14,000 people. GSA is a catalyst for nearly $66 billion in federal spending—more than one-fourth of the government’s total procurement dollars. Only one percent of the agency’s total budget comes through direct congressional appropriations. The majority of the GSA’s operating costs must be recovered through the products and services it provides.

Auction participants rely on car price guides like this one from the National Automobile Dealers Association.

Buying by the Block States are the only entities with which GSA routinely engages in “fixed-price” sales. Blocks of vehicles, ranging from a few cars to a few hundred, are frequently sold to individual states. Often the buyer is the state department charged with managing surplus property such as cars and computers in a role like that of GSA at the federal level. Representatives of those state entities can, and often do, sell the vehicles to cities, counties, and other agencies within their own states. Fleets regulated by EPAct usually opt for new vehicles, but they can meet their AFV acquisition requirements just as well with used vehicles. State governments are the third-largest group of GSA used-vehicle buyers, after auto dealers and private individuals.

A fast-paced process at Denver Auto Auction yielded 117 vehicle sales in barely two hours.

Success in maintaining an alternative-fuel-vehicle (AFV) fleet depends not only on the ability to purchase new vehicles economically, but also to sell used vehicles at fair prices. Resale value is a major issue affecting all fleet vehicles whether alternative-fueled or not.

Resale value is a top concern even for fleet operators who choose to lease—not buy—their AFVs. That’s because a leased vehicle’s residual value (the price of the used vehicle upon lease expiration) directly affects the size of monthly payments. Cars that retain more of their original value when resold tend to require lower monthly lease payments than those with lower value retention.

Many fleet operators, both in business and government, replace their vehicles on regular schedules. The rapid turnover rate ensures a steady supply of used cars in general, including certain types of AFVs. So government agencies that must meet legal AFV acquisition mandates can often do so in the used car market, and save money.

Prevailing prices of used AFVs, especially dedicated-fuel models running on compressed natural gas (CNG) or propane, are important but not easily determined. According to a recent U.S. Department of Energy (DOE)-sponsored report on the AFV resale market, flexible-fuel vehicles (FFVs) that can run on gasoline or E85 ethanol fuel are rightfully priced in line with comparable gasoline-only cars. But the report continues:

On the other hand, the current inventory of natural gas and propane vehicles available to the resale market comprises largely outdated after-market conversions that often have outlived their useful lives and have little resale value. It would therefore be inappropriate to compare and contrast the resale experiences of these conversions with the FFVs, or to draw any conclusions about their relative residual values.

Conclusions in the report, titled “Successes and Challenges in the Re-sale of Alternative Fuel Vehicles,” are based on auction sales data, industry interviews, and focus group discussions. (See “AFV Auctions, Other Actions” on page 14.)

According to the report, when AFVs are offered for sale they are sometimes viewed with suspicion by private individuals. To people unfamiliar with the AFV industry, alternative fuels may connote poor performance or reliability. Reduced trunk space is a concern about some CNG vehicles. The appeal of AFVs can be further constrained by lack of local fuel or service.

Despite such obstacles, there is one arena where AFVs are bought and sold actively, by fleet operators, auto deal-ers, government officials, and even individuals. Vehicle auctions are conducted regularly by the U.S. General Services Administration (GSA). Last year, at more than 50 auction sites nationwide, GSA sold approximately 35,000 used vehicles including 1,400 AFVs. This year it expects to sell approximately 3,160 AFVs, taking in more than $12 million in revenue.

GSA purchases 35,000 to 40,000 vehicles per year. “We buy directly from auto manufacturers, and we do negotiate favorable purchase prices,” says GSA National Remarketing Coordinator Lander Allin. Vehicles sold at GSA auctions are competitive with those sold at private auctions, but not lower-priced, he says. More information on GSA auctions of AFVs is available at www.autoauctions.gsa.gov/afv.

California Cars
California’s Northwest Riverside County Clean Cities Coalition receives substantial support from the Western Riverside County Council of Governments, which influences air quality and transportation issues in the region.

When a GSA vehicle auction was announced in Riverside earlier this year, the Clean Cities Coalition real-ized many AFVs would change hands. Coalition members sprang into action to publicize the event. They prepared a flyer generally describing AFVs to be sold and e-mailed it to approximately 70 stakeholders including government fleet operators and potential corporate customers. A more targeted mailing was done later, followed by reminder phone calls a day before the event.

The auction was held on a Saturday, but turnout was impressive, says Mike McCoy, staff analyst with the Council of Governments, who was among the attendees. More than 130 vehicles were sold, of which approximately 25 percent were AFVs, he estimates. Most of those were CNG-fueled sedans and vans, plus a handful of E85-fueled cars.

Government agencies were the predominant players, both as buyers and sellers, says McCoy. “A lot of AFV users in California are reaching their second or third generation of vehicles, so there is a substantial supply,” he explains. Many fleet operators were interested in acquiring used vehicles to help meet city, state, and air district mandates, as well as federal mandates created by the Energy Policy Act of 1992 (EPAct).

“What’s most encouraging is that the AFVs held their own in terms of appeal and value,” says McCoy. Most of the auction’s CNG sedans sold at 85 percent to 90 percent of fair wholesale value for a comparable gasoline vehicle. Wholesale prices are not published specifically for AFVs because of their low overall volume. Conventionally fueled used-car prices can be found in many published guides such as the Black Book, from Hearst Business Media, and in a similar guidebook from the National Automobile Dealers Association.

In addition to energy and environ-mental attributes, another reason cited by Riverside buyers for their interest in AFVs is access to high-occupancy vehicle (HOV) highway lanes. AFV drivers in California have long used HOV lanes. Several states including Utah have followed suit.

The auctioneers announced and welcomed the presence of Clean Cities stakeholders at the start of the event. A natural gas supplier was on hand to answer questions about CNG. Many of the barriers to public AFV sales, such as false perceptions about performance or reliability, were effectively eliminated.

The Riverside auction was conducted professionally, without creating the anxiety, as some auto auctions do, that casual buyers might be at a disadvantage, says McCoy. “I would definitely recommend this as a way for other coalitions to promote the AFV market,” he advises.

Denver Deals
GSA auctions are held regularly at Denver Auto Auction, a 100-acre facility located just east of Denver in Aurora, CO. Owned and operated by Manheim Auctions, the facility runs auctions not only for GSA but also for many automakers and rental car companies. Manheim Auctions is part of Atlanta-based Cox Communications.

A GSA auction in Denver on June 18, 2002, attracted a crowd of approximately 200 people including private individuals, used-car dealer representatives, and government agency officials. Typically 60 percent of the crowd are individuals who buy 40 percent of the cars, according to GSA’s Colorado fleet manager, Mike Steffan. More than half of all sales at the Denver auction went to the six biggest buyers, apparently dealers. Unlike most other auto auctions, GSA auctions are open to the public, as required by law.

“We need participation from both the public and the dealers,” says Steffan. “Without competition from individual buyers, the dealers can really beat us up with low bids.”

Some 122 vehicles were offered for sale at the Denver auction, and all but five were sold. Sales included 19 bi-fuel CNG cars, mostly Ford Contours formerly driven by employees of GSA, DOE, the U.S. Army, and the U.S. Department of the Interior. Also sold were one dedicated-fuel CNG minivan and 10 flex-fuel E85 vehicles including Dodge Caravan minivans and Ford Taurus sedans. Three-quarters of all sales were gasoline vehicles including many Ford Broncos, Jeep Cherokees, and Plymouth Breeze sedans.

The vehicles were available for viewing on two separate days prior to the auction day and for three hours on the day of the event. Potential buyers could kick the tires, open the hoods, and start the engines, but were not allowed to drive the cars. Available before the auction, both in print and on the Web, was a listing of all vehicles including the make, the model and model year, and the VIN number. Available after the auction on request was a listing of vehicles sold and their sale prices.

The event’s pace was very fast. As each vehicle pulled up in the center lane, sandwiched by bleachers, an auctioneer began soliciting bids at a pre-determined price. Usually the bidding escalated quickly, initially involving five or six bidders, then two or three, and finally one. Most vehicles were sold in less than a minute. Sale prices ranged from $1,000 for a 1992 Dodge pickup to $17,000 for a late-model Ford Excursion.

The Denver auction house uses a laptop computer to track the day’s sales revenue as a percentage of fair market value figures listed in the Black Book. At one point Steffan lamented that the day’s prices were tracking at only 92 percent of fair market value. One reason was that certain large buyers weren’t present, opting to attend a Salt Lake City auction on the same day, he says. By day’s end, however, the ratio of revenue to fair value improved to a more typical 98 percent.

Editor’s Note: Tom LaRocque is the editor of Alternative Fuel News, published by the Clean Cities program of the U.S. Department of Energy. This article appeared originally in the Vol. 6, No. 1 edition of that magazine in July 2002. Reprinted and modified with permission. More information about Clean Cities is available at www.ccities.doe.gov.