EDITOR’S NOTE: This is a continuing investigation into the powersports auction business and alleged losses incurred by dealers that consign vehicles to certain firms that now find themselves the subject of complaints to state and federal authorities. What follows is a companion story to "Same players, different names? Another auction firm draws dealers' wrath" (click HERE for that story).
DONNIE “Mike” Smotherman, owner of Midwest Public Auctions (MPA), and Leon McGregor, who identified himself to Dealernews as a consultant for several Tennessee and Missouri auctions (including MPA) offering various Invoice Protection Plans, have fired back at allegations from dealers who said they were cheated out of getting full value for their consigned vehicles.
In separate interviews conducted in late November with Dealernews, Smotherman and McGregor said the complaints are from a small percentage of dealers who are responsible for their own problems. Each has a different account regarding their relationship to each other and the auction business.
“The ones that complain, they don’t want their manufacturer to know. They are not supposed to be using services like that,” McGregor said. He also blamed OEMs for pushing too many vehicles onto dealers who can’t sell them.
"You wouldn't believe some of the stuff that people send us. Stuff that's beat to hell. Stuff that looks like it's been pulled out of a river. Sometimes we can't even get an opening bid."
-- Donnie "Mike Smotherman
Smotherman said most of the disputes arise when dealers misrepresent the condition of vehicles they are sending to the auction. “They’re lying to us. We’re not lying to them,” he said. “You wouldn’t believe some of the stuff that people send us. Stuff that’s beat to hell. Stuff that looks like it’s been pulled out of a river. Sometimes we can’t even get an opening bid…..[The dealer] didn’t tell us that five out of the 10 bikes he sent us were in bad condition,” which would have yielded a lower estimate of what a vehicle might bring.. “It’s way more shady on their side than on mine,” he added.
We asked Smotherman about the complaints to the BBB. His response: Nobody forces dealers into contracts. “When we call on dealerships, or anyone, they can tell us no. They don’t have to say yes, they can say no. We’re not there in the office, holding their hand,” he said.
“The guys that are interested, we offer them two or three options for doing business with us,” Smotherman continued. “One of them is a reserve contract, that’s money in the bank for us. The problem with those contracts is they don’t want to do that. They don’t want to eat the freight and the cost of attending the auction and maybe not even sell the vehicle. With absolute, we’ll pay the freight. If you don’t make enough, we’ll kick you back a little bit. It may not make you whole. But, basically, they signed an absolute contract.”
Misunderstandings seem to center on the Invoice Protection Plan, which McGregor calls a “hybrid” auction contract as it does not set a reserve but promises dealers protection at varying levels, depending on how many units they send. “The hybrid auction is not quality-controlled. It is an absolute auction that has built-in features designed to avoid loss,” McGregor said. The version Extreme is using is called the Xtreme Advantage Plan.
What dealers fail to understand, McGregor said, is that payments under the guarantee to make up for shortfalls come from overages on what dealers expected for their other units. So if a dealer sends two $6,000 bikes, one sells for $5,000 and the other for $7,000, the dealer is even. If none of the units brings the full amount, the auctioneer gives the dealer a small rebate per vehicle based on the plan.
“It doesn’t go item by item,” McGregor said. “It’s managed like your own inventory. It’s based on the overage from the other inventory. If you don’t have enough overages from your units to come from that, that’s when we dip into our own pocket.… Dealers can sell. They can lose money. That is true on every auction floor in the country. We just happen to have a structure that nobody else has.” (continued)