Financial Times

Bidding for cars with "pencils" at auction centres
Walk into any of the gleaming car sales centres in Colombo or outside the capital trading in used vehicles and you find rows and rows of cars, vans or trucks with a selection that suits your price and your needs.

However have you ever wondered how the re-conditioned car industry evolved in Sri Lanka or are you aware that a sizeable number of these vehicles are now shipped from Singapore apart from the original source - Japan?

This market started some 30 years ago when the Japanese government began encouraging the export of used cars at a time when the authorities began revolutionising the brand new car industry to be a leader in the world.

At that time Sri Lankans looking for second-hand vehicles scanned newspapers for used cars for sale by individual owners or were compelled to buy new vehicles.

Japan then introduced a licensing structure for owners of vehicles which virtually made it too expensive to run an aged vehicle and cheaper to buy a new one.

The purpose was to encourage motorists to get rid of their vehicles after a few years and go in for a new one, which was cheaper to maintain - than paying exorbitant licensing and other fees on older vehicles.

Manufacturers were encouraged to allow distributors to trade in old vehicles for new. Thus authorised distributors began collecting used cars in their yards. Now what was Japan going to do with all these used cars? Either use it as scrap or encourage exports.

The authorities went for the second option and thus began the huge commercialization of the used car market with Japanese used vehicles being exported to countries like New Zealand, Chile, Australia, Malaysia, some African states, Russia and Sri Lanka.

The exporters were Japanese nationals with manufacturers and distributors facilitating this process. The Japanese Automobile Association Inspection (JAAI) was formed as the quality control centre and to provide quality certificates on vehicles shipped out. It was meant to ensure that high quality standards were maintained so that the end user gets a quality second hand car -- not junk.

Over time exports grew and the distribution and supply chain expanded. Sri Lanka became a major buyer next to Chile and is now among the top five exporters of used Japanese vehicles. Professionalism in the buying process was fine-tuned.

The second phase of this industry came when vehicles began trading through the auction system. Under this, the sale of vehicles were not restricted to distributors and their sub agents but also to any possible person who was willing to pay a huge membership fee and be part of the auction centres that were run by groups.

At the same time some part of the industry migrated to Indians, Pakistanis, Sri Lankans and businessmen from other buying countries setting up offices in Japan and directly participating in these auctions.

Auction centres
There are dozens of auction centres across Japan - each having some 5,000 used vehicles for sale at any given time. The auctions are held simultaneously all over daily between 9am to 9 pm.

Bidding at auction centres takes place simultaneously with members seated, waiting before huge computer-like terminals poised with a pencil-like gadget to make bids. A vehicle is sold every 90 seconds within which all bids have been made and the vehicle sold to the higher bidder.

Each member is recognized by an individual auction number that keeps giving his price on the screen as a button on the pencil-like gadget is pressed whenever a bid is made.

The American auction style is partly used in this system and every bid adds 3,000 Yen to the price. For example if buyer A puts in a bid when the price has shot up to 3.5 million Yen, then another 3,000 is added. The next offer goes up by 3,000 and so on. The bidder who succeeds then pays the final price for the vehicle.

When a bid is made, the number of the bidder is displayed on the screen. Interestingly when the used car market began the Yen was equivalent to around 4-6 Sri Lanka cents.

Now the Yen is equivalent almost to a rupee - a one-for-one equivalent, showing how much our currency had depreciated. There are about 150-200 people per auction and when a vehicle is offered - it is driven onto a public platform for the bidding to start.

Some three to four years because of the expense and cost of running these auction centres, the auction-on-net system was introduced. This enabled members to sit in their offices and homes, log into the system and bid for the vehicles.

Catalogues of vehicles on offer were provided the previous day for potential buyers to make their selections and precise times of the auction was given. For example, if a Nissan Sunny was being sold the auction centre would say the bidding will start at 3.52 pm!

Graded Vehicles were also subject to a grading system from one to six depending on their condition. A grade six vehicle is considered almost brand new while a grade 4-5 vehicle is nearly near.

The required deposit is debited from the account of the buyer at the auction centre once a purchase is made. Within a prescribed period - often two to three days - full payment must be made or the membership is immediately cancelled.

There is no second chance here.
Sri Lankan dealers were also allowed to buy vehicles on the net as long as they were members of auction centres but due to foreign exchange constraints that didn't work out and purchases are made through agents.
The vehicles are delivered to Colombo four times a month with four sailings from Japan.
(Information for this article came from used car dealers)

Vehicles from Singapore
In the past 18 months, dealers are also trading in vehicles shipped from Singapore. Many years back, Singapore - struggling for space and an increasing vehicle population - brought in a system where those owning a vehicle had to buy a costly permit. These permits were available on an auction system.

It became too expensive to maintain a car under this system while public transport improved. About 18 months ago, the prices of these permits fell sharply and the car market changed. Buying new permits meant scrapping old vehicles or exporting them which is how

Singapore began shipping second hand vehicles. Vehicles from Singapore are shipped to Indonesia, Thailand and Sri Lanka among other countries. The cars, vans or trucks that came from Singapore were mostly Japanese, Korean or Malaysian-made vehicles.

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