By Eric Hill | Rose Law Group attorney working in the fields of automotive investment and renewable energy
Arizona Car Week 2020 is about to kick off, and car enthusiasts attending auctions will notice many – if not most – of the vehicles coming across the block are being sold with “no reserve.” So, why are no reserve auctions significant in the collector car market?
To begin with, let’s clarify what’s meant by “reserve.” Reserve prices, or “reserves,” are hidden price thresholds that are set by the vehicle’s seller. If bidding does not reach the reserve price, the vehicle does not sell. Thus, setting a reserve is a way for the sellers to hedge their bets and ensure their preferred minimum price is reached.
Many believe, however, setting a reserve creates a chilling effect on bidding. That is because buyers are more motivated when they are certain the car is going to be sold, and a reserve introduces the possibility it might not. In addition, buyers hoping to secure a low price will be motivated to bid early if they know a car is certain to sell, but that motivation is absent in an auction with a reserve until the reserve is met.
No reserve auctions remove those barriers and are considered purer because there is no hidden price target. The sale price coincides exactly with bidding, so buyers are motivated from the moment bidding commences. Not surprisingly, Barrett-Jackson specializes in no reserve auctions for these very reasons.
More broadly, the beauty of the no reserve auction is it allows the collector car market to “speak” most clearly. To be sure, reserves have their place – in many instances, a reserve is a necessary safety net for a seller. But no reserve auctions offer bidders the most transparency, and that’s important when so many variables can impact any one car’s value.
Every car coming across the block is unique. There’s no Kelley Blue Book to reference when a car is one of a kind, was owned by a celebrity, or is historically significant, thus the market itself must do the talking, and no reserve auctions facilitate that better than any other.
