If you’ve spent any amount of time in the specialty and collector car space, you’ve no doubt heard the term consignment used in reference to selling cars. But what exactly is consignment, how does it work, and when/why should I consider consignment versus self representation or outright sale? We’ll do our best to explain all of those questions and more!

Before we begin, it’s worth explaining our relationship with consignment. Some dealers in the collector and specialty car space maintain an inventory exclusively made up of consignment cars. Others do not offer consignment at all and only obtain inventory via outright sale. At HCC, we do both. In fact, for most of the cars brought into inventory we have provided both options to the seller. I mention this primarily to explain that this blog post is not intended to either move you either toward or away from consignment, but rather shed some light on the process and allow sellers to make educated decisions based on their scenarios. 

What is consignment?

With regard to car sales, consignment generally refers to an arrangement where the seller (consignor) retains title and ownership of a car while a third party (consignee; traditionally a dealer or broker) represents and markets the car to prospective buyers. Upon the sale of the car, the funds are transferred from buyer to consignor and the consignee is paid a commission by the consignor. While exact conditions and responsibilities can vary, generally the consignee takes physical possession of the car for the duration of the consignment agreement so that they can prep it, complete all necessary media, and show it to prospective buyers. 

How does consignment work?

The most important (and often overlooked) first step in a consignment agreement is a detailed and candid discussion between consignor and consignee about market conditions, market comps, sales venues, and estimated values. If parties are in agreement on rough valuations, the next step is an official consignment agreement. Agreements themselves vary, but generally the most important components are the fee structure, minimum sale price, handling of repairs and refurbishment, and the length of the agreement. Consignment fees are generally paid upon sale of the car and usually are a percentage of the final sale price. Some consignees don’t include things like detailing, photo/video shoots in their consignment fees, so in those cases those items may be charged up front. It’s traditional that any needed repairs or refurbishment (beyond detailing) will be paid for by the consignee, though nothing is going to be done without their approval. The minimum sale price is the lowest acceptable sale price for the car and is set by the consignee. Since the fee structure is already laid out, they can determine the minimum sale price based upon how much they would like to net after the consignment fee is paid. Lastly, all consignment agreements will have a term, or a time frame for the agreement. If the consignment agreement expires without the car selling, a new agreement may be signed, but it’s fair to expect that minimum sale prices would need to be adjusted or further refurbishment done in order to make a sale more likely. Through the duration of the consignment agreement, the consignee is actively marketing the car for sale, answering all sales inquiries, showing the car to prospective buyers, and handling purchase negotiations. Lastly, when a deal is agreed upon, the consignee completes the necessary paperwork and manages the movement of money, car, and title. 

Why (or when) should I consider consignment?

When selling a specialty or collector-grade car, be it an air-cooled Porsche or a late model Ferrari, you are generally balancing three considerations: realized value, convenience, and time. Generally speaking, when choosing consignment you are going to maximize the realized value of the car being sold and the process will be fairly convenient, but you may need to wait a month or two for the car to actually sell. In contrast, with an outright sale to a dealer at a wholesale valuation you are prioritizing time and absolute convenience over realized value. When we are looking at a car, we will generally provide both an outright purchase offer as well as terms for a consignment arrangement and let the owner choose which works best for them. That said, there are certain types of cars with which a consignment arrangement is going to be a better choice. Ultimately, the more rare and more unique a car is, the harder it is to ascertain exact wholesale and retail valuations, which can mean that outright purchase offers from dealers will be on the low side in order to account for the risk and uncertainty that comes with buying a car that doesn’t have a hard-and-fast market value. As an example, a vintage air-cooled Porsche with a rare Paint to Sample (PTS) color is absolutely worth more than an equivalent car that isn’t Paint to Sample. How much more, though, is incredibly dependent on the desirability of that particular color, whether similar colors were available or have sold on the open market, and ultimately how much one (or hopefully two!) individual has to have that particular color as opposed to another. When there are very few market comps, or none at all, it can make buying these especially unique cars exceedingly risky for dealers, especially when you’re faced with estimating the additive value of features, colors, or options that haven’t been seen by the open market before. Public sale and auction data makes it fairly easy to determine how much more a 15k mile car is worth than a 30k mile car, but rare options, colors, trim levels, and special editions that data often doesn’t exist. 

In short, you may want to choose consignment if: A) Getting the absolute maximum amount of money out of your car is the foremost goal and you are ok if that means waiting a bit to realize that value. B) Your car is so unique that there are few (if any) market comps and bringing it to market (potentially at auction) is going to be the best way to gauge and achieve a fair market value.