Online Auction Company - Business Plan1
Content
COMPANY Business Plan
1.0 Executive Summary 1.1 Objectives 1.2 Mission 1.3 Keys to Success COMPANY Summary 2.1 COMPANY Ownership 2.2 COMPANY Location and Facilities Services 3.1 Service Description 3.2 Competitive Comparison 3.3 Technology 3.4 Future Services Market Analysis Summary 4.1 Market Segmentation 4.2 Target Market Segment Strategy 4.2.1 Market Needs 4.2.2 Market Trend 4.2.3 Market Growth Strategy and Implementation 5.1 Value Propositions 5.2 Competitive Edge 5.3 Marketing Strategy 5.3.1 Positioning Statement 5.3.2 Pricing Strategy 5.3.3 Promotion Strategy 5.3.4 Distribution Strategy 5.3.5 Marketing Programs 5.4 Sales Strategy 5.4.1 Sales Forecast 5.4.2 Sales Programs 5.5 Strategic Alliances Management Summary 6.1 Organizational Structure 6.2 Management Team 6.3 Management Team Gaps 6.4 Personnel Plan Financial Plans 7.1 Break Even Analysis 7.2 Projected Profit and Loss 7.3 Exit Plan Appendix a. Advertisement b. Press c. Trade Show List d. Sales Incentive Program e. Personnel Plan f. Customer Survey Results g. Press Kit
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1.0
Executive Summary COMPANY is an Internet business-to-business auction site that provides insurance companies and financial institutions with a more profitable and efficient method of marketing specialty salvage vehicles to an established base of licensed dealers, dismantlers, rebuilders, and exporters. By uniting in-depth knowledge of the auto salvage industry with the vitality and reach of the Internet, the site offers a comprehensive package of e-commerce solutions to both buyers and sellers. COMPANY is vastly more convenient than using traditional auction yards, because sellers and buyers save time and effort by participating from their offices, shops, and homes. As well, traditional auction yards are limited in their geographical reach and the prices they can bring. COMPANY eliminates these restrictions by connecting buyers and sellers nationwide. COMPANY offers a new, powerful, more profitable, vastly more convenient method of salvage auctioning. Through a real-time, interactive system, salvage vehicles are marketed directly to an established base of thousands of licensed dealers, dismantlers, rebuilders, and exporters nationwide. The buyers purchase directly from the insurance companies and financial institutions. COMPANY acts only as a facilitator, not a middleman. All bids are open rather than sealed, which stimulates competitive bidding, resulting in higher sales prices. And since vehicles will be marketed nationwide, the potential number of buyers is huge, further resulting in competitive bidding and greater returns. Since vehicles will be marketed without geographic barriers, the potential number of prospective buyers is essentially unlimited -- further resulting in competitive bidding and increased returns. The foremost advantage of the site is the state-of-the-art interactive software, encompassing services such as auctionwatch, which is useful for keeping track of winning and losing bids on a particular item; autobid, which automatically adjusts a buyer's bid to beat previous bids, up to a confidential predetermined maximum set by the buyer; and categorywatch, which e-mails a user when a vehicle matching the user's criteria is added to the site. Other attractive merits include the dynamic close feature. If bidding occurs within the last five minutes of an auction, dynamic close will keep the auction open until bidding has ceased for five minutes, thus maximizing the sale price. The site includes photos and descriptions of the vehicles being offered, and is open for bidding 24 hours a day, seven days a week. Currently, there is no membership charge. Buyers pay a low five-percent fee per purchase. Winning bidders are contacted by e-mail. Revenue is generated through percentage based charges to both the buyer and seller. Many opportunities to expand our revenue potential exist, including overall salvage management for insurance companies via a Web-based system, handling of catastrophic events with an onsite response service, contingency fees for exceeding vehicle return goals, membership fees, transportation services for buyers in the form of reverse bid pricing, and marketing GSA vehicles. 1.1 Objectives COMPANY's objectives are as follows: Three month: 1. Raise capital to support growth and expansion. 2. Launch regional test programs in Pennsylvania with new insurance companies. 3. Expand existing relationship with Progressive Insurance into additional regional and national offices. 4. Upgrade OpenSite auction software to include the AuctionNow package.
5. Increase vehicle inventory through existing and expanding new relationship with insurance companies. 6. Explore additional opportunities with banks, leasing and repossession companies. 7. Hire staff members to support growth. Three - six months: 1. Nationwide roll-out with 3 top insurance companies. 2. Continue the expansion of salvage vehicle inventory. 3. Hire staff members to facilitate customer acquisition, retention and expansion. By 1. 2. 3. 4. 1.2 year end: Gross Revenues of $4.9M. Sell 1000 vehicles. Experience a 220% increase in sales. Own .05% of the specialty salvage market of 540,000 vehicles.
Mission COMPANY strives to help all segments of the specialty salvage industry realize their full productivity and profitability potential through technology, e-commerce and information management.
1.3
Keys to Success 1. Securing a supply of salvage vehicle through relationships with national insurers. 1. Maintaining the front runner position in the race to be "the" internet auction solution for the insurance companies, dealers and dismantlers. 2. Driving dealers and dismantlers to the site to purchase. 3. Truly providing a "service" to the insurance companies, dealers and dismantlers. 4. Providing the speed and returns for the insurance companies. 5. Securing top talent for management positions. 6. Expanding product offering to include parts, off-lease vehicle, repossessions. 7. Capturing market share from existing live auction market.
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COMPANY Summary 2.1 COMPANY Ownership REMOVED FOR CONFIDENTIALITY PURPOSES 2.2 COMPANY Location and Facilities REMOVED FOR CONFIDENTIALITY PURPOSES
3.0
Services 3.1 Service Description COMPANY is an Internet business-to-business auction site that provides insurance companies and financial institutions with a more profitable and efficient method of marketing specialty salvage vehicles to an established base of licensed dealers, dismantlers, rebuilders, and exporters. COMPANY expands vehicle availability and distribution, expedites the transaction process (from the vehicle declared "totaled" to delivery to the dealer or dismantle) and increases the returns for the insurance agencies. By selling on the Internet - time, location, reach and capacity are limitless. Sellers and buyers save time and effort by participating from their offices,
shops, cars and homes eliminating geographical barriers. Through a real-time, interactive system, salvage vehicles are marketed directly to a nationwide pool of potential customers. All bids are open rather than sealed, which stimulates competitive bidding, and higher sale prices. COMPANY acts only as a facilitator, not a middleman. The buyers purchase directly from the insurance companies and financial institutions. COMPANY has the first-mover advantage in online auctions of specialty autos. The firm is the only full-service, interactive, totally online auction venue for specialty salvage vehicles. Due to expanding its services to buyers and sellers nationwide, COMPANY is poised for phenomenal growth in the coming months.
3.2
Competitive Comparison Currently there are three types of competitors: • Live Auctions • Online Auctions • The Insurance Companies Live Auctions: There are several nationwide live auction businesses. The three largest competitors are Insurance Auto Auctions (IAA), CoPart and Sadisco. They represent 36% of the overall salvage auction market. The remaining 64% of the market consists of small regional and local salvage pools. Online Auctions: There is a hand-full of online auction sites: DirectSalvage.com, SalvageSolutions.com, IAAI.com, Coparts.com and Sadisco.com. All of the competitors have developed online presence that supports their offline live auction. However, the bids that are submitted online qualify the highest bidder to be represented at the live auction. None of the above mentioned competitors are truly auctioning salvage vehicles online. They have created an infrastructure that supports and does not cannibalize their existing live auction business. Insurance Companies: There is the possibility that the insurance companies may enter into the auction business themselves. However, this will require them to take on the full burden of managing the process. They are looking for the highest return possible, in the shortest period of time with the greatest ease. If COMPANY can provide them with the speed, quality, return and service necessary we believe they will not assume the burden themselves. COMPANY is the only 100% interactive online auction site on the Internet. Online Auctioning provides a convenient and easy method of locating, bidding and purchasing a salvage vehicle. The Internet removes limitation of geography and opens the available inventory of salvage vehicle to a nationwide level while simultaneously expanding the market of interested buyers. With more vehicles being viewed by more buyers, there is an increased probability of higher and faster returns for the insurance companies.
3.3
Technology The foremost advantage of the site is the state-of-the-art OpenSite interactive software, encompassing services such as: Auctionwatch: Autobid: useful for keeping track of winning and losing bids on a particular item. automatically adjusts a buyer's bid to beat previous bids, up to a confidential predetermined maximum set by the buyer. Categorywatch: e-mails a user when a vehicle matching the user's criteria is added to the site.
Other attractive merits include the dynamic close feature. If bidding occurs within the last five minutes of an auction, dynamic close will keep the auction open until bidding has ceased for five minutes, thus maximizing the sale price. The site includes photos and descriptions of the vehicles being offered, and is open for bidding 24 hours a day, seven days a week. OpenSite: Opensite is the leader in online auction software. They bring together buyers and sellers, helping businesses dynamically manage inventory, create sales channels, attract customers, and test market new products to create efficient markets for goods and services. Founded in 1996, OpenSite was the first COMPANY to offer packaged online auction applications. The COMPANY is an award-winning, dynamic commerce pioneer with partners worldwide dedicated to selling and supporting OpenSite solutions. They have over 600 licensed and outsourced auction solutions to customers such as The Sharper Image, CNET, John Deere, Case Capital, and VerticalNet, OpenSite is supporting the dynamic commerce initiatives of leading corporations in a range of industries. 3.4 Future Services COMPANY is planning to expand its services beyond auctions and create a true central marketplace by offering a variety of value-added benefits to buyers and sellers. The firm will function as a vertical auction hub and easily move into adjacent vertical markets. Many opportunities to expand the revenue potential exist, including overall salvage management for insurance companies via a Web-based system, handling of catastrophic events with an onsite response service, transportation services for buyers in the form of reverse bid pricing. Still further, the firm could begin auctioning salvage boats, parts, heavy equipment, etc. COMPANY could also expand beyond the salvage auctioning in the area of off-lease and repossessed vehicles for leasing companies, banks, institutions and the government. Another opportunity for COMPANY is in the area of branded auction sites for the insurance companies. For example, if an insurance COMPANY was interested in auctioning vehicles on their web site, COMPANY would provide the technology and back shop. The concept would be "Powered by COMPANY." The transaction and processing of the auction would be managed by COMPANY, seamlessly. This would allow the insurance companies to have their own branded auction site without the cost and learning curve associated with doing it themselves. The SalvageDirect.com site would be the hub connecting the insurance COMPANY's inventories together for the dealers and dismantlers. Finding the vehicle they needed would be simple and easy. Log on to COMPANY and we will take you to the site that has the vehicle you are looking for. COMPANY strives to be the provider of the technology, systems and relationships to assist the insurance companies as they inevitably enter the world on online auctioning. SalvageDirect.com will be the hub bringing the largest inventory and selection. COMPANY will be providing the insurance companies with the tools necessary to expedite the posting, auctioning and delivering of salvage specialty vehicles. With laptop computers, digital cameras and wireless communications insurance adjusters will be able to post a vehicle for auction and determine a buyer within hours of posting. The firm will continue to pursue aggressive, innovative growth in the online specialty salvage vehicle industry, so that it can always provide cutting-edge services and the best value available.
4.0
Market Analysis Summary
4.1
Market Segmentation COMPANY is serving two distinct markets: • Insurance Companies: Providing the inventory. • Dealers, dismantlers, rebuilders and exporters: Purchasing the vehicles for the purposes of dismantling, repairing or selling.
4.2
Target Market Segment Strategy 4.2.1 Market Needs Currently "totaled" vehicles are turned over to a live auction salvage network. Dealers and dismantlers travel to attend live auctions to sometimes return empty handed. The insurance companies receive the "market value" for the vehicle as determined by the participants attending the live auction at that time. Inventory is limited to the location and capacity of the live auction on that day. Vehicles are sold to a limited pool of dealers who are willing or able to attend the auction. Thus, the buyer is not receiving the best selection or convenience and the seller is not receiving the best return. Insurance Companies are looking for higher returns, faster turns, easier processing. Under the traditional salvage process, from the day the car is deemed totaled and the sales of the salvage vehicle can be upwards of 90 days. The faster they turn the car the faster they can get their money back. Competition in the automotive insurance industry has resulted in a race to lower premiums. To remain competitive in the market, insurance companies must not only focus on cutting costs, but also on increasing returns. Dealers are looking for greater selection, ease of purchasing, higher quality cars. 4.2.2 Market Trend The Internet: COMPANY is one of the new breeds of intermediaries emerging in the business to business space. Paralleling some of the hottest Internet darlings such as E-Steel.com and Cyberstockyard.com, each successfully owns a particular vertical niche. COMPANY is playing the role of business to business facilitator, similar to the likes of Freemarkets.com, bringing together buyers and sellers without the responsibility of inventories and deliveries. These intermediaries serve as electronic hubs in their respective markets. They are creating value by aggregating buyers and sellers, creating marketplace liquidity and reducing transaction costs. COMPANY has an opportunity to capture and dominate the online specialty salvage auctioning market. The Market: Currently the online salvage auctioning market is fragmented. There is not one dominant player capitalizing on the opportunity and supplying the dealers with an online destination to assist with locating the needed vehicles. Someone will fill this void. The Competition: Offline salvage auction companies are moving to the internet. Their current infrastructure is limiting their ability to capitalize on the opportunity. The Dealers: Dealers are discontent with the current off-line auction process. With increasing travel costs and increased competition they are looking for an edge. The Insurance Companies:
The insurance companies are looking for a faster method of disposing of their salvage vehicles. Profit margins are shrinking and competition is getting tougher. Consumers are demanding lower insurance rates. The insurance companies need a faster, cheaper, easier and more profitable method of processing their salvage vehicles. They may enter this market themselves but they are slow to respond. 4.2.3 Market Growth The salvage auto auctioning industry is a $3 billion industry in the U.S. There is an estimated 205 million vehicles traveling on the roads in the US. Some 10 percent of all collision claims result in the vehicles being totaled, and about 80 percent of these go to auction.
The 540,000 specialty autos that are totaled in the U.S. every year include vehicles from premium automakers such as BMW, Porsche, Mercedes, Jaguar, and Lexus, as well as other late model cars, trucks, SUVs, motorcycles, and more. The US Auto industry reports that in 1999 they experienced all time record sales of 16.9 million cars and light trucks. • BMW recorded record sales with an 18% increase over last year. • Mercedes-Benz recorded record sales with an 11% increase. • Land Rover sales were up 37% over last year. With more new cars on the road and specialty auto manufacturers recording record sales there is bound to be an increase in specialty salvage vehicles. Plus the weather in the northeast has been on our side. Legislation will affect the availability of specialty salvage vehicles. The National Salvage Motor Vehicle Consumer Protection Act, S.655 is in front of the US Senate. If passed, it will lower the requirements that deem a car "totaled." This legislation will result in an increase in the total number of cars that will become salvage vehicles and available to be auctioned.
5.0
Strategy and Implementation 5.1 Value Propositions COMPANY will be able to supply the dealers and insurance industry with speed, quality, convenience, return on investment and selection. 5.2 Competitive Edge Other Internet auto salvage auctions combine sealed-bid online services with live bidding at auction yards, but COMPANY accepts interactive, online, open bidding only, so that prices are maximized and buyers and sellers know the status of the sale at all times. COMPANY is the only full-service online auctioneer that keeps the bidding process totally online, with no off-line auction. Because traditional auction yards are limited by geography, the prices they bring are not fully maximized. COMPANY, however, opens the marketplace to buyers and sellers throughout the United States and the globe.
5.3
Marketing Strategy
COMPANY's multifaceted sales and marketing strategies include trade publication advertising, trade shows and conferences, telemarketing, direct mail, in-person presentations, billboards near large auction yards, and Internet advertising including banner ads and targeted e-mail. The Insurers we have chosen as our current top customers are Progressive, Allstate, Farmers, GEICO, Nationwide, and State Farm. Through partnerships with these companies, COMPANY will be able to exponentially increase its inventory of specialty salvage vehicles and establish national inventory sites. 5.3.1 Positioning Statement COMPANY is the only 100% interactive online auction site on the Internet. It offers a new, powerful, more profitable, vastly more convenient method of specialty salvage auctioning. Dealer Positioning COMPANY will be positioned as the number one interactive specialty salvage vehicle site, convenient, open 24 hours a day, and 7 days a week with the best selection. Insurance Positioning COMPANY will be positioned as the easy, effortless, totally interactive site that provide the fastest turn with the highest return. 5.3.2 Pricing Strategy The insurance companies will not be charged a fee for participating in our program. The buyer is charged a 5% fee in addition to the agreed upon auction price. 5.3.3 Promotion Strategy COMPANY strives to help all segments of the specialty salvage industry realize their full productivity and profitability potential through technology, e commerce and information management. 5.3.4 Distribution Strategy COMPANY aspires to establish a nationwide pool of salvage vehicles through partnerships with the top national insurance companies. Vehicles can be viewed and purchased from localities throughout the US and transported to desired destination via affiliations with national auto carriers. 5.3.5 Marketing Programs COMPANY's goal is to lock up supply of totaled specialty vehicles from Insurance Companies (supply). Create awareness, preference and action by dealers and dismantlers (buyers). The COMPANY is projecting to secure 2000 registered dealers and dismantlers by June 2000. Advertising: COMPANY will create brand recognition through aggressive advertising in trade publications such as the Locator (dealers and dismantlers) and Claims � insurance companies). This is a very finite market. The insurance companies and dealer have only a hand full of "bibles" they depend upon for information relating to industry news and available inventories. This allows for a minimal advertising expenditure with an effective reach. Outdoor advertising in select markets around live auction locations.
See Appendix A for sample of advertisements. Promotions: COMPANY will depend upon personal selling as a method of promotion. Face to face interaction and telemarketing with the insurance companies and the dealers and dismantlers. High touch and high customer service to develop the creditability, loyalty, recognition and relationships.
Institute a four-step sales call program: 1. Direct mail postcard/flyers/press releases 2. Telemarketing to schedule the sales call 3. Sales Call 4. Follow-up call Incentive programs will be initiated to encourage dealers and dismantlers to register on the site. We will distribute t shirts, coffee mugs, mouse pads, etc. to those that register. The benefit of this program is two fold: 1) we give the dealers and dismantlers an extra reason to take the time to register, 2) COMPANY will be on top of their minds as they drink their coffee, surf the net, get dressed in the morning. Constant reminders and reinforcement that COMPANY is the place to locate specialty salvage vehicles on the Internet. Public Relations: PromoteCOMPANYasthedominateplayer,profitable,firstmover, leader,innovator andthedestinationforonlinespecialtysalvageauctioning. Recruit an Internet experienced PR firm to aggressively attack the trade press online and off-line relating to venture capital, insurance companies and the dismantlers, dealer trade. Aggressive PR push to create awareness and creditability with minimal cost. Focus on localized newspaper and industry publications. Promote the COMPANY concept over the next 6 months as COMPANY gains momentum in national publications such as USAToday, Wall Street Journal, and online through the AP wire. Target select Trade Associations such as American Salvage Pool Association Certified Automotive Parts Association, American Insurance Services Group, Claims and Alliance of American Insurers. See Appendix B for sample editorial. Direct Mail: Mail brochures, flyers, postcards, press kits to insurance companies, registered customers, prospective dealers and dismantlers, trade associations and trade publications. InsuranceCompanies: Send flyers and postcards to gain recognition, drive interest and traffic. Promote success stories through postcards: "Sold X car with $X return over X time period." Part of the four-step sales call. Dealers: Send postcards promoting specific specialty vehicle that are available. Frequent mailings to our current account list as well as prospects. Promote the successes as well as particular vehicles of interest. Encourage registration.
Direct Email: InsuranceCompanies: Promote the success we have experienced with existing insurance companies by providing higher returns and faster turns. Affirm their decisions to have utilized COMPANY or to promote why they are missing out on the opportunity. Dealers: Push available product to registered users based on their preferences as captured at the point of registration. Proactively inform them of what is available on the site.
Trade Shows and Live Auctions: Attend Regional and National shows such as: American Salvage Pool Association Four States Recyclers Expo Automotive Recyclers Association Convention Nace April 26 - 30 July 27 - 29 November 8 - 11 December 7 - 10
Infiltrate the local and national live auctions to promote COMPANY. Distribute stickers, mugs, t-shirts, brochures and press kits. Telemarketing: The sales force will not have a chance to visit every customer and prospect. COMPANY will utilize a team of telemarketers from Market Insights, a prestigious telemarketing firm, to launch an aggressive campaign starting on March 1. Insurance Companies: Pre-sales calls for the sale representatives. Inform companies of the benefits of using COMPANY as a method of disposing of their salvage vehicles. Higher returns, faster turns and ease of operation. Dealers: Encourage dealers to register on the site. Promote the vehicles we have available. Online Advertising and Promotion: Cross promote through links and banners on other related Internet site such as SalvageAuto.com. Secure our position in key work searches in Yahoo, Dogpile, Excite, Iwon etc.
5.4
Sales Strategy The sales strategy for COMPANY is based upon securing inventory from the participating Insurance companies and driving qualified buyers to the website. All forecasts are based upon market size and COMPANY's ability to penetrate the market. Annual projected fee revenues (gross) are illustrated in the Sales Forecast. Note: Over 30 insurance offices in Pennsylvania are currently active with COMPANY. Initial monthly revenues are based upon current and historic auction revenues. On an average basis, the revenue projections for specialty salvage are based upon a $5,000 selling price per vehicle. Additional revenues will be generated by Advertising sales and referral fees from strategic partnerships with transport companies. Advertising sales will be executed by an outsourced
advertising selling firm. Transportation revenues are based on a 5% referral fee. Revenues based upon advertising and transportation will show up in March of 2000. 5.4.1 Sales Forecast The following sales forecasts are based upon the premises previously presented. Management feels these forecasts are highly attainable.
350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 -
293,134,774
57,772,771 560,353 FY1999 4,990,875 FY 2000 FY 2001 FY 2002
700,000 600,000 500,000 400,000 300,000 288,000 200,000 82,500 100,000 FY2000 F Y2001 FY2002 576,000
900,000 762,150 800,000 700,000 600,000 500,000 400,000 300,000 200,000 112,657 100,000 6,488 FY2000 FY2001 FY2002
5.4.2.1
Sales Programs
COMPANY will implement an incentive program for its sales representatives. With the program, reps will encourage Insurance Companies to list their salvage inventory with COMPANY, and keep the inventory previously secured on the website. The reps will receive $20 (2000), $10 (2001) and $5 (2002) for every specialty car listed on the site.
5.5
Strategic Alliances COMPANY will continue to form and develop strategic alliances with established Salvage Industry, Marketing and Technology organizations to strengthen the organizational infrastructure and better serve the customers. Salvage Industry Within the salvage industry, COMPANY has identified the need to actively pursue strategic partnerships in the areas of Towing and Transport. Partners being pursued include:
Towing:
• •
AAA Regional Towing Networks
Transportation: Schultz International/Accelerated Express (www.transportautos.com). A leading global vehicle transport COMPANY. Clients include private individuals, fleets, movie studios, dealerships, banks, fortune 500 companies, exporters, city, state and federal gov'ts, military, leasing companies and equipment manufacturers. TNT (www.tnt-inc.com). Leading specialists in automotive transport. TNT has nationwide service, with over 80 service locations across the United States with most in major cities, and computerized vehicle tracking. CentralDispatch.com. CentralDispatch™ is a revolutionary online transport COMPANY with a database that redefines the way auto transporters do business with car carriers nationwide. Its database of Auto Transport loads helps carriers find loads entered by brokers, dealers, auto auctions, manufacturers and rental agencies across the U.S. and Canada. MoveCars.com. MoveCars.com is the Internet Directory of Auto Transport Companies, linking buyers to vehicle shipping companies throughout the U.S. and Canada.
Technology:
COMPANY is currently utilizing OpenSite Technologies, Inc. for its auction functionality. OpenSite is the leader in online auctions driving the dynamic commerce revolution. OpenSite's powerful suite of products, and hosting and professional services enables COMPANY to create its branded, Internet-based dynamic commerce site. OpenSite brings together buyers and sellers, helping businesses dynamically manage inventory, create sales channels, attract customers, and test market new products to create efficient markets for goods and services. COMPANY's Information Technology partner is a leading provider of innovative technology-based solutions. Micros & More will fully customize every product and service to meet COMPANY's Information Technology requirements, automating the critical functions to reduce costs and increase efficiencies. Utilizing the skills and experience of its world class technology partners, COMPANY is developing an technology infrastructure that will support the growth and volume that the COMPANY expects. 6.0 Management Summary 6.1 Organizational Structure
REMOVED FOR CONFIDENTIALITY PURPOSES
6.2
Management Team
REMOVED FOR CONFIDENTIALITY PURPOSES 6.3 Management Team Gaps COMPANY has secured key management personnel to reach the COMPANY's goals in the marketing, legal and Information Technology arenas. Gaps in the management team will be filled by May of 2000. The schedule for securing those individuals is as follows:
Position CEO VP Sales VP Operations VP Finance/CFO Webmaster Sales Manager Customer Service Manager Name TBA TBA TBA TBA TBA TBA TBA Start Date May, 2000 March, 2000 May, 2000 May, 2000 March, 2000 March, 2000 April, 2001
7.0
Financial Plans 7.1 Break-Even Analysis
Break-Even Analysis Number of Months Projected Sales Less Variable Expenses Cost of Vehicles Sales Incentives Ad Commissions Website Development and Maintenance Labor Internet Service Contribution Margin Contribution Margin Ratio Fixed Expenses Salaries and wages Employee benefits Payroll taxes Rent Utilities Insurance-Other Travel Meals & Entertainment Auto Expense Telephone Postage Office supplies Marketing/promotion Professional fees License and Fees Bank charges Hardware Software Depreciation Miscellaneous Total Fixed Expenses Break-Even Sales Monthly Break-Even Sales Profit During Period $1,701,910 $260,461 $297,939 $42,500 $19,251 $19,000 $127,000 $134,724 $30,019 $69,317 $85,564 $34,350 $2,655,069 $315,165 $3,400 $50,400 $96,000 $117,250 $57,528 $35,500 $6,152,348 $119,477,046 $3,318,807 $13,192,187 $356,024,508 $504,287 $189,300 $82,400 $2,082,332 $25,270 $19,344,535 5% 36 $375,666,012
Income Statement - FY2000
Period Starting: Sales Sales Vehicles Auction Fees Advertising Transportation Miscellaneous Income Total Sales Less Cost of Goods Sold Cost of Vehicles Sales Incentives Ad Commissions Website Development and Maintenance Labor Internet Service Total Cost of Goods Sold Gross Profit Operating Expenses Salaries and wages Employee benefits Payroll taxes Rent Utilities Insurance-Other Travel Meals & Entertainment Auto Expense Telephone Postage Office supplies Marketing/promotion Professional fees License and Fees Bank charges Hardware Software Depreciation Miscellaneous Total Operating Expenses Operating Income Interest Income Interest Expense Total Nonoperating Income (Expense) Income (Loss) Before Taxes 2,538 231 215 500 125 0 0 223 119 117 264 175 618 65 0 200 0 0 0 0 5,390 2,541 397 (139) 258 2,799 1,176 1,623 1,623 2,538 231 215 500 126 0 0 0 200 200 300 175 8,700 100 0 200 0 0 0 500 13,985 (9,780) 210 (74) 137 (9,643) (4,050) (5,593) (3,969) 27,333 3,500 5,500 550 100 100 1,500 250 100 1,500 1,000 1,000 25,000 7,500 100 200 12,000 100,000 3,111 500 190,844 (184,697) 307 (108) 200 (184,497) (77,489) (107,008) (110,978) 27,333 3,500 5,500 550 100 100 1,500 250 100 1,500 1,000 1,000 25,000 7,500 100 200 0 250 1,028 500 77,011 (70,384) 331 (116) 215 (70,168) (29,471) (40,698) (151,676) 35,667 9,500 10,708 550 100 100 2,000 1,000 275 1,500 1,000 1,000 25,000 7,500 100 200 6,000 250 1,028 500 103,978 (127,853) (1,194) 418 (776) (128,629) (54,024) (74,605) (226,280) 35,667 9,500 10,708 550 100 100 2,000 1,000 275 1,500 1,000 1,000 25,000 7,500 100 200 0 250 1,028 500 97,978 (117,076) (955) 334 (621) (117,697) (49,433) (68,264) (294,545) 35,667 9,500 10,708 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,028 500 100,478 (111,614) (557) 195 (362) (111,975) (47,030) (64,946) (359,490) 35,667 9,500 10,708 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,028 500 100,478 (107,034) (328) 115 (213) (107,247) (45,044) (62,203) (421,694) 35,667 9,500 10,708 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,028 500 100,478 (101,081) (30) 11 (20) (101,101) (42,462) (58,638) (480,332) 35,667 9,500 10,708 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,028 500 100,478 (93,342) 357 (125) 232 (93,110) (39,106) (54,004) (534,336) 37,750 9,500 11,177 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 6,000 250 1,194 500 109,197 (93,667) 776 (272) 505 (93,162) (39,128) (54,034) (588,370) 37,750 9,500 11,177 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,194 500 103,197 (74,588) 1,430 (501) 930 (73,658) (30,937) (42,722) (631,092) 349,244 83,461 98,033 6,500 1,251 1,000 31,000 8,724 2,719 15,317 13,564 10,350 259,318 75,165 1,000 2,400 24,000 102,250 12,694 5,500 1,103,490 (1,088,575) 746 (261) 485 (1,088,090) (456,998) (631,092) (631,092) 79,127 46,960 0 0 200 500 0 47,660 4,205 175,000 824 90 1,000 1,667 200 178,780 6,147 175,000 824 210 1,000 1,667 200 178,900 6,627 210,000 988 510 1,000 35,000 200 247,698 (23,875) 252,000 1,186 1,290 1,000 35,000 500 290,976 (19,098) 327,600 1,542 2,400 1,000 35,000 500 368,042 (11,136) 425,880 2,004 2,400 1,000 35,000 500 466,784 (6,556) 553,644 2,605 2,400 1,000 35,000 500 595,149 (603) 719,737 3,387 2,400 1,000 35,000 500 762,024 7,136 935,658 4,403 2,400 1,000 36,667 500 980,628 15,530 1,216,356 5,724 2,400 1,000 36,667 500 1,262,647 28,608 5,116,962 23,486 16,500 10,400 287,748 4,270 5,459,367 14,915 86,255 0 0 0 1,755 88,010 51,365 0 0 0 500 51,865 175,000 8,750 450 228 500 184,928 175,000 8,750 1,050 228 500 185,528 210,000 10,500 2,550 273 500 223,823 252,000 12,600 6,450 328 500 271,878 327,600 16,380 12,000 426 500 356,906 425,880 21,294 12,000 554 500 460,228 553,644 27,682 12,000 720 500 594,546 719,737 35,987 12,000 936 500 769,160 935,658 46,783 12,000 1,216 500 996,158 1,216,356 60,818 12,000 1,581 500 1,291,255 5,128,495 249,544 82,500 6,488 7,255 5,474,282 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Totals
0
0 200 582 170 80,079 7,931
7.2
Projected Profit & Loss
Income Taxes Net Income (Loss) Cumulative Net Income (Loss)
Income Statement
Sales Vehicles Auction Fees Advertising Transportation Miscellaneous Income Total Sales Cost of Goods Sold Cost of Vehicles Sales Incentives Ad Commissions Website Development and Maintenance Labor Internet Service Total Cost of Goods Sold Gross Profit Operating Expenses Salaries and wages Employee benefits Payroll taxes Rent Utilities Insurance-Other Travel Meals & Entertainment Auto Expense Telephone Postage Office supplies Marketing/promotion Professional fees License and Fees Bank charges Hardware Software Depreciation Miscellaneous Total Operating Expenses Operating Income Interest Income Interest Expense Total Nonoperating Income (Expense) Income (Loss) Before Taxes Income Taxes Net Income (Loss) Cumulative Net Income (Loss)
FY2000
FY2001
FY2002
5,128,495 249,544 82,500 6,488 7,255 5,474,282
57,772,771 2,888,639 288,000 112,657 61,062,067 293,134,774 14,656,739 576,000 762,150 309,129,663
5,116,962 23,486 16,500 10,400 287,748 4,270 5,459,367 14,915 349,244 83,461 98,033 6,500 1,251 1,000 31,000 8,724 2,719 15,317 13,564 10,350 259,318 75,165 1,000 2,400 24,000 102,250 12,694 5,500 1,103,490 (1,088,575) 746 (261) 485 (1,088,090) (456,998) (631,092) (631,092)
57,772,771 135,936 57,600 24,000 559,583 9,000 58,558,891 2,503,176 539,667 157,000 159,906 12,000 6,000 6,000 48,000 30,000 3,300 18,000 24,000 12,000 627,782 120,000 1,200 12,000 45,000 3,000 18,917 6,000 1,849,772 653,404 32,670 (11,435) 21,236 674,640 283,349 391,291 (239,801)
293,134,774 344,864 115,200 48,000 1,235,000 12,000 294,889,839 14,239,825 813,000 20,000 40,000 24,000 12,000 12,000 48,000 96,000 24,000 36,000 48,000 12,000 1,767,969 120,000 1,200 36,000 27,000 12,000 25,917 24,000 3,199,086 11,040,739 552,037 (193,213) 358,824 11,399,563 4,787,816 6,611,747 6,371,946
7.3
Exit Plan COMPANY will likely go through two rounds of funding. The first will be between $1 and $2 million. This stage will involve building the COMPANY's infrastructure with key personnel and technology, securing relationships with insurance companies and towing networks, and ramping up marketing efforts. At this point, a second stage of funding in the range of $5-$10 million will be sought. This funding will complete the nationwide rollout of COMPANY, expand the marketing and advertising campaigns for both the insurance companies and dealers/dismantlers, and expand into the Repossessed and Off-lease markets. Industry trends continually change and COMPANY's strength lies in the ability to provide full service needs to the insurance companies. COMPANY intends to become the one stop shop with the ability to provide the high level of personal customer service that has become its mantra. Current industry trends illustrate that the greatest threat facing traditional auctions is the threat of the insurance companies marketing salvaged vehicles directly to the buyers. Such insurance companies, desiring the unique characteristics and customer base of COMPANY, are all likely candidates to merger with or acquire COMPANY. A second and also likely exit plan would be the option to construct an initial public offering once the COMPANY has successfully launched and become established in the salvage market. The third option for COMPANY would be to institute a roll-up with related companies within the salvage industry, parts industry, and vertical auctioning or e business solutions. Depending on investment market trends at any time in the future, either one of these exit plans could be implemented at any phase in the development of the COMPANY.
1.0 Executive Summary 1.1 Objectives 1.2 Mission 1.3 Keys to Success COMPANY Summary 2.1 COMPANY Ownership 2.2 COMPANY Location and Facilities Services 3.1 Service Description 3.2 Competitive Comparison 3.3 Technology 3.4 Future Services Market Analysis Summary 4.1 Market Segmentation 4.2 Target Market Segment Strategy 4.2.1 Market Needs 4.2.2 Market Trend 4.2.3 Market Growth Strategy and Implementation 5.1 Value Propositions 5.2 Competitive Edge 5.3 Marketing Strategy 5.3.1 Positioning Statement 5.3.2 Pricing Strategy 5.3.3 Promotion Strategy 5.3.4 Distribution Strategy 5.3.5 Marketing Programs 5.4 Sales Strategy 5.4.1 Sales Forecast 5.4.2 Sales Programs 5.5 Strategic Alliances Management Summary 6.1 Organizational Structure 6.2 Management Team 6.3 Management Team Gaps 6.4 Personnel Plan Financial Plans 7.1 Break Even Analysis 7.2 Projected Profit and Loss 7.3 Exit Plan Appendix a. Advertisement b. Press c. Trade Show List d. Sales Incentive Program e. Personnel Plan f. Customer Survey Results g. Press Kit
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1.0
Executive Summary COMPANY is an Internet business-to-business auction site that provides insurance companies and financial institutions with a more profitable and efficient method of marketing specialty salvage vehicles to an established base of licensed dealers, dismantlers, rebuilders, and exporters. By uniting in-depth knowledge of the auto salvage industry with the vitality and reach of the Internet, the site offers a comprehensive package of e-commerce solutions to both buyers and sellers. COMPANY is vastly more convenient than using traditional auction yards, because sellers and buyers save time and effort by participating from their offices, shops, and homes. As well, traditional auction yards are limited in their geographical reach and the prices they can bring. COMPANY eliminates these restrictions by connecting buyers and sellers nationwide. COMPANY offers a new, powerful, more profitable, vastly more convenient method of salvage auctioning. Through a real-time, interactive system, salvage vehicles are marketed directly to an established base of thousands of licensed dealers, dismantlers, rebuilders, and exporters nationwide. The buyers purchase directly from the insurance companies and financial institutions. COMPANY acts only as a facilitator, not a middleman. All bids are open rather than sealed, which stimulates competitive bidding, resulting in higher sales prices. And since vehicles will be marketed nationwide, the potential number of buyers is huge, further resulting in competitive bidding and greater returns. Since vehicles will be marketed without geographic barriers, the potential number of prospective buyers is essentially unlimited -- further resulting in competitive bidding and increased returns. The foremost advantage of the site is the state-of-the-art interactive software, encompassing services such as auctionwatch, which is useful for keeping track of winning and losing bids on a particular item; autobid, which automatically adjusts a buyer's bid to beat previous bids, up to a confidential predetermined maximum set by the buyer; and categorywatch, which e-mails a user when a vehicle matching the user's criteria is added to the site. Other attractive merits include the dynamic close feature. If bidding occurs within the last five minutes of an auction, dynamic close will keep the auction open until bidding has ceased for five minutes, thus maximizing the sale price. The site includes photos and descriptions of the vehicles being offered, and is open for bidding 24 hours a day, seven days a week. Currently, there is no membership charge. Buyers pay a low five-percent fee per purchase. Winning bidders are contacted by e-mail. Revenue is generated through percentage based charges to both the buyer and seller. Many opportunities to expand our revenue potential exist, including overall salvage management for insurance companies via a Web-based system, handling of catastrophic events with an onsite response service, contingency fees for exceeding vehicle return goals, membership fees, transportation services for buyers in the form of reverse bid pricing, and marketing GSA vehicles. 1.1 Objectives COMPANY's objectives are as follows: Three month: 1. Raise capital to support growth and expansion. 2. Launch regional test programs in Pennsylvania with new insurance companies. 3. Expand existing relationship with Progressive Insurance into additional regional and national offices. 4. Upgrade OpenSite auction software to include the AuctionNow package.
5. Increase vehicle inventory through existing and expanding new relationship with insurance companies. 6. Explore additional opportunities with banks, leasing and repossession companies. 7. Hire staff members to support growth. Three - six months: 1. Nationwide roll-out with 3 top insurance companies. 2. Continue the expansion of salvage vehicle inventory. 3. Hire staff members to facilitate customer acquisition, retention and expansion. By 1. 2. 3. 4. 1.2 year end: Gross Revenues of $4.9M. Sell 1000 vehicles. Experience a 220% increase in sales. Own .05% of the specialty salvage market of 540,000 vehicles.
Mission COMPANY strives to help all segments of the specialty salvage industry realize their full productivity and profitability potential through technology, e-commerce and information management.
1.3
Keys to Success 1. Securing a supply of salvage vehicle through relationships with national insurers. 1. Maintaining the front runner position in the race to be "the" internet auction solution for the insurance companies, dealers and dismantlers. 2. Driving dealers and dismantlers to the site to purchase. 3. Truly providing a "service" to the insurance companies, dealers and dismantlers. 4. Providing the speed and returns for the insurance companies. 5. Securing top talent for management positions. 6. Expanding product offering to include parts, off-lease vehicle, repossessions. 7. Capturing market share from existing live auction market.
2.0
COMPANY Summary 2.1 COMPANY Ownership REMOVED FOR CONFIDENTIALITY PURPOSES 2.2 COMPANY Location and Facilities REMOVED FOR CONFIDENTIALITY PURPOSES
3.0
Services 3.1 Service Description COMPANY is an Internet business-to-business auction site that provides insurance companies and financial institutions with a more profitable and efficient method of marketing specialty salvage vehicles to an established base of licensed dealers, dismantlers, rebuilders, and exporters. COMPANY expands vehicle availability and distribution, expedites the transaction process (from the vehicle declared "totaled" to delivery to the dealer or dismantle) and increases the returns for the insurance agencies. By selling on the Internet - time, location, reach and capacity are limitless. Sellers and buyers save time and effort by participating from their offices,
shops, cars and homes eliminating geographical barriers. Through a real-time, interactive system, salvage vehicles are marketed directly to a nationwide pool of potential customers. All bids are open rather than sealed, which stimulates competitive bidding, and higher sale prices. COMPANY acts only as a facilitator, not a middleman. The buyers purchase directly from the insurance companies and financial institutions. COMPANY has the first-mover advantage in online auctions of specialty autos. The firm is the only full-service, interactive, totally online auction venue for specialty salvage vehicles. Due to expanding its services to buyers and sellers nationwide, COMPANY is poised for phenomenal growth in the coming months.
3.2
Competitive Comparison Currently there are three types of competitors: • Live Auctions • Online Auctions • The Insurance Companies Live Auctions: There are several nationwide live auction businesses. The three largest competitors are Insurance Auto Auctions (IAA), CoPart and Sadisco. They represent 36% of the overall salvage auction market. The remaining 64% of the market consists of small regional and local salvage pools. Online Auctions: There is a hand-full of online auction sites: DirectSalvage.com, SalvageSolutions.com, IAAI.com, Coparts.com and Sadisco.com. All of the competitors have developed online presence that supports their offline live auction. However, the bids that are submitted online qualify the highest bidder to be represented at the live auction. None of the above mentioned competitors are truly auctioning salvage vehicles online. They have created an infrastructure that supports and does not cannibalize their existing live auction business. Insurance Companies: There is the possibility that the insurance companies may enter into the auction business themselves. However, this will require them to take on the full burden of managing the process. They are looking for the highest return possible, in the shortest period of time with the greatest ease. If COMPANY can provide them with the speed, quality, return and service necessary we believe they will not assume the burden themselves. COMPANY is the only 100% interactive online auction site on the Internet. Online Auctioning provides a convenient and easy method of locating, bidding and purchasing a salvage vehicle. The Internet removes limitation of geography and opens the available inventory of salvage vehicle to a nationwide level while simultaneously expanding the market of interested buyers. With more vehicles being viewed by more buyers, there is an increased probability of higher and faster returns for the insurance companies.
3.3
Technology The foremost advantage of the site is the state-of-the-art OpenSite interactive software, encompassing services such as: Auctionwatch: Autobid: useful for keeping track of winning and losing bids on a particular item. automatically adjusts a buyer's bid to beat previous bids, up to a confidential predetermined maximum set by the buyer. Categorywatch: e-mails a user when a vehicle matching the user's criteria is added to the site.
Other attractive merits include the dynamic close feature. If bidding occurs within the last five minutes of an auction, dynamic close will keep the auction open until bidding has ceased for five minutes, thus maximizing the sale price. The site includes photos and descriptions of the vehicles being offered, and is open for bidding 24 hours a day, seven days a week. OpenSite: Opensite is the leader in online auction software. They bring together buyers and sellers, helping businesses dynamically manage inventory, create sales channels, attract customers, and test market new products to create efficient markets for goods and services. Founded in 1996, OpenSite was the first COMPANY to offer packaged online auction applications. The COMPANY is an award-winning, dynamic commerce pioneer with partners worldwide dedicated to selling and supporting OpenSite solutions. They have over 600 licensed and outsourced auction solutions to customers such as The Sharper Image, CNET, John Deere, Case Capital, and VerticalNet, OpenSite is supporting the dynamic commerce initiatives of leading corporations in a range of industries. 3.4 Future Services COMPANY is planning to expand its services beyond auctions and create a true central marketplace by offering a variety of value-added benefits to buyers and sellers. The firm will function as a vertical auction hub and easily move into adjacent vertical markets. Many opportunities to expand the revenue potential exist, including overall salvage management for insurance companies via a Web-based system, handling of catastrophic events with an onsite response service, transportation services for buyers in the form of reverse bid pricing. Still further, the firm could begin auctioning salvage boats, parts, heavy equipment, etc. COMPANY could also expand beyond the salvage auctioning in the area of off-lease and repossessed vehicles for leasing companies, banks, institutions and the government. Another opportunity for COMPANY is in the area of branded auction sites for the insurance companies. For example, if an insurance COMPANY was interested in auctioning vehicles on their web site, COMPANY would provide the technology and back shop. The concept would be "Powered by COMPANY." The transaction and processing of the auction would be managed by COMPANY, seamlessly. This would allow the insurance companies to have their own branded auction site without the cost and learning curve associated with doing it themselves. The SalvageDirect.com site would be the hub connecting the insurance COMPANY's inventories together for the dealers and dismantlers. Finding the vehicle they needed would be simple and easy. Log on to COMPANY and we will take you to the site that has the vehicle you are looking for. COMPANY strives to be the provider of the technology, systems and relationships to assist the insurance companies as they inevitably enter the world on online auctioning. SalvageDirect.com will be the hub bringing the largest inventory and selection. COMPANY will be providing the insurance companies with the tools necessary to expedite the posting, auctioning and delivering of salvage specialty vehicles. With laptop computers, digital cameras and wireless communications insurance adjusters will be able to post a vehicle for auction and determine a buyer within hours of posting. The firm will continue to pursue aggressive, innovative growth in the online specialty salvage vehicle industry, so that it can always provide cutting-edge services and the best value available.
4.0
Market Analysis Summary
4.1
Market Segmentation COMPANY is serving two distinct markets: • Insurance Companies: Providing the inventory. • Dealers, dismantlers, rebuilders and exporters: Purchasing the vehicles for the purposes of dismantling, repairing or selling.
4.2
Target Market Segment Strategy 4.2.1 Market Needs Currently "totaled" vehicles are turned over to a live auction salvage network. Dealers and dismantlers travel to attend live auctions to sometimes return empty handed. The insurance companies receive the "market value" for the vehicle as determined by the participants attending the live auction at that time. Inventory is limited to the location and capacity of the live auction on that day. Vehicles are sold to a limited pool of dealers who are willing or able to attend the auction. Thus, the buyer is not receiving the best selection or convenience and the seller is not receiving the best return. Insurance Companies are looking for higher returns, faster turns, easier processing. Under the traditional salvage process, from the day the car is deemed totaled and the sales of the salvage vehicle can be upwards of 90 days. The faster they turn the car the faster they can get their money back. Competition in the automotive insurance industry has resulted in a race to lower premiums. To remain competitive in the market, insurance companies must not only focus on cutting costs, but also on increasing returns. Dealers are looking for greater selection, ease of purchasing, higher quality cars. 4.2.2 Market Trend The Internet: COMPANY is one of the new breeds of intermediaries emerging in the business to business space. Paralleling some of the hottest Internet darlings such as E-Steel.com and Cyberstockyard.com, each successfully owns a particular vertical niche. COMPANY is playing the role of business to business facilitator, similar to the likes of Freemarkets.com, bringing together buyers and sellers without the responsibility of inventories and deliveries. These intermediaries serve as electronic hubs in their respective markets. They are creating value by aggregating buyers and sellers, creating marketplace liquidity and reducing transaction costs. COMPANY has an opportunity to capture and dominate the online specialty salvage auctioning market. The Market: Currently the online salvage auctioning market is fragmented. There is not one dominant player capitalizing on the opportunity and supplying the dealers with an online destination to assist with locating the needed vehicles. Someone will fill this void. The Competition: Offline salvage auction companies are moving to the internet. Their current infrastructure is limiting their ability to capitalize on the opportunity. The Dealers: Dealers are discontent with the current off-line auction process. With increasing travel costs and increased competition they are looking for an edge. The Insurance Companies:
The insurance companies are looking for a faster method of disposing of their salvage vehicles. Profit margins are shrinking and competition is getting tougher. Consumers are demanding lower insurance rates. The insurance companies need a faster, cheaper, easier and more profitable method of processing their salvage vehicles. They may enter this market themselves but they are slow to respond. 4.2.3 Market Growth The salvage auto auctioning industry is a $3 billion industry in the U.S. There is an estimated 205 million vehicles traveling on the roads in the US. Some 10 percent of all collision claims result in the vehicles being totaled, and about 80 percent of these go to auction.
The 540,000 specialty autos that are totaled in the U.S. every year include vehicles from premium automakers such as BMW, Porsche, Mercedes, Jaguar, and Lexus, as well as other late model cars, trucks, SUVs, motorcycles, and more. The US Auto industry reports that in 1999 they experienced all time record sales of 16.9 million cars and light trucks. • BMW recorded record sales with an 18% increase over last year. • Mercedes-Benz recorded record sales with an 11% increase. • Land Rover sales were up 37% over last year. With more new cars on the road and specialty auto manufacturers recording record sales there is bound to be an increase in specialty salvage vehicles. Plus the weather in the northeast has been on our side. Legislation will affect the availability of specialty salvage vehicles. The National Salvage Motor Vehicle Consumer Protection Act, S.655 is in front of the US Senate. If passed, it will lower the requirements that deem a car "totaled." This legislation will result in an increase in the total number of cars that will become salvage vehicles and available to be auctioned.
5.0
Strategy and Implementation 5.1 Value Propositions COMPANY will be able to supply the dealers and insurance industry with speed, quality, convenience, return on investment and selection. 5.2 Competitive Edge Other Internet auto salvage auctions combine sealed-bid online services with live bidding at auction yards, but COMPANY accepts interactive, online, open bidding only, so that prices are maximized and buyers and sellers know the status of the sale at all times. COMPANY is the only full-service online auctioneer that keeps the bidding process totally online, with no off-line auction. Because traditional auction yards are limited by geography, the prices they bring are not fully maximized. COMPANY, however, opens the marketplace to buyers and sellers throughout the United States and the globe.
5.3
Marketing Strategy
COMPANY's multifaceted sales and marketing strategies include trade publication advertising, trade shows and conferences, telemarketing, direct mail, in-person presentations, billboards near large auction yards, and Internet advertising including banner ads and targeted e-mail. The Insurers we have chosen as our current top customers are Progressive, Allstate, Farmers, GEICO, Nationwide, and State Farm. Through partnerships with these companies, COMPANY will be able to exponentially increase its inventory of specialty salvage vehicles and establish national inventory sites. 5.3.1 Positioning Statement COMPANY is the only 100% interactive online auction site on the Internet. It offers a new, powerful, more profitable, vastly more convenient method of specialty salvage auctioning. Dealer Positioning COMPANY will be positioned as the number one interactive specialty salvage vehicle site, convenient, open 24 hours a day, and 7 days a week with the best selection. Insurance Positioning COMPANY will be positioned as the easy, effortless, totally interactive site that provide the fastest turn with the highest return. 5.3.2 Pricing Strategy The insurance companies will not be charged a fee for participating in our program. The buyer is charged a 5% fee in addition to the agreed upon auction price. 5.3.3 Promotion Strategy COMPANY strives to help all segments of the specialty salvage industry realize their full productivity and profitability potential through technology, e commerce and information management. 5.3.4 Distribution Strategy COMPANY aspires to establish a nationwide pool of salvage vehicles through partnerships with the top national insurance companies. Vehicles can be viewed and purchased from localities throughout the US and transported to desired destination via affiliations with national auto carriers. 5.3.5 Marketing Programs COMPANY's goal is to lock up supply of totaled specialty vehicles from Insurance Companies (supply). Create awareness, preference and action by dealers and dismantlers (buyers). The COMPANY is projecting to secure 2000 registered dealers and dismantlers by June 2000. Advertising: COMPANY will create brand recognition through aggressive advertising in trade publications such as the Locator (dealers and dismantlers) and Claims � insurance companies). This is a very finite market. The insurance companies and dealer have only a hand full of "bibles" they depend upon for information relating to industry news and available inventories. This allows for a minimal advertising expenditure with an effective reach. Outdoor advertising in select markets around live auction locations.
See Appendix A for sample of advertisements. Promotions: COMPANY will depend upon personal selling as a method of promotion. Face to face interaction and telemarketing with the insurance companies and the dealers and dismantlers. High touch and high customer service to develop the creditability, loyalty, recognition and relationships.
Institute a four-step sales call program: 1. Direct mail postcard/flyers/press releases 2. Telemarketing to schedule the sales call 3. Sales Call 4. Follow-up call Incentive programs will be initiated to encourage dealers and dismantlers to register on the site. We will distribute t shirts, coffee mugs, mouse pads, etc. to those that register. The benefit of this program is two fold: 1) we give the dealers and dismantlers an extra reason to take the time to register, 2) COMPANY will be on top of their minds as they drink their coffee, surf the net, get dressed in the morning. Constant reminders and reinforcement that COMPANY is the place to locate specialty salvage vehicles on the Internet. Public Relations: PromoteCOMPANYasthedominateplayer,profitable,firstmover, leader,innovator andthedestinationforonlinespecialtysalvageauctioning. Recruit an Internet experienced PR firm to aggressively attack the trade press online and off-line relating to venture capital, insurance companies and the dismantlers, dealer trade. Aggressive PR push to create awareness and creditability with minimal cost. Focus on localized newspaper and industry publications. Promote the COMPANY concept over the next 6 months as COMPANY gains momentum in national publications such as USAToday, Wall Street Journal, and online through the AP wire. Target select Trade Associations such as American Salvage Pool Association Certified Automotive Parts Association, American Insurance Services Group, Claims and Alliance of American Insurers. See Appendix B for sample editorial. Direct Mail: Mail brochures, flyers, postcards, press kits to insurance companies, registered customers, prospective dealers and dismantlers, trade associations and trade publications. InsuranceCompanies: Send flyers and postcards to gain recognition, drive interest and traffic. Promote success stories through postcards: "Sold X car with $X return over X time period." Part of the four-step sales call. Dealers: Send postcards promoting specific specialty vehicle that are available. Frequent mailings to our current account list as well as prospects. Promote the successes as well as particular vehicles of interest. Encourage registration.
Direct Email: InsuranceCompanies: Promote the success we have experienced with existing insurance companies by providing higher returns and faster turns. Affirm their decisions to have utilized COMPANY or to promote why they are missing out on the opportunity. Dealers: Push available product to registered users based on their preferences as captured at the point of registration. Proactively inform them of what is available on the site.
Trade Shows and Live Auctions: Attend Regional and National shows such as: American Salvage Pool Association Four States Recyclers Expo Automotive Recyclers Association Convention Nace April 26 - 30 July 27 - 29 November 8 - 11 December 7 - 10
Infiltrate the local and national live auctions to promote COMPANY. Distribute stickers, mugs, t-shirts, brochures and press kits. Telemarketing: The sales force will not have a chance to visit every customer and prospect. COMPANY will utilize a team of telemarketers from Market Insights, a prestigious telemarketing firm, to launch an aggressive campaign starting on March 1. Insurance Companies: Pre-sales calls for the sale representatives. Inform companies of the benefits of using COMPANY as a method of disposing of their salvage vehicles. Higher returns, faster turns and ease of operation. Dealers: Encourage dealers to register on the site. Promote the vehicles we have available. Online Advertising and Promotion: Cross promote through links and banners on other related Internet site such as SalvageAuto.com. Secure our position in key work searches in Yahoo, Dogpile, Excite, Iwon etc.
5.4
Sales Strategy The sales strategy for COMPANY is based upon securing inventory from the participating Insurance companies and driving qualified buyers to the website. All forecasts are based upon market size and COMPANY's ability to penetrate the market. Annual projected fee revenues (gross) are illustrated in the Sales Forecast. Note: Over 30 insurance offices in Pennsylvania are currently active with COMPANY. Initial monthly revenues are based upon current and historic auction revenues. On an average basis, the revenue projections for specialty salvage are based upon a $5,000 selling price per vehicle. Additional revenues will be generated by Advertising sales and referral fees from strategic partnerships with transport companies. Advertising sales will be executed by an outsourced
advertising selling firm. Transportation revenues are based on a 5% referral fee. Revenues based upon advertising and transportation will show up in March of 2000. 5.4.1 Sales Forecast The following sales forecasts are based upon the premises previously presented. Management feels these forecasts are highly attainable.
350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 -
293,134,774
57,772,771 560,353 FY1999 4,990,875 FY 2000 FY 2001 FY 2002
700,000 600,000 500,000 400,000 300,000 288,000 200,000 82,500 100,000 FY2000 F Y2001 FY2002 576,000
900,000 762,150 800,000 700,000 600,000 500,000 400,000 300,000 200,000 112,657 100,000 6,488 FY2000 FY2001 FY2002
5.4.2.1
Sales Programs
COMPANY will implement an incentive program for its sales representatives. With the program, reps will encourage Insurance Companies to list their salvage inventory with COMPANY, and keep the inventory previously secured on the website. The reps will receive $20 (2000), $10 (2001) and $5 (2002) for every specialty car listed on the site.
5.5
Strategic Alliances COMPANY will continue to form and develop strategic alliances with established Salvage Industry, Marketing and Technology organizations to strengthen the organizational infrastructure and better serve the customers. Salvage Industry Within the salvage industry, COMPANY has identified the need to actively pursue strategic partnerships in the areas of Towing and Transport. Partners being pursued include:
Towing:
• •
AAA Regional Towing Networks
Transportation: Schultz International/Accelerated Express (www.transportautos.com). A leading global vehicle transport COMPANY. Clients include private individuals, fleets, movie studios, dealerships, banks, fortune 500 companies, exporters, city, state and federal gov'ts, military, leasing companies and equipment manufacturers. TNT (www.tnt-inc.com). Leading specialists in automotive transport. TNT has nationwide service, with over 80 service locations across the United States with most in major cities, and computerized vehicle tracking. CentralDispatch.com. CentralDispatch™ is a revolutionary online transport COMPANY with a database that redefines the way auto transporters do business with car carriers nationwide. Its database of Auto Transport loads helps carriers find loads entered by brokers, dealers, auto auctions, manufacturers and rental agencies across the U.S. and Canada. MoveCars.com. MoveCars.com is the Internet Directory of Auto Transport Companies, linking buyers to vehicle shipping companies throughout the U.S. and Canada.
Technology:
COMPANY is currently utilizing OpenSite Technologies, Inc. for its auction functionality. OpenSite is the leader in online auctions driving the dynamic commerce revolution. OpenSite's powerful suite of products, and hosting and professional services enables COMPANY to create its branded, Internet-based dynamic commerce site. OpenSite brings together buyers and sellers, helping businesses dynamically manage inventory, create sales channels, attract customers, and test market new products to create efficient markets for goods and services. COMPANY's Information Technology partner is a leading provider of innovative technology-based solutions. Micros & More will fully customize every product and service to meet COMPANY's Information Technology requirements, automating the critical functions to reduce costs and increase efficiencies. Utilizing the skills and experience of its world class technology partners, COMPANY is developing an technology infrastructure that will support the growth and volume that the COMPANY expects. 6.0 Management Summary 6.1 Organizational Structure
REMOVED FOR CONFIDENTIALITY PURPOSES
6.2
Management Team
REMOVED FOR CONFIDENTIALITY PURPOSES 6.3 Management Team Gaps COMPANY has secured key management personnel to reach the COMPANY's goals in the marketing, legal and Information Technology arenas. Gaps in the management team will be filled by May of 2000. The schedule for securing those individuals is as follows:
Position CEO VP Sales VP Operations VP Finance/CFO Webmaster Sales Manager Customer Service Manager Name TBA TBA TBA TBA TBA TBA TBA Start Date May, 2000 March, 2000 May, 2000 May, 2000 March, 2000 March, 2000 April, 2001
7.0
Financial Plans 7.1 Break-Even Analysis
Break-Even Analysis Number of Months Projected Sales Less Variable Expenses Cost of Vehicles Sales Incentives Ad Commissions Website Development and Maintenance Labor Internet Service Contribution Margin Contribution Margin Ratio Fixed Expenses Salaries and wages Employee benefits Payroll taxes Rent Utilities Insurance-Other Travel Meals & Entertainment Auto Expense Telephone Postage Office supplies Marketing/promotion Professional fees License and Fees Bank charges Hardware Software Depreciation Miscellaneous Total Fixed Expenses Break-Even Sales Monthly Break-Even Sales Profit During Period $1,701,910 $260,461 $297,939 $42,500 $19,251 $19,000 $127,000 $134,724 $30,019 $69,317 $85,564 $34,350 $2,655,069 $315,165 $3,400 $50,400 $96,000 $117,250 $57,528 $35,500 $6,152,348 $119,477,046 $3,318,807 $13,192,187 $356,024,508 $504,287 $189,300 $82,400 $2,082,332 $25,270 $19,344,535 5% 36 $375,666,012
Income Statement - FY2000
Period Starting: Sales Sales Vehicles Auction Fees Advertising Transportation Miscellaneous Income Total Sales Less Cost of Goods Sold Cost of Vehicles Sales Incentives Ad Commissions Website Development and Maintenance Labor Internet Service Total Cost of Goods Sold Gross Profit Operating Expenses Salaries and wages Employee benefits Payroll taxes Rent Utilities Insurance-Other Travel Meals & Entertainment Auto Expense Telephone Postage Office supplies Marketing/promotion Professional fees License and Fees Bank charges Hardware Software Depreciation Miscellaneous Total Operating Expenses Operating Income Interest Income Interest Expense Total Nonoperating Income (Expense) Income (Loss) Before Taxes 2,538 231 215 500 125 0 0 223 119 117 264 175 618 65 0 200 0 0 0 0 5,390 2,541 397 (139) 258 2,799 1,176 1,623 1,623 2,538 231 215 500 126 0 0 0 200 200 300 175 8,700 100 0 200 0 0 0 500 13,985 (9,780) 210 (74) 137 (9,643) (4,050) (5,593) (3,969) 27,333 3,500 5,500 550 100 100 1,500 250 100 1,500 1,000 1,000 25,000 7,500 100 200 12,000 100,000 3,111 500 190,844 (184,697) 307 (108) 200 (184,497) (77,489) (107,008) (110,978) 27,333 3,500 5,500 550 100 100 1,500 250 100 1,500 1,000 1,000 25,000 7,500 100 200 0 250 1,028 500 77,011 (70,384) 331 (116) 215 (70,168) (29,471) (40,698) (151,676) 35,667 9,500 10,708 550 100 100 2,000 1,000 275 1,500 1,000 1,000 25,000 7,500 100 200 6,000 250 1,028 500 103,978 (127,853) (1,194) 418 (776) (128,629) (54,024) (74,605) (226,280) 35,667 9,500 10,708 550 100 100 2,000 1,000 275 1,500 1,000 1,000 25,000 7,500 100 200 0 250 1,028 500 97,978 (117,076) (955) 334 (621) (117,697) (49,433) (68,264) (294,545) 35,667 9,500 10,708 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,028 500 100,478 (111,614) (557) 195 (362) (111,975) (47,030) (64,946) (359,490) 35,667 9,500 10,708 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,028 500 100,478 (107,034) (328) 115 (213) (107,247) (45,044) (62,203) (421,694) 35,667 9,500 10,708 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,028 500 100,478 (101,081) (30) 11 (20) (101,101) (42,462) (58,638) (480,332) 35,667 9,500 10,708 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,028 500 100,478 (93,342) 357 (125) 232 (93,110) (39,106) (54,004) (534,336) 37,750 9,500 11,177 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 6,000 250 1,194 500 109,197 (93,667) 776 (272) 505 (93,162) (39,128) (54,034) (588,370) 37,750 9,500 11,177 550 100 100 4,000 1,000 275 1,500 1,500 1,000 25,000 7,500 100 200 0 250 1,194 500 103,197 (74,588) 1,430 (501) 930 (73,658) (30,937) (42,722) (631,092) 349,244 83,461 98,033 6,500 1,251 1,000 31,000 8,724 2,719 15,317 13,564 10,350 259,318 75,165 1,000 2,400 24,000 102,250 12,694 5,500 1,103,490 (1,088,575) 746 (261) 485 (1,088,090) (456,998) (631,092) (631,092) 79,127 46,960 0 0 200 500 0 47,660 4,205 175,000 824 90 1,000 1,667 200 178,780 6,147 175,000 824 210 1,000 1,667 200 178,900 6,627 210,000 988 510 1,000 35,000 200 247,698 (23,875) 252,000 1,186 1,290 1,000 35,000 500 290,976 (19,098) 327,600 1,542 2,400 1,000 35,000 500 368,042 (11,136) 425,880 2,004 2,400 1,000 35,000 500 466,784 (6,556) 553,644 2,605 2,400 1,000 35,000 500 595,149 (603) 719,737 3,387 2,400 1,000 35,000 500 762,024 7,136 935,658 4,403 2,400 1,000 36,667 500 980,628 15,530 1,216,356 5,724 2,400 1,000 36,667 500 1,262,647 28,608 5,116,962 23,486 16,500 10,400 287,748 4,270 5,459,367 14,915 86,255 0 0 0 1,755 88,010 51,365 0 0 0 500 51,865 175,000 8,750 450 228 500 184,928 175,000 8,750 1,050 228 500 185,528 210,000 10,500 2,550 273 500 223,823 252,000 12,600 6,450 328 500 271,878 327,600 16,380 12,000 426 500 356,906 425,880 21,294 12,000 554 500 460,228 553,644 27,682 12,000 720 500 594,546 719,737 35,987 12,000 936 500 769,160 935,658 46,783 12,000 1,216 500 996,158 1,216,356 60,818 12,000 1,581 500 1,291,255 5,128,495 249,544 82,500 6,488 7,255 5,474,282 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Totals
0
0 200 582 170 80,079 7,931
7.2
Projected Profit & Loss
Income Taxes Net Income (Loss) Cumulative Net Income (Loss)
Income Statement
Sales Vehicles Auction Fees Advertising Transportation Miscellaneous Income Total Sales Cost of Goods Sold Cost of Vehicles Sales Incentives Ad Commissions Website Development and Maintenance Labor Internet Service Total Cost of Goods Sold Gross Profit Operating Expenses Salaries and wages Employee benefits Payroll taxes Rent Utilities Insurance-Other Travel Meals & Entertainment Auto Expense Telephone Postage Office supplies Marketing/promotion Professional fees License and Fees Bank charges Hardware Software Depreciation Miscellaneous Total Operating Expenses Operating Income Interest Income Interest Expense Total Nonoperating Income (Expense) Income (Loss) Before Taxes Income Taxes Net Income (Loss) Cumulative Net Income (Loss)
FY2000
FY2001
FY2002
5,128,495 249,544 82,500 6,488 7,255 5,474,282
57,772,771 2,888,639 288,000 112,657 61,062,067 293,134,774 14,656,739 576,000 762,150 309,129,663
5,116,962 23,486 16,500 10,400 287,748 4,270 5,459,367 14,915 349,244 83,461 98,033 6,500 1,251 1,000 31,000 8,724 2,719 15,317 13,564 10,350 259,318 75,165 1,000 2,400 24,000 102,250 12,694 5,500 1,103,490 (1,088,575) 746 (261) 485 (1,088,090) (456,998) (631,092) (631,092)
57,772,771 135,936 57,600 24,000 559,583 9,000 58,558,891 2,503,176 539,667 157,000 159,906 12,000 6,000 6,000 48,000 30,000 3,300 18,000 24,000 12,000 627,782 120,000 1,200 12,000 45,000 3,000 18,917 6,000 1,849,772 653,404 32,670 (11,435) 21,236 674,640 283,349 391,291 (239,801)
293,134,774 344,864 115,200 48,000 1,235,000 12,000 294,889,839 14,239,825 813,000 20,000 40,000 24,000 12,000 12,000 48,000 96,000 24,000 36,000 48,000 12,000 1,767,969 120,000 1,200 36,000 27,000 12,000 25,917 24,000 3,199,086 11,040,739 552,037 (193,213) 358,824 11,399,563 4,787,816 6,611,747 6,371,946
7.3
Exit Plan COMPANY will likely go through two rounds of funding. The first will be between $1 and $2 million. This stage will involve building the COMPANY's infrastructure with key personnel and technology, securing relationships with insurance companies and towing networks, and ramping up marketing efforts. At this point, a second stage of funding in the range of $5-$10 million will be sought. This funding will complete the nationwide rollout of COMPANY, expand the marketing and advertising campaigns for both the insurance companies and dealers/dismantlers, and expand into the Repossessed and Off-lease markets. Industry trends continually change and COMPANY's strength lies in the ability to provide full service needs to the insurance companies. COMPANY intends to become the one stop shop with the ability to provide the high level of personal customer service that has become its mantra. Current industry trends illustrate that the greatest threat facing traditional auctions is the threat of the insurance companies marketing salvaged vehicles directly to the buyers. Such insurance companies, desiring the unique characteristics and customer base of COMPANY, are all likely candidates to merger with or acquire COMPANY. A second and also likely exit plan would be the option to construct an initial public offering once the COMPANY has successfully launched and become established in the salvage market. The third option for COMPANY would be to institute a roll-up with related companies within the salvage industry, parts industry, and vertical auctioning or e business solutions. Depending on investment market trends at any time in the future, either one of these exit plans could be implemented at any phase in the development of the COMPANY.
