Kruse Auction Scam is Front Page News, So Where’s the Ink?

Once upon a time there were Four Horseman of the Apocalypse: Russell, Dean, Dennis, and Daniel… the Kruse family of the noted Indiana-based automobile auction company.

Their career as it pertains to our subject matter kicked off in 1971 with an auction of classic cars to coincide with the Auburn Cord Duesenberg club reunion held each Labor Day weekend in the sleepy mid western town of Auburn, Indiana.

Today, Kruse International is mired in debt, is being sued by scores of unpaid consignors, and faces an uncertain future about its ability to come up with enough doe to make its creditors happy.

You’d think this key news ditty would make front page ink but publishers are mostly mum. AutoWeek, however, rose to the challenge (feature image) along with a number of blogs and forums.

Over the years Kruse Auctions grew at a rapid pace and auction folklore was born. Who can forget the  famous 1978 “missing briefcase” episode where several hundred thousand bucks became the convenient victim of an airport security malfunction. There were shorted restaurant bills, promises given and never honored, and wildly exaggerated claims made on the merch passing over the Kruse’s gavel. Some accounts have reported that Dean bought out family member Mitchell’s shares in Kruse on the cheap before selling to eBay.

Last year’s ACD Museum auction banquet featured Dean at a mock trial appearing before a judge in prison garb.

In 1999 came the jaw-dropping sale of the auction firm to eBay for a $150M in company stock when the Internet golden child was a greenie on the collector car scene and viewed Kruse as instant entre to profits and growth. I met with then eBay Motors honcho Simon Rothman at the Auburn venue that year to discuss their goals with Kruse. Simon had his hands full and you could say he was like a deer caught in the headlights. The eBay/Kruse dream never materialized and in 2002 eBay wound up handing the company back to Dean for pennies on the dollar.

Dean went on to build a log-home-on-steroids, amassed a sizable personal car collection, built a WWII museum, and even hosted ACDers for an evening’s dining for the club reunion. I was a member of the Pebble Beach judging team in 2002 when Dean and his Duesy did the concours thing. I will say this, Dean does it big and does it his way.

What brings this post to current day relevance? I suspect that most of you have already read about the scores of stiffed consignors from recent Kruse sales. Dave Kinney’s May 2009 CarsThatMatter newsletter was the first collector-oriented source I’m aware of to report the story. The August 10 issue of AutoWeek got my antennas dialed in early on (yes, in print!) describing one very pissed off consignor of a 1969 Road Runner. Kevin Pierce slogged hard for four months to finally retrieve his auction proceeds from Kruse’s February Tucson auction.

The most comprehensive account I’ve read thus far comes from Fort Wayne’s Journal Gazette including this:

Court documents in that case say at least 13 sellers are owed money by Kruse and have made claims to the Indiana attorney general totaling more than $580,000.

Lake City Bank sued Kruse for an unpaid loan, demanding nearly $1.3 million, according to court documents filed this month. On Aug. 18, Hillcrest Bank filed a foreclosure complaint against Kruse, his wife and his companies, saying they owe more than $6.5 million on loans from 2007 and 2008.

Well, the cat’s outta the bag and with an overdue $130,000 American Express bill you gotta wonder where the heck all the money went. Adding to MIA cash there’s suspended business licenses, and the lowest possible Better Business Bureau rating.

Now heading into its thirty-eighth year running the Auburn auction, Dean Kruse is facing the ultimate no sale. An expected 5,000 cars that characterize the typical Kruse Labor Day event has dwindled to 1,500 and that number is probably optimistic. What’s more, court rulings require Kruse to immediately fork over $500,000 of Labor Day auction proceeds by September 15 in an attempt to satisfy creditor FCOF Midwest Credit LLC who is owed a total of $6.7M. These and other senior debts come before auction consignors who unwittingly relinquished the keys to their coveted collector cars only to realize nothing. Buyers, meanwhile, have driven off into the sunset. I wonder where the titles went? I wonder why Dean released the merch to non-performing buyers? And why the heck can’t the suspect cars be returned to their rightful owners?

Kruse is quick to defend his position based on a lousy economy negatively impacting cash flow. Auction buyers were not able to pay despite being alleged grown ups that raised their bidding hands knowing they would be bound to a legal contract to perform. In other words, the auction firm can only pay consignors when buyers pay the auction firm. Blame lax business practices, recklessness on the part of bidders, hubirs, or all three, the end result is one heaping pile of crap. But let’s not forget that consignors make their deals with the auction house and not the buyers - a central justification for auctioning a vehicle. You might be able to run from the empty coffers but you can’t hide.

Last year’s ACD Museum auction banquet featured Dean at a mock trial appearing before a judge in prison garb. All in good fun of course and no association was apparent at the time. But today, the attire seems eerily in the moment.

This weekend’s Kruse auction will be a game-changer and no doubt nearby Worldwide Auctioneers will seize the day. Where will Kruse wind up? Let’s just say Dean is like one of those charming dogs that knows he’s bad but just can’t stop eating the daisies.

For a blog about car magazines, this post might seem one big tangent. But our obligation is to report the news, and gosh darn it, maybe give our fellow readers a head’s up. Many in publishing I’ve spoken with recently aren’t all that keen to cover this story. Call it fear of making enemies with advertisers (in this case, other auctioneers), coming across as bad guys, or perhaps it doesn’t fit their charming image of cars on the grass.

This story represents a significant impact on the collector car world, and the actions of Kruse could be utterly devastating to innocent sellers who might desperately need to convert their cherished cars into bill-paying cash of their own.

So thank you to one of the mainstream mags, AutoWeek, for rising to the challenge. And to others including the myriad online forums and blogs. I hope every publisher follows their principled leads.

See also The Chicago Tribune.

Popularity: 7% [?]

Eric's Consulting Services for Publishers

There Are 4 Responses So Far. »

  1. Your usual pithy dialed in dialog to the matters at hand. I have wondered where (other than Autoweek)under which rock the leading members of the fourth estate were hiding.

  2. I was up there today. Not hardly any Classics. General auction inventory look drastically down. Looks weak. Not many cars in the buildings……..the “good” cars are at Worldwide.

  3. Sports Car Market just released a legal interpretation of the Kruse matter. In essence, so much hinges on a healthy auction sell-thru net to bottom line in order to realize sufficient creditor proceeds. What’s more, Auburn consignors get paid ahead of prior unpaid consignors. Do the math and come to your own conclusion!

  4. I’ve attended the Kruse auction going on 20 years, and after a walk through their Labor Day auction this past weekend there’s no doubt the firm is facing unprecedented barriers to survival.

    Between low quality consignments and a paucity of buyers, one wonders how Kruse can come out of the debt load in one piece. A number of auction consignors were demanding – and getting – direct payments from buyers rather than wondering if their rightful dollars would get sucked into the Kruse vacuum. Estimates place the average Kruse sale around $12K per vehicle and we’re probably talking 50% sell rate on an estimated 1,500 cars. I’ll leave it to others to determine the volume requirements to pay down $6+ million in debt out of commission and vendor proceeds.

    Nearby Worldwide Auction Group had the best stuff though only an estimated 35% sell thru of mostly low dollar vehicles. WW has suspended construction on a new building and one can only speculate that next year’s Auburn may be a return to its roots where the ACD club’s “Reunion” returns as the central event.

    And not least, the ACD Museum auction did what the others couldn’t: Sell a 1930 Duesenberg Model J town car for $2.9M, nearly 3X presale esimate!

    But to the task at hand, the Indiana press carried the news day while automotive publishers shrank from their responsibility to report this critical story in the proper light. Where were you Old Cars Weekly? As more pub’s face an uncertain future here was a squandered opportunity to really deliver on the content side. Magazines have what web pure plays don’t and that’s loyal readers over many decades of service. Let’s hope the next round of Kruse news accounts tell it like it is.

Post a Response