Auctions are where most used cars come from. Car dealers send trade-ins and inventory that isn’t moving quickly to auction in order to improve profitability and free up space on their lots. If a vehicle was sold at a classic car auction, that is not necessarily a red flag. Many of these vehicles are reconditioned and may have clean titles and history reports.
Dealerships
Dealerships sell cars to consumers but send vehicles to auction if they can’t sell them. Sometimes this is done because they want to get rid of a vehicle that has been on their lot for a long time, but often it’s because they cannot afford to keep the car. It’s common for dealerships to lose money on vehicles sold at auction.
A big reason that vehicles go to auction is that dealerships must turn their inventory and make a profit, or they risk having shareholders demand they find another business venture. A dealership with many vehicles that aren’t selling is tying up capital, and the dealership needs to free up that space to bring in newer, more profitable cars.
Some dealerships will even send their own new cars to auction if they can’t sell them to a consumer on their own lot. This is because they have to carry costs that diminish the vehicle’s profitability, and they are incentivized to move vehicles quickly due to pressure from shareholders to show that they are efficient.
The other main reason vehicles go to auction is that they are lemons or have bad CarFax reports, unexplained mileage discrepancies, or other issues that would scare off a buyer. This is especially true for vehicles that are very high-line or expensive, such as a Land Rover, Jaguar, or Porsche. These vehicles are most likely to be sent to an auction specializing in this type of vehicle rather than trying to find a retail customer for them.
A good tip for people buying vehicles at auction is to be aware that some of them don’t come with titles, especially if they are sold at public auctions. This is because private sellers typically do not have the resources or desire to go through the lengthy, costly process of getting a title for the vehicle. This can mean that you will have to pay extra for shipping and other fees if you are purchasing the vehicle from a distance, so it is important to consider this before you bid on a vehicle.
Casual Bargain Hunters
The thrill of scooping up a deal and driving away in something new is what attracts many buyers to auctions. However, it can also be a bit of a gamble. Auction cars typically don’t go through the rigorous car inspection and testing that dealership vehicles do, explains Reed. It may be that a used vehicle at an auction has a few scratches, dents, and some wear and tear from age. The shopper might turn on the engine, and it runs, but there is no real way to test its ability to drive or get up to speed.
Buying at auction is not for picky shoppers who comb over every detail. Instead, car buyers should come to the auction with a general idea of what they want and then look through all of the vehicles available. If you plan to attend an in-person auction, arrive early, and take some time to sit in the vehicles you are interested in, start them up, put them in gear, and check out the interior and exterior.
Public auctions can include repossessed vehicles from banks, wholesale lots of flood junkers, bottom-of-the-barrel trade-ins, and high-end sports cars and SUVs. Dealers also bring slow-moving inventory to auction for cash and to get a new vehicle on their lot.
In addition, there are a number of specialty auctions for collectors and exotic cars from companies such as Barrett-Jackson, Mecum, Gooding, and RM Sotheby’s. Some of these are live, and some are online, and the type of vehicle offered at each auction can vary.
Those looking to purchase a vehicle at an auction should familiarize themselves with the auction’s rules and regulations, including registering and bidding, and understand its condition grading system and arbitration process if problems arise. Most auctions will provide a condition report for the vehicles on the block, but Huang cautions that these reports are often inaccurate and can miss important issues, such as flooding or major mechanical damage. The buyer should also carefully read automotive forums and ask plenty of questions if they are unsure about any vehicle’s history.
Salvaged Vehicles
Most people buying and selling at auctions work for auto dealerships or wholesalers. That means their employers bear all the financial risk, not them individually. Private sellers at auctions, on the other hand, bear all the risk themselves. They may not have the time or resources to fix a car they’re selling and will lose money when it doesn’t sell or needs major repairs later on.
Some vehicles that go to auctions are salvaged. Insurance companies will declare a vehicle a total loss when the cost of repairing it exceeds a certain percentage of its value. These cars are then sold to repair shops and salvage yards, where they’re either rebuilt or used for parts. Some states allow a rebuilt salvaged vehicle to be registered and driven, but the title will show that it’s been marked as salvaged.
The other reason a car might be sold as salvage is that it’s been damaged somehow, making it unrepairable. Flood damage, for example, can seriously damage a vehicle’s electrical and mechanical systems. Saltwater can corrode the undercarriage. Riots and wars often leave burnt or otherwise destroyed cars behind.
A salvaged car can be a good buy, especially if you’re looking for a cheap daily driver or a hobby project. Salvage cars can sometimes be bought for about 20-30% less than those with clean titles.
If you’re considering buying a salvaged vehicle, having a mechanic examine it first is a good idea. They can look for things like paint that doesn’t match the rest of the car, misalignments in doors and windows, and faulty electrical components. They can also help you determine whether the car is a good deal or not.
Keep in mind that most lenders won’t finance a salvaged vehicle, and it can be difficult to get insurance on one. If you are able to finance the vehicle, however, there are some lenders that offer specialized financing for salvaged vehicles. For instance, Westlake Financial has a special program for cars with branded titles that offers loans for up to 85 percent of the vehicle’s actual value.
Dealership Inventory
Dealerships have to make a lot of decisions about vehicle inventory. They may not want to keep a car that isn’t selling well on the lot. The longer a vehicle sits on the lot, the more money it costs a dealership in maintenance fees and storage charges. In addition, if a vehicle is financed with floor plan financing, the dealer pays interest on the value of that vehicle. It’s in a dealership’s best interest to sell cars quickly and efficiently to maximize profits.
One way to do this is by sending vehicles to auction. Many dealers have pre-owned aging policies that dictate when a vehicle is sent to auction. These policies usually have a 60- or 90-day threshold where the dealer sends vehicles to auction to prevent them from sitting on the lot too long and losing value.
Generally, cars that are sold at auction are less expensive than what the dealer would charge on their lot for a similar model and year. This makes it a desirable source of vehicles for some dealers.
When buying a used vehicle, it’s important to ask the seller where the car came from. It’s also wise to conduct a professional inspection of the vehicle to determine its condition. The last thing you want is to purchase a vehicle with hidden damage that will cost you more in the long run.
Some auctions allow buyers to inspect vehicles prior to bidding. This is a great opportunity for buyers to look at the vehicle in person and take their time with it. A buyer can also use the auction website to see photos and prices of vehicles before the sale.
If you plan to attend an auction, getting there early is a good idea. The earlier you are there, the more vehicles you can see and the more time you have to evaluate them. It’s also easier to focus without a bunch of people in the way. Getting to the auction early also gives you an advantage over latecomers in terms of being able to bid on the vehicles of your choice before they are sold.
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