Car dealer auctions
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Millions of vehicles are sold at dealer auto auctions every year. These auctions are restricted for the general public and only licensed dealers can participate. Prices of vehicles sold at dealer auctions tend to be lower than those advertised on any dealer’s lot. Sellers forgo a potentially higher sticker price to take their inventory to a dealer auction where it will be auctioned off for thousands less than retail for a number of reasons.
Maintaining aging inventory costs dealers both money and reputation. However, old or otherwise unattractive inventory accounts for a miniscule portion of the cars sold at auctions. The large part of vehicles sold at dealer auctions is comprised of off-lease returns, replaced rental fleets, company cars, repossessed vehicles and trade-ins.
• Off-lease: vehicles returned to the financial institution at the end of a lease term. Closed auctions are usually the only venue for such financial institutions to dispose of a large volume of end-of-lease returns. The terms of a lease normally put a restriction on the number of miles driven, require regular maintenance and penalize for excessive wear. Usually, off-lease vehicles are returned within 2-3 years, often before their original factory warranty expires.
• Off-rental: rental companies normally replace their fleets once a year, releasing a flood of late-model cars to the secondary market. Like the big financial institutions that underwrite car leases, rental companies also rely on auto auctions to sell off their used inventory. These vehicles tend to be well maintained and driven for only one year. Mileage tends to accumulate quickly on a rental car. Optional features are limited to an A/C and automatic transmission, but these cars are otherwise as close to the base model as they can get. Usage of rental cars is rough; it is safe to assume are that during that first year each rental car will be driven by a normal distribution of all types of drivers in all kinds of conditions.
• Company/fleet cars: companies of varying sizes own or lease cars, trucks or vans that they typically keep for two or more years, although it is not uncommon to see current year models sold at the auctions. Adequate maintenance and large volumes of similar vehicles are typical characteristics. Like rentals, these vehicles do not have many extras and get thoroughly exploited on a daily basis. Unlike rentals, usage of company cars varies greatly from the executive luxury sedan driven slowly and carefully on occasion to the delivery truck that regularly mounts curbs and gets abused in city traffic.
• Repossessed: vehicles can be voluntarily or involuntarily repossessed by financial institutions for delinquency or another reason for recall. Auto auctions are again the bank’s only option for deliverance. Repossessed vehicles can feasibly sell for less because the financial institution disposing of them only seeks to offset its losses (also restricted by federal regulations). The condition of such cars may be compromised by neglect. There is also the potential for sabotage from ill-meaning previous users (e.g., extensive keying or tearing of the interior).
• Trade-in: dealer inventory that is aging or does not meet their profile (e.g., an old Toyota Avalon that was traded in for a new CLK350 Cabriolet at a Mercedes-Benz franchised dealership). Traded-in cars may have useful extras and sometimes even after market modifications. The overall condition of such vehicles varies greatly. Some may be considerably older and out of warranty.
Among these types of vehicles there are a number of quality cars ready to market. Late models with remaining factory warranty are not uncommon. The law requires listing dealers to disclose bigger mechanical problems, which may void the manufacturer’s warranty and classify the vehicle as junk, salvage, lemon/consumer buy-back, etc. There are special auctions for these types of vehicles (salvage, rebuilt or junk vehicles), sold mostly by insurance companies. Other types of auctions specialize in the sale of police or government cars; some of those actually allow public access.
Pricing. Regardless of their source, vehicles are sent to auction with the main purpose to be sold quickly and hassle-free, and this usually happens at prices that dealers can easily recoup with a small profit from a resale. Contrary to popular belief, cars seldom sell for unreasonably low prices at the dealer auctions. This may happen if there are not enough interested bidders or if the vehicle is exceptionally unattractive and should not be taken for granted. Many sellers put reserve prices on their stock specifically to prevent this from happening. The reserve price is not disclosed publicly and a “winning” auction bid is only considered a sale if the reserve price is met. Sellers have the option to re-list vehicles that did not sell at a particular auction.
Condition. As with any used vehicle, overall vehicle condition varies greatly. Many aspects of the vehicle appearance may suffer in the term of everyday use and result in any of the following damages: stained or otherwise used upholstery, scratched bumpers, dings on the doors, chipped hood, dented quarter panels. Most of these can be fixed with touch-up paint and/or a dent removing kit. Scraped wheels and worn tires may cost more to repair or replace.
Inspection. Pre-sale vehicle inspection or test-driving is not allowed at the auctions. Mechanics and guests are not allowed to see the cars until after the sale is completed. Some auction locations inspect and prepare the cars for sale if the listing dealer so chooses (at a premium). More extensive reconditioning is also available.
