| Millions of vehicles are sold at dealer auto auctions | | | | restricted by a federal regulation). |
| every year. These auctions are restricted for the | | | | Risks: the condition of such cars may be |
| general public and only licensed dealers can | | | | compromised by neglect. There is also the |
| participate. As with any wholesale market | | | | potential for sabotage from ill-meaning previous |
| exhange, prices of vehicles sold at dealer auctions | | | | users (think extensive keying or tearing of the |
| are lower than those advertised on any dealer's | | | | interior). |
| lot, which begs the question, why would anyone | | | | Trade-in: dealer inventory that is aging or does |
| forgo a potentially higher sticker price to take | | | | not meet their profile (e.g., your old Toyota |
| their inventory to a dealer auction where it will be | | | | Avalon that you traded in for a shiny new |
| auctioned off for thousands less than retail? One | | | | CLK350 Cabriolet at a Mercedes-Benz franchised |
| might also wonder if there is something wrong | | | | dealership). |
| with cars that end up at the auctions - why else | | | | Advantages: traded-in cars may have useful |
| wouldn't a dealer go after a bigger margin by | | | | extras and sometimes even after-market |
| selling those cars at their own lot? | | | | modifications (for those consider this an |
| Of course, there are a number of vehicles that | | | | advantage). |
| dealers have tried selling on their lots for some | | | | Risks: the overall condition of such vehicles varies |
| time to no avail before deciding to cut their losses | | | | greatly. Some may be considerably older and out |
| short by disposing of them quickly at the auctions. | | | | of warranty. |
| Maintaining aging inventory costs dealers both | | | | Among these types of vehicles one can find a |
| money and reputation. However, old or otherwise | | | | good number of quality cars ready to market. |
| unattractive inventory accounts for a miniscule | | | | Late models with remaining factory warranty are |
| portion of the cars sold at auctions. The large part | | | | not uncommon. The law requires listing dealers to |
| of vehicles sold at dealer auctions is comprised of | | | | disclose mechanical problems, which may void the |
| off-lease returns, replaced rental fleets, company | | | | manufacturer's warranty and classify the vehicle |
| cars, repossessed vehicles and trade-ins. | | | | as junk, salvage, lemon/consumer buy-back, etc. |
| Let's look at these sources individually and | | | | There are special auctions for the adventurous |
| examine the advantages or risks associated with | | | | and the mechanically inclined, which sell salvage, |
| each of them: | | | | rebuilt or junk vehicles, whose source is mostly |
| Off-lease: vehicles returned to the financial | | | | insurance companies. Other types of auctions |
| institution at the end of a lease term. Closed | | | | specialize in the sale of police or government cars; |
| auctions are usually the only venue for such | | | | some of those actually allow public access. |
| financial institutions to dispose of a large volume | | | | Pricing. Regardless of their source, vehicles are |
| of end-of-lease returns. | | | | sent to auction with the main purpose to be sold |
| Advantages: the terms of a lease normally put a | | | | quickly and hassle-free, and this usually happens at |
| restriction on the number of miles driven, require | | | | prices that dealers can easily recoup with a small |
| regular maintenance and penalize for excessive | | | | profit from a resale. You have probably heard |
| wear. Usually, off-lease vehicles are returned | | | | stories that cars can be bought at the dealer |
| within 2-3 years, often before their original | | | | auctions for unreasonably low prices. This may |
| factory warranty expires. | | | | happen if there are not enough interested bidders |
| Risks: off-lease vehicles are older - two or three | | | | or if the vehicle is exceptionally unattractive, but it |
| years are standard terms of lease. | | | | is rarely the case and should not be taken for |
| Off-rental: rental companies normally replace their | | | | granted. In fact, many sellers put reserve prices |
| fleets once a year, releasing a flood of late-model | | | | on their stock specifically to prevent this from |
| cars to the secondary market. Like the big | | | | happening. The reserve price is not disclosed |
| financial institutions that underwrite car leases, | | | | publicly and a "winning" auction bid is only |
| rental companies also rely on auto auctions to sell | | | | considered a sale if the reserve price is met. |
| off their used inventory. | | | | Sellers have the option to re-list vehicles that did |
| Advantages: these vehicles are well maintained | | | | not sell at a particular auction. |
| and driven for only one year. | | | | Condition. As with any used vehicle, one should |
| Risks: mileage tends to accumulate quickly on a | | | | not expect to find a car in pristine condition at the |
| rental car. Optional features are skimpy - you can | | | | auctions. Used cars are for people who do not |
| count on their having an A/C and automatic | | | | value the "new car smell" so highly as to spend a |
| transmission, but these cars are otherwise as | | | | few thousand dollars extra at the franchise |
| close to the base model as they can get. Usage | | | | dealer's showroom to get it. Many aspects of the |
| of rental cars is rough; chances are that during | | | | vehicle appearance may suffer in the term of |
| that first year each rental car will be driven by a | | | | everyday use and one should expect any |
| normal distribution of all types of drivers in all | | | | combination of the following damages: stained or |
| kinds of conditions. | | | | otherwise used upholstery, scratched bumpers, |
| Company/fleet cars: companies of varying sizes | | | | dings on the doors, chipped hood, dented quarter |
| own or lease cars, trucks or vans that they | | | | panels. Most of these can be fixed with touch-up |
| typically keep for two or more years, although it | | | | paint and/or a dent removing kit. Scraped wheels |
| is not uncommon to see current year models sold | | | | and worn tires may cost more to repair or |
| at the auctions. | | | | replace. |
| Advantages: adequate maintenance and large | | | | Inspection. Pre-sale inspection or test-driving is not |
| volumes of similar vehicles. | | | | allowed at the auctions. The most a buying dealer |
| Risks: like rentals, these vehicles do not have a | | | | can hope is to visually inspect the car and turn |
| whole lot of extras and get thoroughly exploited | | | | the engine on, without actually driving it. Mechanics |
| on a daily basis. Unlike rentals, usage of company | | | | and guests are not allowed to see the cars until |
| cars varies greatly from the executive luxury | | | | after the sale is completed. Some auction |
| sedan driven slowly and carefully on occasion to | | | | locations inspect and prepare the cars for sale if |
| the delivery truck that regularly mounts curbs and | | | | the listing dealer so chooses (at a premium). More |
| gets abused in city traffic. | | | | extensive reconditioning is also available. |
| Repossessed: vehicles can be voluntarily or | | | | Dealer auctions are an indispensable clearinghouse |
| involuntarily repossessed by financial institutions | | | | of used vehicles, offering both a wider exposure |
| for delinquency or another reason for recall. Auto | | | | to selling dealers as well as an unmatched variety |
| auctions are again the bank's only option for | | | | to buyers. Understanding how these car dealer |
| deliverance. | | | | auctions work and what to expect to find there |
| Advantages: repossessed vehicles can feasibly sell | | | | helps alleviate some of the anxiety related to |
| for less because the financial institution disposing | | | | taking part in them. |
| of them only seeks to offset its losses (also | | | | |