Auto auction

Auto auctions are a method of selling new, and most often, used vehicles based on auction system. Auto auctions can be found in most nations, but are often unused by most people, since in most nations such as the United States, auto auctions are exclusive to used car dealers. In a few countries, such as Japan, auto auctions are well known and used, sometimes indirectly, by most residents.

Country specific

Japan

Parking lot at HAA Kobe

Auto auctions are the most popular method to sell used vehicles in Japan. Most customers are Japanese seeking a cheap vehicle to start with or replace their older vehicle. There are many also trying to sell their vehicles. Individuals though cannot directly use auto auctions, but must go through those holding auction membership. In Japanese law, only dealerships may become members to auto auctions. The way the system is set up allows people to have access to information, but keep the auctions orderly with only professionals actually able to bid.

A small percentage of the dealers that are members of Japanese auto auctions are also used vehicle exporters that most often use the auto auctions as their primary source of used vehicles. Other than these exporters, most members are used vehicle dealership that sell in Japan and are used by Japanese people to find a car they want.

In Japan there are over 30 well known auto auction groups and over 200 auto auction locations throughout Japan.^[1] Additionally, there are more smaller auctions held for specialized items. Furthermore, large amounts of cars in Japan are auctioned online, using various types of auction software. Auction inspection sheets allow buyers and inspectors to evaluate the worth of a car over such systems.^[2]

United States

In the United States, auto auctions are relatively unknown to the public at large, but play a major role as a wholesale market for second-hand vehicles. Most states only allow closed auctions, meaning only dealers can use them.^[3] There are also auctions that are open to the public in a few states like New Hampshire. These auctions are a primary outlet for financial services firms to dispose of their large volume of off-lease returns, for rental and other companies to sell off their aging fleets and for car dealerships to dump trade-ins or other unwanted inventory. Some auctions in the United States are used by banks, the IRS, and other government agencies to sell vehicles that were repossessed for failure to make monthly payments or pay taxes, or were seized by the FBI, DEA, or the police. Also, there are some that sell US Government vehicles. Finally, there are those catering to the salvage market where insurance companies sell totaled vehicles.

Online auto auctions are also growing in popularity. One of the most popular online auctions to buy cars from is eBay.com. On eBay Motors, any user can create an account and put their vehicle(s) up for auction even if they are from a state that only allows closed auctions. There is usually a fee associated with selling a vehicle on eBay.^[4] Many buyers prefer to look for local car sellers on eBay, within a certain radius so that they can go and do a manual inspection of the vehicle.

United Kingdom

The majority of vehicles entered into auction in the UK are ex-company fleet vehicles ^[5] and as such usually have a good service history and have been well kept. Car dealer groups also take advantage of auto auctions in order to sell on any excess stock whilst smaller,local car dealers will use them to fill spaces on their forecourts. Auctions in the UK are also used by banks, local and central Government, private sellers and car dealerships.

By attending car auctions in the UK you get access to a unique range of vehicles:

• Direct from the manufacturer
• Later model vehicles
• Cars available from ex-fleet, finance and lease companies
• Part-exchange motors from dealers
• Budget and family models including MPVs
• Specialist marques, Top Car and other prestige motor auctions
• Plant and Machinery
• Motorbikes
• Cars and Caravans

Reputable auto auctioneers will be members of a professional body. Look for affiliation to the National Association of Motor Auctioneers - a plaque bearing their crest should be displayed on the wall somewhere. Membership of the (NAMA) is the nearest you will ever get at motor auctions to a guarantee of fair play and honesty.

Cars and VAT

When making payment for a vehicle bought at auction it is advisable to be aware of the VAT situation. A check should be made with the sales officer regarding the VAT status of a vehicle before bidding on it. (This is not specific VAT or tax advice - check with the relevant office for the current situation)

Indemnity Insurance

On top of the hammer price, you will have to pay a small charge for indemnity insurance. This is an extremely worthwhile fee that assures that you have "good title" to the car. This indemnity normally costs only small percentage of the hammer price.

Car dealer auctions

A car dealer auction is a specialized form of auction. Millions of vehicles are sold at such 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. Most vehicles sold are off-lease returns, replaced rental fleets, company cars, repossessed vehicles, and trade-ins.^[6]

• 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 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 fleet 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; if the owner can't pay the loan, repairs could also be neglected. 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.
• Salvage: vehicles that have been in accidents, floods, fires or recovered thefts that have been purchased by insurance companies. The insurance companies sell these vehicles to dealers or body shops who will fix them and resell them, or auto recyclers who will part out the remaining parts of the vehicle that haven't been damaged.

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 some of the auctions. Mechanics and guests are not usually 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. Many auctions offer (for a fee) post-sale inspections for qualifying vehicles which can determine mechanical or frame damage issues which allow the buying dealer a window of opportunity to back out of the purchase. On the other end, sellers can also (for a fee) have their vehicles pre-sale inspected which allows purchasing dealers to buy with confidence that the vehicle passed a pre-sale inspection and if free of any mechanical or frame damage issues.

Inventory finance

Most car dealerships do not pay cash for the vehicles they buy at auto auctions.^[7] They rely on inventory financing, a line of credit extended by a bank or other institution to acquire vehicles.^[8] This is known in industry parlance as floorplanning (floor planning) or simply "flooring" vehicle inventory.^[9] Specialty finance companies cater to the used car dealer industry.

See also

• Most expensive cars sold in auction

Notes