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Automobiles: Car Auctions. Are they a Deal?

Car Auctions. Are they a Deal?

An auction is defined as a public sale in which property or items of merchandise are sold to the highest bidder. Auctions are interesting because you never know how they end up. A car may be "worth" $50,000 in the Blue Book or Black Book guides, but the bidders at that auction may only bid up to $45,000. On the other hand, and unusual car in good shape and in a good market, with good auction bidders may end up selling for more.

But there are 5 main categories of auctions that we'll cover here, as these apply to the most amount of people. These are:

  • Online auto auctions like eBay Motors auto auctions and Yahoo Auctions.
  • Wholesale Auto Auctions (Usually dealer to dealer type auctions)
  • Public Auto Auctions (Open to any sucker. Oops, I meant consumer).
  • Police Auctions & Government Auctions (Usually open to anyone)
  • Insurance Auto Auctions & Salvage Auto Auctions (Usually open to only to dealers)
Auctions can be dangerous because that's where the junked, flooded, and rebuilt cars are most likely to be found. Watch for the phrase "As Is," which basically means there is no warranty, and the deal is final unless the title turns out to be fraudulent.

Sellers can make all sorts of verbal promises, without putting it in writing. Without a written contract, it's your word against theirs, and they always win. At auctions, assume the worst case. And if you end up needing legal help, a used car is rarely worth $300 per hour legal fees.
Classic Truck

Car Quality

Some of the better auctions indicate vehicle mileage on the windshields, so you can rapidly scan a row of cars for those that meet your mileage requirements without having to look inside to check the odometer.

At auctions, because you don't have time to take the car to a mechanic to review the mechanical condition of the car. To make sure the car isn't stolen or has liens against it, you should do a quick title and lien check on the car, using CarFax, before bidding on a vehicle. You can usually do this before the auction, when the auction notice is sent out with descriptions of the cars (and their VIN #s).

Some bidders at car auctions use an Elcometer digital coating thickness gauge (about $600-700) to measure the thickness of the paint to the metal. While factory paint jobs are usually 4.5 mils thick, any bodywork or additional paint jobs will be indicated with a higher number. As each cars move up the auction lane to be bid on, you'll notice that some bidders will touch their Elcometer to major panels, doors, hood, and trunk of the car, looking for indications of body work. Smart bidders have done this before the auction begins.

Auction Pricing

Don't get caught up in the frenzy of a bidding war and end up spending too much for a car. You are better off walking away, no matter how much you want the car, rather than overpaying for it.

At a car auction, there it typically a "buyer's premium" on top of your winning bid at the auto auction, which can be 5% or 10% of the bid value. This can add a few hundred dollars to the price you must pay. Bid carefully that this doesn't budge a price above the market value. Many auctions may require a bank draft instead, so be prepared ahead of time.

Take a Kelley Blue Book, NADA guide, or Edmunds book with you to a public auto auction. If you're going to a wholesale auto auction, bring a Black Book with you. If you have your PocketPC or Blackberry, you can surf to the car pricing web sites from the auction.

Police Auctions & Government Auctions

These typically auction off government seized vehicles, or decommissioned vehicles, which the agency no longer uses. Impounded vehicles sold at police auctions may have been sitting for a year or longer without any maintenance whatsoever. Don't forget you have to pay the buyer's premium to the auction house. Remember that these vehicles are sold "As Is" with no warranty, so you should still run a vehicle history report (ie CarFax) to ensure there are no surprises in car condition or ownership history. With a private sale, you have the time to take the vehicle for a mechanical inspection, so if you are not getting a much better price, you are taking a big risk on a vehicle at a police auction.

Online Auctions

Watch the auction price. If you cannot get a car for less than Blue Book, you are better off going to a local dealer. If you are the wining bidder at eBay Motors, you are contractually obligated to buy that vehicle. You might want to use eBay's escrow service, where a trust account is setup and the seller is not paid until you receive the car. The buyer and seller can also agree on an inspection period so that you can have a certified mechanic inspect the car and determine if there is any unsatisfactory damages, or needed repairs that were not disclosed by the seller.
Some issues unique to online auctions:

  • You cannot see the car in person, yet are contractually obligated to buy a car you have not seen.
  • Some sellers don't list a VIN# of the car, or they list a fake VIN#. You must run a used car title check on the VIN# to verify.
  • Some sellers don't list the correct engine configuration, or even the correct model or year. A CARFAX Vehicle History Report will straighten that out.
  • Sellers can get 20 friends to lie and hype up their rating, or post shill bids to falsely bid up the price of the car.
  • If the cars is across the country, you may have shipping fees up to $1000.

Wholesale Auto Auctions

These car auctions are for licensed car dealers only, and the general public is not allowed to attend. The cars at these auto auctions fall into these categories:

  • Cars that are returned after their lease expires.
  • Rental Cars from car rental agencies.
  • Brands of used cars that a dealer received as a trade in, but does not normally sell.
  • A new hot seller that a dealer may be able to sell over MSRP in the car auctions.
  • Exotic cars, either new or used, that some collector dealers are trying to sell.
  • Used cars over 4 years old that most major dealers don't want on their lots.
If you have a dealer friend, they may spot a car you want, and bid on it for you (and you may have to prepay the dealer, since auctions are cash on the barrel), and they will want something for their efforts. Dealers go by the Black Book (wholesale) pricing while some dealers will use the NADA guide, anything below that value is extra profit margin for them.

Selling Your Car at an Auction

If you wish to sell a vehicle, the auto auction house might charge you a $250 sellers fee (depending on the auction house) or they might charge a percent of the sale. If your car does not sell, they typically charge you the fee anyway.

Never try to auction your car at a wholesale auto auction, unless you need to dump it fast. You are generally better off to sell it on the open market, because auction prices are "wholesale," near the trade-in value.

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