My father was a car dealer all his life and I’ve been in the industry now for over thirty years. Some of the reasons dealers sell cars at auction may surprise you.
The three most common reasons dealers sell cars at auction include:
- Dealer overstocked
- Model not in demand
- Quality control
In this post, you’ll learn the reasons most dealers send cars to auction.
1 Dealer Overstocked
New models typically arrive in showrooms in time for spring. Dealers often do a big clear out of part exchange stock in anticipation of volume sales and volume trade-ins. The dealer may need the physical space on the lot and or need the working capital in preparation for the busy season ahead.
Many dealers simply need to reach a certain dollar number in sales every month to satisfy investors, accountants, finance companies or banks, etc. In that respect the car auction is like the stock exchange, it turns the cars into cash really quickly, however, the dealer may not like the price.
2 Model Not In Demand
Every dealer collects cars that just don’t attract customers, and the reasons might be as simple as poor specifications like no a/c or an unattractive color. Like clothes fashion, car colors come in and out of vogue. Our tastes in cars are always changing, and they often change really quickly.
Customers today want SUV type Crossover vehicles, Sedans don’t sell very well in today’s market.
So imagine a dealer with a ton of Sedans and not enough Crossover style cars. If the dealer isn’t selling cars they aren’t making money. Makes a ton of sense to sell now performing stock at a loss and restock with a more saleable and profitable model.
And that’s exactly what dealers do. Very often a big dealer will give a car sixty or ninety days on the lot, if it doesn’t sell it’s shipped to the auction house where they accept a much lower price than the lot sticker price.
The dealer can accept a lower price because they don’t stand over the car with a guarantee.
3 Quality Control
Dealerships have a reputation to maintain most have no wish to sell a faulty car, it’s not good for business. Most good dealerships have a policy of not selling cars over a certain age, mileage, or if accidentally damaged. However, they will still accept an inferior car as a part exchange.
The low-quality trade-ins don’t spend any time on the lot, they are washed vacuumed, and sent to auction, and sold as is with all their faults. Many of these cars are still pretty good cars at a price, they just don’t quite have the five-star quality the dealer needs for the lot.
Auction Buying Tips
I’ve been buying cars for years at auction and here are my top tips:
- Do a dry run before actually buying a vehicle. Auction houses are a strange fast moving environment, often it’s difficult to understand what the auctioneer is even saying.
- Bring somebody that knows about cars.
- Avoid accident damaged and poorly repaired cars.
- Invest a few dollars to check the vin number against a data base. An audit with a company like VinAudit (links to VinAudit) will guard against Mileage fraud, Salvage rebuilds, Title washing and Vin cloning.
- Have a max budget and don’t exceed it.
- Take a warranty if there’s one on offer.
- Take a test drive if available.
- Show up long before the auction kickoff and view the cars on dry day in daylight.
- Ask auction staff drivers about the cars you’re interested in, they’ll often give you the heads up on issues like hard starting etc.
There are a ton of good cars at auctions, take your time and you’ll get it right.