As the shortage of new vehicles drags on, dealers are seeing fewer trade-ins. Once upon a time, they were the best source for used vehicles, but today everyone seems to be buying cars at auction to fill the lot.
Car and Driver magazine reported used car prices are up 40.5% at the beginning of the year. The result? Auto auctions are more competitive than ever.
And prices will stay high for a while. According to the New York Times, “[While] used car costs, in particular, are unlikely to climb at the same breakneck pace as last year, continued shortfalls of new vehicles could keep prices elevated — even rising — longer than economists expected.”
Some Homework Before You Go
In today’s market, before buying cars at auction, you need to do your homework. Step 1 before you go is to review the run-list of vehicles scheduled to be sold. Compare the list to the holes in your inventory. Are there auto auction cars that might fill the gaps? Is there a model that’s attractive to your customer base? Are there features that buyers in your area expect? Make sure you’re not chasing vehicles that won’t move quickly off your lot.
The next step is to learn as much as you can about the car with the CARFAX Vehicle History Report.
The CARFAX Vehicle History Report gives you vehicle information that might not be included in the auto auction’s run list. Verify actual mileage, the states where the vehicle was registered, the number of owners, and whether it’s been in service as a rental, taxi, or other commercial use. The key? Avoid problem vehicles.
Determine a Price Ceiling for Each Vehicle
Take the vehicle info you’ve downloaded from CARFAX and work backward. Start with the price you want to sell it for. Subtract reconditioning costs. Add a margin for error. You now have your maximum bid.
Dealers often use $1500 as an average reconditioning cost. If possible, look up vehicle-specific reconditioning costs to get a better estimate. Higher than expected reconditioning costs can wipe out the profit on a great buy. Most Used Car Managers have at least one of those costly skeletons in their closet.
Arrive early and take a close look at your target vehicles. Also check out anything that was just added. Carefully read the Pre-Sale Condition Report and double-check there are no other issues with the vehicles you’re watching. Sometimes, sellers and buyers have a different interpretation of what “repaired” means.
Rein in Your Competitive Nature
People are competitive. It’s part of our human nature (especially in our industry). At the auto auction it’s important to keep those instincts in check.
There will always be competition for the best cars. You’ve done your homework and have your top bid. Don’t let your “win at all costs” competitive nature kick in. Set your price ceiling on that vehicle and stick with it. To win at auction, you sometimes have to let the other guy bid above that ceiling price you set.
The seller has to disclose any issues they are aware of. But you should look for hidden issues anyway. A post-auction inspection can uncover any unforeseen problems and that’s money well spent. For a small percent of the purchase price, the auto auction will conduct a basic mechanical, structural, and flood damage inspection of the vehicle. Typically, these inspections come with a 7-day guarantee of function and condition — enough time to check the true condition of the vehicle.
The new vehicle shortage is likely to continue into 2023. That makes every source of used vehicles more important – and more competitive. And as finding trade-ins has become harder, you may be looking more to auto auctions to fill your inventory. By following a planned auction strategy, you can bid successfully for the cars, trucks and SUVs you need to keep your business healthy through these unique times.
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