Auto auctions are a method of selling
vehicles
A vehicle (from la, vehiculum) is a machine that transports people or cargo. Vehicles include wagons, bicycles, motor vehicles (motorcycles, cars, trucks, buses, mobility scooters for disabled people), railed vehicles (trains, trams), ...
based on an
auction
An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition ex ...
system. Auto auctions can be found in most countries and are usually exclusive to licensed
automobile dealers. In a few countries, such as
Japan, auto auctions are well known and used by most residents.
Country specific
Japan
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 system allows people to have access to information, but keeps 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 dealerships 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. Additionally, there are more smaller auctions held for specialized items. Furthermore, large numbers of cars in Japan are auctioned
online
In computer technology and telecommunications, online indicates a state of connectivity and offline indicates a disconnected state. In modern terminology, this usually refers to an Internet connection, but (especially when expressed "on line" o ...
, using various types of
auction software
Auction software is application software, that can either be deployed on a desktop, on a web server or as a smart contract on a blockchain virtual machine. This software is used by auctioneers and participants of online auctions such as eBay. Sm ...
. Auction
inspection sheets
A bed sheet is a rectangular piece of cloth used either singly or in a pair as bedding, which is larger in length and width than a mattress, and which is placed immediately above a mattress or bed, but below blankets and other bedding (such as ...
allow buyers and inspectors to evaluate the worth of a car over such systems.
United States
In the United States, auto auctions play a major role as a wholesale market for second-hand vehicles. Most states only allow closed auctions, meaning only dealers can use them. As of 2018, there were 139 used car-auction sites in the US open only to car dealers. There are also auctions that are open to the public in a few states like
New Hampshire
New Hampshire is a state in the New England region of the northeastern United States. It is bordered by Massachusetts to the south, Vermont to the west, Maine and the Gulf of Maine to the east, and the Canadian province of Quebec to the nor ...
and
Pennsylvania
Pennsylvania (; ( Pennsylvania Dutch: )), officially the Commonwealth of Pennsylvania, is a state spanning the Mid-Atlantic, Northeastern, Appalachian, and Great Lakes regions of the United States. It borders Delaware to its southeast, ...
. These auctions are a primary outlet for
financial services firms to dispose of their large volume of off-
lease
A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial ...
returns, for
rental
Renting, also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for a ...
and other companies to sell off their aging
fleets and for
car dealership
A car dealership, or car dealer, is a business that sells new or used cars, at the retail level, based on a dealership contract with an automaker or its sales subsidiary. Car dealerships also often sell spare parts and automotive mainte ...
s to
dump trade-ins or other unwanted
inventory. Some auctions in the United States are used by
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s, the
IRS
The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...
, and other
government agencies
A government or state agency, sometimes an appointed commission, is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an administratio ...
to sell vehicles that were
repossessed for failure to make monthly payments or pay taxes, or were seized by the
FBI
The Federal Bureau of Investigation (FBI) is the domestic intelligence and security service of the United States and its principal federal law enforcement agency. Operating under the jurisdiction of the United States Department of Justice, t ...
,
DEA
The Drug Enforcement Administration (DEA; ) is a United States federal law enforcement agency under the U.S. Department of Justice tasked with combating drug trafficking and distribution within the U.S. It is the lead agency for domestic en ...
, or the
police
The police are a constituted body of persons empowered by a state, with the aim to enforce the law, to ensure the safety, health and possessions of citizens, and to prevent crime and civil disorder. Their lawful powers include arrest and th ...
. Also, there are some that sell
US Government
The federal government of the United States (U.S. federal government or U.S. government) is the national government of the United States, a federal republic located primarily in North America, composed of 50 states, a city within a feder ...
vehicles and those catering to the salvage market where
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
companies sell
totaled
In insurance claims, a total loss or write-off is a situation where the lost value, repair cost or salvage cost of a damaged property exceeds its insured value, and simply replacing the old property with a new equivalent is more cost-effect ...
vehicles. Finally, there is a niche classic and luxury car market for $1 million-plus cars.
Online auto auctions are also growing in popularity. One of the most popular
online auction
An online auction (also electronic auction, e-auction, virtual auction, or eAuction) is an auction held over the internet and accessed by internet connected devices. Similar to in-person auctions, online auctions come in a variety of types, with ...
s to buy cars from is
eBay Motors
eBay Inc. ( ) is an American multinational e-commerce company based in San Jose, California, that facilitates consumer-to-consumer and business-to-consumer sales through its website. eBay was founded by Pierre Omidyar in 1995 and became a ...
. 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
A fee is the price one pays as remuneration for rights or services. Fees usually allow for overhead, wages, costs, and markup. Traditionally, professionals in the United Kingdom (and previously the Republic of Ireland) receive a fee in cont ...
associated with selling a vehicle on eBay. Some 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. There are several cases of
scam
A confidence trick is an attempt to defraud a person or group after first gaining their trust. Confidence tricks exploit victims using their credulity, naïveté, compassion, vanity, confidence, irresponsibility, and greed. Researchers hav ...
s associated with popular online auctions.
With the reduction in travel in 2020 due to the
COVID-19 pandemic
The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identi ...
, United States-based auto auctions companies, like Illinois-based
Insurance Auto Auctions
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
and
Copart
Copart, Inc. or simply Copart is a global provider of online vehicle auction and remarketing services to automotive resellers such as insurance, rental car, fleet and finance companies in 11 countries; the US, Canada, the UK, Germany, Ireland, ...
in
Dallas
Dallas () is the List of municipalities in Texas, third largest city in Texas and the largest city in the Dallas–Fort Worth metroplex, the List of metropolitan statistical areas, fourth-largest metropolitan area in the United States at 7.5 ...
, saw rapid growth as rental companies shrunk their fleets significantly. This has drawn some controversy, with numerous race tracks being sold and repurposed as storage facilities for these companies.
United Kingdom
The majority of vehicles entered into auction in the UK are ex-company fleet vehicles 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 Governments, private sellers, and car dealerships.
Dealer auto auctions
A dealer auto auction is a specialized form of auction. Millions of vehicles are sold at such dealer auto auctions every year. These auctions are restricted to 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 less than
retail
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and ...
for a number of reasons.
Maintaining aging inventory costs dealers both money and reputation. Most vehicles sold are off-lease returns, replaced
rental
Renting, also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for a ...
fleets, company cars, repossessed vehicles, and trade-ins.
* 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 institution
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial inst ...
s 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
In contract law, a warranty is a promise which is not a condition of the contract or an innominate term: (1) it is a term "not going to the root of the contract",Hogg M. (2011). ''Promises and Contract Law: Comparative Perspectives''p. 48 Cambri ...
expires.
* Off-rental: rental car 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
Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabilit ...
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
An automatic transmission (sometimes abbreviated to auto or AT) is a multi-speed transmission used in internal combustion engine-based motor vehicles that does not require any input from the driver to change forward gears under normal driving ...
, 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
In statistics, a normal distribution or Gaussian distribution is a type of continuous probability distribution for a real-valued random variable. The general form of its probability density function is
:
f(x) = \frac e^
The parameter \mu ...
of all types of drivers in all kinds of conditions.
* Company/fleet cars: companies of varying sizes own or lease cars,
truck
A truck or lorry is a motor vehicle designed to transport cargo, carry specialized payloads, or perform other utilitarian work. Trucks vary greatly in size, power, and configuration, but the vast majority feature body-on-frame constructi ...
s 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 may not have many optional features and may gey exploited on a daily basis. Unlike rentals, usage of company cars varies greatly from the luxury
sedans driven carefully on occasion to delivery trucks that regularly mounts curbs and gets abused in city traffic.
* Repossessed: vehicles can be voluntarily or involuntarily
repossessed by financial institutions for several reasons, including late payments, undisclosed past credit issues, or failure to maintain full coverage insurance. Auto auctions are the most common method of disposing of repossessed vehicles. 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 lack of maintenance. There is also the potential for
sabotage
Sabotage is a deliberate action aimed at weakening a polity, effort, or organization through subversion, obstruction, disruption, or destruction. One who engages in sabotage is a ''saboteur''. Saboteurs typically try to conceal their identitie ...
from ill-meaning previous users (e.g., extensive keying or destruction of the interior).
* Trade-in: dealer inventory that is aging or does not meet their market positioning (e.g., an old car that was traded in for a new one at a different brand of
franchised dealership). Traded-in cars sometimes have
after market modifications that may affect their marketability. The overall condition of vehicles also varies. Some vehicles may be much 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 to auto recyclers who will part out the remaining parts of the vehicle that have not been damaged.
Among these types of vehicles, there are quality cars ready to market.
Late model
A late model car is a car which has been recently designed or manufactured, often the latest model. (An early model car or classic car is a car old enough to be of historical interest; there is no usual intermediate term.)
The precise definition ...
s 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 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 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 price
In economics, a reservation (or reserve) price is a limit on the price of a good or a service. On the demand side, it is the highest price that a buyer is willing to pay; on the supply side, it is the lowest price a seller is willing to accept ...
s 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 a vehicle's appearance may suffer in the term of everyday use and result in any of the following damages: stained or otherwise used
upholstery
Upholstery is the work of providing furniture, especially seats, with padding, springs, webbing, and fabric or leather covers. The word also refers to the materials used to upholster something.
''Upholstery'' comes from the Middle English w ...
, scratched
bumpers, dings on the doors, chipped
hood
Hood may refer to:
Covering
Apparel
* Hood (headgear), type of head covering
** Article of academic dress
** Bondage hood, sex toy
* Hoodie, hooded sweatshirt
Anatomy
* Clitoral hood, a hood of skin surrounding the clitoris
* Hood, a flap of ...
, dented
quarter panel
A quarter panel (British English: rear wing) is the body panel (exterior surface) of an automobile between a rear door (or only door on each side for two-door models) and the trunk (boot) and typically wraps around the wheel well. The similar f ...
s. Most of these can be fixed with touch-up paint and/or a
dent
Dent may refer to:
People
* Dent (surname)
* Dent May (active 2007), American musician
* Dent Mowrey (1888–1960), American composer, musician and music teacher
* Dent Oliver (1918–1973), international speedway rider
Places France
* Dent d' ...
removing kit. Scraped wheels and worn tires may cost more to repair or replace.
Inspection
Pre-sale
vehicle inspection
Vehicle inspection is a procedure mandated by national or subnational governments in many countries, in which a vehicle is inspected to ensure that it conforms to regulations governing safety, emissions, or both. Inspection can be required at va ...
or test-driving is allowed at some auctions. 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 that can determine mechanical or frame damage issues and 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 is free of mechanical or frame damage issues.
Inventory finance
Most car dealerships do not pay cash for the vehicles they buy at auto auctions. They rely on inventory financing, a line of credit extended by a bank or other institution to acquire vehicles. This is known in industry parlance as
floorplanning (floor planning) or simply "flooring" vehicle inventory.
[http://www.sba.gov/content/what-floor-plan-financing ] Specialty finance companies cater to the used car dealer industry.
See also
*
Most expensive cars sold in auction
This is a list of the most expensive cars sold in public auto auctions through the traditional bidding process, that of those that attracted headline grabbing publicity, mainly for the high price their new owners have paid.
On May 5, 2022, in a s ...
*
Online auction
An online auction (also electronic auction, e-auction, virtual auction, or eAuction) is an auction held over the internet and accessed by internet connected devices. Similar to in-person auctions, online auctions come in a variety of types, with ...
References
External links
*
{{DEFAULTSORT:Auto Auction
Contexts for auctions
Auto dealerships
Used car market