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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 e ...
system. Auto auctions can be found in most countries and are usually exclusive to licensed automobile dealers. In a few countries, such as
Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the n ...
, 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" ...
, 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 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 U.S. state, 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 t ...
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 returns, for rental and other companies to sell off their aging fleets and for car dealerships to
dump Dump generally refers to a place for disposal of solid waste, a rubbish dump, or landfill. The word has other uses alone or in combination, and may refer to: * Midden, historically a dump for domestic waste * Dump job, a term for criminal disposal ...
trade-ins or other unwanted
inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying the sha ...
. Some auctions in the United States are used by
bank A bank is a financial institution that accepts Deposit account, 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 m ...
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 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 The police are a Law enforcement organization, constituted body of Law enforcement officer, persons empowered by a State (polity), state, with the aim to law enforcement, enforce the law, to ensure the safety, health and possessions of citize ...
. Also, there are some that sell
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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 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 auctions to buy cars from is eBay Motors. 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. 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 scams 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 third largest city in Texas and the largest city in the Dallas–Fort Worth metroplex, the fourth-largest metropolitan area in the United States at 7.5 million people. It is the largest city in and seat of Dallas County ...
, 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 Service (economics), services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturing, manufacturers, dire ...
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. * 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 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 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
van A van is a type of road vehicle used for transporting goods or people. Depending on the type of van, it can be bigger or smaller than a pickup truck and SUV, and bigger than a common car. There is some varying in the scope of the word across th ...
s 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 vehicle Fleet vehicles are groups of motor vehicles owned or leased by a business, government agency, or other organization rather than by an individual or family. Typical examples include vehicles operated by car rental companies, taxicab companies, ...
s 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 Franchise may refer to: Business and law * Franchising, a business method that involves licensing of trademarks and methods of doing business to franchisees * Franchise, a privilege to operate a type of business such as a cable television ...
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 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 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 accep ...
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 ...
, 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 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 * Online auction


References


External links

* {{DEFAULTSORT:Auto Auction Contexts for auctions Auto dealerships Used car market