Auto auctions are a method of sellingvehicles based on anauction system.[1] Auto auctions can be found in most countries and are usually exclusive to licensedautomobile dealers. In a few countries, such asJapan, auto auctions are well known and used by most residents.
Auto auctions are the most popular method to sell used vehicles in Japan.[2] 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.[3] In Japanese law, only dealerships may become members of 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 alsoused 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.[4] Additionally, there are smaller auctions held for specialized items. Furthermore, large numbers of cars in Japan are auctionedonline, using various types ofauction software. Auctioninspectionsheets allow buyers and inspectors to evaluate the worth of a car over such systems.[5]
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.[6] As of 2018, there were 139 used car-auction sites in the US open only to car dealers.[7] There are also auctions that are open to the public in a few states likeNew Hampshire andPennsylvania.[8] These auctions are a primary outlet forfinancial services firms to dispose of their large volume of off-lease returns, forrental and other companies to sell off their agingfleets and forcar dealerships todump trade-ins or other unwantedinventory. Some auctions in the United States are used bybanks, theIRS, and othergovernment agencies to sell vehicles that wererepossessed for failure to make monthly payments or pay taxes, or were seized by theFBI,DEA, or thepolice.[9][10] Also, there are some that sellUS Government vehicles and those catering to the salvage market whereinsurance companies selltotaled vehicles. Finally, there is a niche classic and luxury car market for $1 million-plus cars.[11][12]
Online auto auctions are also growing in popularity. One of the most popularonline auctions to buy cars from iseBay Motors.[13] 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 afee associated with selling a vehicle on eBay.[14] 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.[15] There are several cases ofscams associated with popular online auctions.[16]
With the reduction in travel in 2020 due to theCOVID-19 pandemic, United States–based auto auctions companies, like Illinois-basedInsurance Auto Auctions andCopart inDallas, saw rapid growth as rental companies shrunk their fleets significantly.[17][18] This has drawn some controversy, with numerous race tracks being sold and repurposed as storage facilities for these companies.[19][20]
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.[21] 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.
Adealer 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 thanretail for a number of reasons.
Maintaining aging inventory costs dealers both money and reputation. Most vehicles sold are off-lease returns, replacedrentalfleets, company cars, repossessed vehicles, and trade-ins.[22]
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 asjunk, 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.
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 interestedbidders or if the vehicle is exceptionally unattractive and should not be taken for granted. Many sellers putreserve prices on their stock specifically to prevent this from happening. The reserve price is not disclosed publicly and a “winning” auction offer price 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.
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 usedupholstery, scratchedbumpers, dings on the doors, chippedhood, dentedquarter panels. Most of these can be fixed with touch-up paint and/or adent removing kit. Scraped wheels and worn tires may cost more to repair or replace.
Pre-salevehicle 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.
Most car dealerships do not pay cash for the vehicles they buy at auto auctions.[23] They rely on inventory financing, a line of credit extended by a bank or other institution to acquire vehicles.[24] This is known in industry parlance asfloorplanning (floor planning) or simply "flooring" vehicle inventory.[25] Specialty finance companies cater to the used car dealer industry.
Auto Auction announcements[26] are usually displayed on a screen behind the auction block. Auction announcements contain information to help Dealers make better informed decisions. These announcements can offer information about the vehicles history, such as former Taxi or Fleet use, the vehicles Title status, such as Title Absent, Salvage or Buy Back, and if the vehicle has any major mechanical issues. Auction announcements may also use a light system consisting of red, yellow, and green to draw attention to additional information. This information may pertain to liens, odometer discrepancies, and other vehicle issues.
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