Shopping Tip: Auto Auction Hints

Can you really get a good deal at an auction?

More TCC Car Shopping Tips

If you're in the market for a good deal on a previously owned car or truck, there's an alternative to the used car lot and thumbing through classified ads: vehicle auctions.

It used to be that auctions were primarily "insider-only" events open to buyers representing dealerships and so on. The cars would be bought at wholesale prices, then resold at full mark-up to the consumer.

However, it's now quite common for vehicle auctions to be open to the public. Some are conducted by federal, state, or local governments disposing of former fleet (and asset forfeiture) vehicles. (See the General Service Administration's auction Web site at www.autoauctions.gsa.gov, for an example.) Other auctions are run by private concerns (for example, charities such as Goodwill Industries; see http://cincinnatigoodwill.org/donating/autoauction.html) or wholesalers who earn money by taking a cut off the top of the sales price of auctioned-off dealer trade-ins, excess inventory, and so forth.

There are also online auctions, eBay Motors being the one most people have some familiarity with.

Pluses and minuses

Whether the traditional kind or the online variety, auctions have a number of advantages over the used car lot or the classified ads as well as a couple of potential disadvantages to be aware of.

The first and biggest advantage is price. In most cases (excepting rare, antique/classic, and special interest vehicle auctions) the winning bidder will pay less for a given make/model of vehicle than he would to acquire a similar vehicle at a used car lot. The bidding generally starts at or below the average wholesale value of the car or truck in question, as opposed to the full retail price you'd be haggling over at a dealership. The difference between the wholesale and retail value can be as much as 20-40 percent or more, depending on the car in question - and how much fellow bidders are willing to offer for the vehicle.

Another factor is that a vehicle being auctioned can be sold for less in part because the auction company's costs are lower than a dealership's, which would have to maintain the car on its lot for perhaps weeks on end, as well pay to service, clean-up, and otherwise "detail" the vehicle to make it presentable for sale.

The first and less obvious disadvantage of buying a vehicle at auction is related to the advantage described above. At an auction, you won't have much as much time to check out the vehicle as you might at a dealership lot. A test drive is unlikely, so it will be harder to gauge the vehicle's mechanical condition until after you've purchased the car or truck.

Auctioned vehicles, unlike the ones on most reputable used car lots, often have not been "detailed," much less had any required service done. The car you buy may or may not pass safety/emissions inspection and could have significant problems you'll end up having to pay to repair. While there are legal protections - and depending on the auction, there may even be a guarantee of some kind - it's nonetheless harder to successfully seek redress against an auction (which may be owned by an out of state company or otherwise hard to get at) than it is to pursue a grievance against a dealership or a private individual.

Finally, be aware you'll have to make a quick decision when the moment arrives. And if you haven't prepared yourself to make the right one, the "actual retail price" (as Bob Barker might put it) could end up being much higher than your bid.

Here are some important tips to help keep you on the upside of any vehicle auction:

Get there early. This way, you can (where possible) at least do a thorough "walk-around" inspection of any vehicle you are interested in bidding on. If you are not very familiar with automobiles and where to look for signs of trouble, either bring a friend who is or give serious thought to being a spectator rather than a buyer, at least until you are more knowledgeable. It takes a good eye and hard-won horse-sense to separate the wheat from the chaff just by looking at a vehicle.

Never, ever bid on a car whose value range (based on such sources as the National Automobile Dealers Association's used car pricing guides) you don't already know. Understand the difference between "wholesale" and "retail" values and how options, mileage and condition can affect a vehicle's fair market value. Keep a clear head; don't bid more for any car than it's actually worth.

Run a Carfax, if you can, before the bidding starts. If you get to an auction early, you can jot down the Vehicle Identification Number (VIN) of any car you are interested in and use your laptop to quickly run a check with Carfax (www.carfax.com) to find out whether there is anything unusual in the car's past - such as evidence of odometer fraud, flood damage, major accidents, and so on. With online auctions such as eBay, this is much easier as the auctions typically run for several days at least, giving you ample time to check the VIN.

Be certain the paperwork is clear before any money changes hands. If you don't have a clean, transferable title, the car is useless no matter how little you paid for it. This is especially critical with online auctions conducted at a distance. Never send full payment until you have confirmed the paperwork. An escrow service is strongly recommended. You can send the seller a down payment to hold the vehicle, with the balance due at the time the vehicle itself (and the paperwork) changes hands.

Never, ever send full payment for a vehicle purchased online prior to confirming the vehicle actually exists. There have been some extremely unfortunate cases of fraud on eBay; caveat emptor are words to live by.

The people who have the most success at auctions come informed, knowing what they want and what they are willing to pay. They don't buy on impulse and they always pay attention to that "little voice" warning them something seems fishy. If you do the same, you'll enjoy the experience and drive home a deal you'd probably never swing at your local used-car lot.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE