You know how every Star Wars movie has a janky flea market full of aliens and rusty junk? That’s pretty much how wholesale car auctions feel, and it’s probably where your used car came from.
This is where used car dealers get their inventory, and it’s a complex and stressful process.
Used car lots don’t get their inventory from trade-ins. At least, not directly. Many buy most of their cars through auctions.
I’ve always been curious about these mysterious used car dealer auctions so I jumped at the chance to go along with Josh, owner of a local dealership, when he invited me to one of his weekly auction visits.
The auction we went to was a huge one, held at a dealer in Austin. Cars were scattered everywhere. They weren’t the most visually appealing bunch you’d ever seen since absolutely no attempt was made to make them look even remotely appealing. Only two out of the hundred or so cars looked good with the rest of them hovering between average and downright dilapidated.
It was like a flea market where people are trying to get rid of their unwanted trash. You have to sort through all that garbage carefully because you never know. Someone’s junk could be someone else’s highly desired treasure that they will pay lots of money for.
At some dealer auctions, the cars are clearly marked with major issues they might have—like an oil leak, transmission problems or missing brakes. But the auction I was at was known as a “red light” auction. This means that what you see is what you get.
You could be getting a Civic that is pieced together with parts from a lawnmower and a refrigerator or you could be getting a car that could net you fifteen grand in profit.
At a red light auction you can test drive the cars which you can’t do at most auctions. That might sound great in theory, but in reality, you don’t have time to drive much of anything. The auction organizers move things along pretty quickly so you have to make your decisions quickly. No time for dilly-dallying.
Because there are so many vehicles to look at, you have to be pretty focused on what you want to bid on. The cars that appear to be in the best shape aren’t always the best deals because they’re more expensive to purchase.
The goal at an auction is to buy cars for the cheapest possible price and then sell them for as much as possible so that you can maximize your gains. This means that you need to look past all the superficial defects and be undeterred by cars that smell like a landfill inside.
There were a quite a few vehicles, like one Mercedes R350 and an Infiniti SUV, that had horrific interiors. These grimy toddler-movers had more stains than a 50-year-old Craigslist mattress. They were also covered with dents. Shit gets real in the suburbs, man.
But the lack of cleanliness and dings everywhere can be easily addressed. What you’d want to avoid is acquiring a cosmetically disastrous child transporter that is also a mechanical horror story. Although it may not be a bad idea to stay away from these vehicles completely in case a psychotic soccer mom comes after you after spotting their old beat up Odyssey on the road.
Josh buys a variety of cars that he knows he can fix up and sell easily. They are usually higher mileage ones since those tend to have the highest sale to purchase price ratio. As long as a car isn’t a maintenance nightmare or on the verge of disintegrating, it can be a moneymaker.
He showed me how to quickly glance at these vehicles and make some quick assessments—like checking for valve cover gasket leaks on a BMW Z4 which are common. Or listen closely to the exhaust at start-up for engine issues. Anything that will be too expensive to fix or take too much time in the shop wouldn’t be worth it to flip.
He also checks for structural defects to make sure the car isn’t duct-taped together. Knowing which problematic vehicles to avoid, like a 2006-07 E-class Mercedes with V6 engines that have destructive balance shaft issues, can prevent a massive headache down the road.
You better know what you’re doing though because just two or three bad car purchases from auctions can force you to go out of business before you even get started. There are so many things to look for that a newbie in this game, taking a stab at this alone, would probably go home crying. It’s best to team up with someone that has enough experience and knowledge to help you avoid the pitfalls.
Once the bidding process starts you have to instantly get your act together because it all takes place at lightning speed. As each car is driven up, the auctioneer starts speaking insanely fast which sounds like complete gibberish: “arkiloo-parkeena-korako, three thousand” and baaam, the car is gone. Just like that.
Wait. What just happened?
After paying closer attention and following along for a few more bids, it looks like the price starts at what the organizers ideally want for the car, say $7,000 for the gross R350. If that doesn’t work they keep dropping the price until someone finds it attractive enough to bid on. Then as long as others are interested, the bid keeps going up until it doesn’t and the car is sold. What’s more difficult than understanding what the auctioneer is saying is figuring out who is actually bidding.
Unlike a traditional auction, no one is holding up a card or raising their hand. It’s usually something much more subtle like a head nod, a thumbs up or a wink. Everyone has their own surreptitious way of bidding and there’s a reason why it works this way.
It’s like playing poker. You don’t want to reveal what you’re bidding on because it’s a competition and if you show too much interest, someone might outbid you. You’re in a room full of sharks and everyone wants to make as much money as they can. Sure, they may be willing to work with you to some extent, but this is a cutthroat, ruthless and unforgiving business. Get rich or die trying! Or just die from stress.
Not everyone walked away with a car. If the price isn’t right you shouldn’t buy a car. It’s important to keep emotions out of this and only look at the purchases from a pure financial perspective. If I were to ever take a crack at this—and who knows, I might—I would need someone like Josh to help me out.
Otherwise, I’m sure I’d either be homeless after just one auction or end up in the hospital from a heart attack.