Dealer Auctions: An Inside Look at How Car Dealers Buy and Sell Vehicles

Dealer Auctions: An Inside Look at How Car Dealers Buy and Sell Vehicles

Blog Article

Dealer auctions are exclusive events where licensed car dealers buy and sell vehicles among themselves. Unlike public auctions, these auctions are restricted to professionals in the automotive industry. Dealer auctions are a key part of the car business, allowing dealerships to replenish their inventory or offload vehicles quickly. Understanding how these auctions work and why they are critical to the car dealership world provides insight into the mechanics of the used car market.

What Are Dealer Auctions?
Dealer auctions are wholesale auctions designed for licensed automotive dealers. These auctions serve as a marketplace for dealerships to trade vehicles, enabling them to refresh their inventory with minimal hassle. Vehicles sold at dealer auctions can come from a variety of sources:

Trade-ins: Cars that customers have traded in at a dealership.
Rental or Fleet Companies: Companies like Hertz or Enterprise regularly cycle out their inventory and send their vehicles to auction.
Leasing Companies: After lease terms expire, many vehicles are sold at dealer auctions.
Off-lease Vehicles: Cars returned at the end of their lease period that dealers don’t keep for their own lots.
Manufacturer Sales: Occasionally, manufacturers sell excess inventory or program vehicles (e.g., cars used for test drives or corporate vehicles).
Repossession and Foreclosure Vehicles: Cars repossessed by banks or financial institutions when the owner defaults on payments.
These auctions tend to offer a wide range of vehicles, from newer models to cars with higher mileage. For dealers, this provides a convenient and consistent source of inventory, especially for used cars.

How Do Dealer Auctions Work?
While dealer auctions are similar in structure to public auctions, they operate under stricter rules and procedures tailored to dealers:

Registration: Only licensed dealers can participate, and they must first register with the auction house, providing proof of their dealer license. Online platforms also require license verification.

Inspection: Prior to the bidding, dealers can inspect the vehicles either in person or through a virtual inspection process. Most auctions offer detailed vehicle reports, including accident history, odometer readings, and mechanical assessments. This helps dealers assess the condition of the car before making a bid.

Bidding Process: The actual bidding happens fast, either live or online. Dealers compete to offer the highest bid for a vehicle, which may take only a few seconds per car. Bids can be placed in person, over the phone, or through online auction platforms.

Sold or Passed: Once the bidding is over, if the highest bid meets or exceeds the seller's reserve price (the minimum amount they’re willing to accept), the car is sold to the highest bidder. If the reserve is not met, the car may go unsold or be relisted.

Payment and Pickup: Once the auction is finished, the buyer pays the auction house and arranges to have the vehicle picked up or delivered to their dealership.

Types of Dealer Auctions
Dealer auctions can vary in format and specialization. Here are a few common types:

Physical Dealer Auctions: These are held in large auction houses where dealers can view the cars in person. The bidding takes place on-site, and the cars are driven through the auction lanes.

Online Dealer Auctions: These allow dealers to bid from the comfort of their office or home. Popular platforms like Manheim and Adesa offer both live and timed auctions where dealers can browse vehicles, place bids, and complete transactions online.

Simulcast Auctions: These combine physical and online bidding. Dealers attending in person and those logged in remotely can bid on the same vehicle simultaneously.

Specialty Auctions: Some dealer auctions focus on specific types of vehicles, such as luxury cars, classic cars, or salvage vehicles. These auctions cater to dealers who specialize in niche markets.

Advantages of Dealer Auctions
Access to Inventory: Dealer auctions provide a constant supply of vehicles, allowing dealerships to replenish their stock with fresh inventory, often at lower prices than retail.
Variety: From high-end luxury cars to budget-friendly models, dealer auctions offer a diverse range of vehicles. This variety helps dealers cater to different segments of customers.
Wholesale Pricing: Because these auctions are wholesale events, dealers often purchase cars at prices far below retail. This enables them to turn a profit when reselling the vehicles at their dealerships.
Speed and Efficiency: Auctions are fast-paced events, allowing dealers to buy multiple vehicles in a short amount of time. This is crucial for dealers who need to quickly fill their lots with new inventory.
Industry-Specific Resources: Many dealer auctions offer tools and services tailored to dealerships, such as financing options, delivery services, and post-sale inspections.
Disadvantages of Dealer Auctions
Risk of Mechanical Issues: While many dealer auctions provide vehicle history reports and mechanical inspections, vehicles are often sold "as is." Dealers need to be prepared to handle repairs if issues arise after the sale.
Bidding Competition: Dealers may face stiff competition, especially for in-demand models or well-maintained cars. This can drive prices higher than anticipated, reducing potential profits.
Fee Structure: Auction houses charge fees to both buyers and sellers. Dealers need to account for these costs when calculating their potential profit margins.
Limited Time for Inspection: Physical inspections at dealer auctions are often brief. Dealers may have to rely on visual inspections or third-party assessments, increasing the risk of purchasing a car with hidden problems.
How Dealers Benefit from Selling at Auction
For dealers looking to sell cars, auctions provide a quick way to move inventory. Rather than keeping cars on the lot for long periods, they can send slow-selling or surplus vehicles to auction for fast turnover. Auction houses typically handle the transaction process, minimizing the seller’s involvement.

Selling Tips for Dealers:

Set a Realistic Reserve Price: When setting the reserve price, dealers need to factor in auction fees and the potential for repairs.
Prepare the Car: A well-presented car tends to fetch higher bids. Simple fixes like a thorough cleaning or minor cosmetic repairs can significantly increase the sale price.
Understand the Auction Process: Different auctions have different rules. Dealers should familiarize themselves with how fees, payments, and returns are handled at each auction.
Move Slow-Moving Inventory: Cars that have been sitting on a lot too long may lose value. Sending these vehicles to auction can help dealerships recoup some costs and make room for more desirable inventory.

Dealer auctions are an integral part of the automotive industry, allowing dealerships to buy and sell cars efficiently. With access to wholesale pricing, a wide variety of vehicles, and fast transactions, these auctions help dealerships maintain a healthy inventory. However, success in dealer auctions requires preparation, a thorough understanding of the auction process, and careful attention to potential risks. By mastering the art of auction bidding and selling, dealers can maximize their profits and keep their lots stocked with attractive vehicles.