What is a Car Auction and How Does it Work?

Everyone wants to get a good deal on a new vehicle, even when not buying from a car dealership. One approach is through an auction. But the average person will ask, “How do car auctions work?” It’s a legitimate question that’s easy to answer.

There’s more to auctions than making a maximum bid. Read on as we explain how car auctions work, offering simple advice for first timers and those not familiar with the auction process.

Auto auctions sell cars of varying makes, models, and conditions to the highest bidders. An auction can be held at a physical location, online, or both. Bidding may be restricted to licensed car dealers or be open to the public.

For an in-person auction, the auctioneer manages the items on the auction floor, sets the starting price, and alerts everyone when bidding begins. A bidder will raise their hand, show a bidding card, or make some other signal to place a bid. The auctioneer’s job is to sell vehicles and keep increasing the bid amount until there are no more bidders. Reaching the highest bid possible is the ultimate goal for the auction house and the seller.

Unless a minimum bid amount (called a reserve price) isn’t met, the bidder offering the highest bid wins the auction. Some auctions allow over-the-phone bidding. Online auctions are handled by computers that set bids, manage the bidding process, and determine when to end the auction.

Some auctions sell vehicles on an “as-is” basis, meaning the buyer accepts all responsibility for the car and its condition. Or it could be that the auction house includes a warranty or other assurances that the vehicle meets specific standards. New vehicles are not typically found for sale at an auction.

While bidding at a car auction may seem overwhelming initially, there are steps to follow to make the car bidding process simple and headache-free.

Private dealer auctions (also known as closed auctions) are open only to those with a car dealer license. A state’s regulations may also mandate who can attend and bid. These wholesale auctions are fast-paced and usually feature trade-ins and end-of-lease vehicles. Using one or more lanes, these cars are quickly driven past the bidders. It’s not unusual to see hundreds of cars sold during a single auction event.

Bidders can inspect the vehicles beforehand. Be aware that at auction time, these cars sell in seconds with no further announcements. Expertise is essential in this setting, as novices can easily be manoeuvred into overpaying or be overwhelmed by auction veterans. The environment can be high pressure, particularly with in-demand vehicles.

Salvage auctions offer vehicles determined to be a total loss (aka totalled) by insurance companies. The damage can come from an accident, flood, fire, or another previous-owner incident that makes the car deemed too expensive to repair by insurance companies. 

One of two things happens to cars with salvage titles bought at auctions; they are either stripped down for components or rebuilt. 

These are “as-is” vehicles, so the purchaser hopes that parts have value or that a rebuilding effort makes financial sense. These buyers want a car that hits all the profitability boxes. Depending on the auction house, salvage auctions may be open to the public. Some online public auctions allow non-dealers to participate in salvage title auction bidding.

Public vehicle auctions come in many forms, but they have one thing in common—everyone is welcome. Large public auction houses mirror wholesale auctions with rapid-fire bidding and a steady stream of vehicles. Every once in a while, you may come across the more casual business of holding live auctions. 

It’s also not unusual to encounter estate auctions with just one or two cars available for bidding. 

You may see car auctions promoted as “wholesale” but open to the public. Sometimes, this is not an actual dealer auction, just clever marketing.

Federal, state, and local government agencies sell surplus, seized, and abandoned vehicles to bidders in search of a good deal. This can involve police cars past their prime or automobiles apprehended due to criminal activity. Don’t expect to find a new car here. Government auto auctions may happen in-person or online depending on the item and agency. The highest bidder is typically expected to remove the vehicle as soon as possible (sometimes the same day).

While most government auctions are open to the public, there may be restrictions on who can bid for special equipment. For example, a selling agency may want to see that the sale of an old but usable fire truck goes to a community that needs it, not a private collector.

Thanks to the Internet, car auctions no longer require in-person bidding, so it doesn’t matter if you dress comfortably or not. Online auto auctions offer convenience and confidence as every participant gets a fair chance to bid. Research is easy, too, as detailed information and photographs are just a few clicks away. Online auction platforms are set up for digital payments and transportation services, so bidders can be across town or across the country.

Yet online bidders will find similarities with brick-and-mortar auctions. Registration and a deposit are required, and bidding can get just as heated in cyberspace as at an auction yard.

Knowing how car auctions work is the best way to prepare for bidding and winning. So instead of focusing on the auction process, you can direct your attention to where it needs to be— the cars. Familiarizing yourself with this guide is the best place to start.