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.
What Are Car Auctions?
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.
How Does a Car Auction Work?
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.
How to Get Started with a Vehicle 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.
- Research the Cars: Review the listings of available vehicles to see what’s of interest. You’ll want to check out the basics like the year, make, and model. But also look at each car’s condition (especially if there’s damage) and its vehicle history report, if available. Even search the vehicle identification number (VIN) to see what it reveals.
- Register: Most auctions (in-person and online) require bidders to register in advance. This step can include making a refundable deposit and providing identification, like a driver’s license. While registration is usually quick, don’t leave this to the last minute. Some auction companies may charge an entry fee or a registration fee.
- Arrive Early: Take advantage of car auctions that open their doors well before the bidding starts on auction day (and dress comfortably, too). Use this opportunity to inspect the car for damage or other conditions that may not appear in photos. Some auction companies allow prospective bidders to take the car for a short test drive or at least start the engine. Even if you’re bidding online, take some time to double check that nothing has changed about the car’s information or bidding status (it’s not unusual for a vehicle to be removed from bidding right before the auction starts).
- Establish a Price Range: It’s easy to get caught up in the excitement of bidding, but never place a bid without first having a maximum budget in mind. Set a cap by first checking online valuation tools (like Edmunds or KBB) and for-sale listings; either on an auction website or online marketplace for cars similar to the target vehicle. Remember, it’s OK if you’re not the highest bidder; let someone else overpay.
- Make a Bid: Once everything is set up (research, registration, and maximum budget), you’re ready to jump into the auction. But before raising that hand, double check you’re targeting the right vehicle (similar looking cars may cross the auction block) and that you know the bid amount. Busy auctions may have bidder assistants who spot bidders trying to get in on the action; don’t hesitate to ask questions (like confirming the current bid) or for help getting your bid noticed. A live auction is very dynamic, so making a winning bid takes effort.
- Win an Auction: Car auction winners have two primary responsibilities (as far as the auction house is concerned): paying for the car and getting it home. You’ll need to know the total charges and how the auction house wants to be paid (cash, certified check, wire transfer, ACH transfer, or credit). Most auctions assess a buyer’s premium (a percentage of the selling price added to the transaction) and additional auction fees for order processing. You’ll also need to make arrangements to transport the vehicle (many auction companies provide this service for an extra charge). Often, this has to occur the same day as the winning bid.
Types of Auto Auctions
“Auto auction” is a general term for selling a vehicle through the bidding process, but many types of auctions exist:
- closed and private dealer auctions
- salvage auctions
- public vehicle auctions
- government auto auctions
- online auto auctions
Closed and Private Dealer Auctions
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
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.
Government Auto Auctions
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.
Online Auto Auctions
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.
Car Auction Tips and Tricks
Every industry has its “tricks of the trade,” and car auctions are no different. Here are some tips to consider for success with your next auction.
- Do Your Homework: Above all else, know everything possible about a car before bidding on it. Explore the vehicle history report, conduct your own inspection (virtually or in-person), and research market prices. Uncovering some information that others might not be aware of provides an advantage; you might have more confidence to keep bidding or know when it’s time to quit. For pricier cars, consider having a mechanic inspect the vehicle ahead of the auction. You may have a specific interest, like a classic car auction, that’s worth exploring.
- Set a Maximum Budget: It’s worth repeating: set a price ceiling for an auction car and don’t go over it. It’s far better to be disappointed about missing out on a “maybe,” than going home with something overpriced.
- Look for Unpopular Cars: Everyone will be bidding on a quality SUV in the middle of winter. But if all you’re after is a good deal, consider cars that aren’t as in demand. A sedan or station wagon can do a good job hauling people and their things. And you’ll have more money for gas and repairs.
Car Auctions: Final Thoughts
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.
Where do car auctions get their cars?
Auction cars come from many sources, including car dealership trade-ins and end-of-lease vehicles. Damaged cars, which may or may not be salvaged, also come to auction. This is not the place to find a new car.
Is it a good idea to buy auction cars?
An auction car can be an excellent opportunity for a savvy bidder that knows how auctions work, is familiar with what they’re buying, and has an eye for pricing and valuations.
Why are cars at auction so cheap?
Most cars come to auction as slow sellers from car dealerships. The need to quickly off-load these used cars creates a buying opportunity for observant bidders.
What are the pros and cons of buying a car at auction?
The most significant advantage of an auction car is the potential to save money, as you’re not buying a car at retail. However, like buying used cars from private sellers, there can be uncertainty about the previous owner, the vehicle’s history, and its condition.