What is the Difference?
If you have considered buying a vehicle at an auction to re-sell and make a profit, you’re not alone.
Millions of vehicles are sold yearly at hundreds of auctions in every state. Auctions and their services vary from small locations with a handful of employees to those with thousands of employees and occupying hundreds of acres.
While public and dealer-only auctions exist to sell vehicles quickly and hassle-free, you are never buying directly from the auction. You are buying vehicles from the seller through a sale coordinated by the auction.
Dealer-only Auctions
A dealer-only (or licensed) auto auction is an event where licensed car dealers bid on used vehicles at a competitive pace, either in person or online. These auctions are not open to the general public, and the vehicles generally come from banks, rental car companies, fleet owners, or trade-ins (Where do auction vehicles come from?).
Dealers can preview the vehicles before the auction, and the winning bidder must pay for the car in full before taking possession of it. Financing is available at most auctions.
Dealer-only auctions are often the least expensive source of vehicles. Even a tiny dealer can buy vehicles at the same prices as the biggest dealerships.
Auctions often choose to be “dealer-only” to avoid the extra burden of dealing with the public bidding up the prices. Only licensed dealers, banks, manufacturers, and commercial buyers can attend. In most states, this is required by law and requested by the auction’s sellers.
Many auctions offer post-sale inspections that can verify there are no serious issues that were not disclosed in the listing. If problems are discovered, dealers can cancel or return the vehicle they bought.
Benefits associated with buying at Dealer-only auctions:
- Trustworthy inspections, disclosures, and guarantees
- Often online (simulcast) and do not require “in-person” bidding
- Detailed condition reports (with photos and videos)
- Vehicles purchased for their inventory are sales tax and DMV fee exempt
- Competing bidders must keep their bids low so that they can make a profit
- Guarantees that protect buyers and sellers
- Thousands of vehicles are available across the country
Public Auctions
Where allowed by law, public auctions are used by banks and government agencies to dispose of vehicles repossessed by lenders and seized by authorities, including local police, the FBI, or DEA.
Many public auctions are operated by used car dealers, as most states do not require a license to operate an auction.
Some states require public auctions to provide buyers with a limited warranty, guarantee the vehicle’s condition and ensure the vehicle meets the state’s smog requirements. Unless state law requires, vehicles are sold “as is” without guarantees.
Challenges associated with buying at public auctions:
- Inexperienced bidders and personal-use buyers drive up prices
- Public auctions usually charge heavy fees to buyers and sellers
- Vehicle inspections and test drives are rarely allowed
- Vehicles are locked and may not be started
- Sales tax and DMV fees must be paid
Auction Vehicles vs Trade-Ins
Auction vehicles have several advantages over trade-ins.
- Buyers receive a clear title at the time of purchase
- No outstanding loans or lienholder issues
- The vehicle can be checked and returned if issues are discovered
- Specific vehicles can be searched for vs random trades-ins that show up
Trade-ins do have their place for careful dealers wanting to add to their vehicle inventory but they are risky for dealers. Dishonest vehicle owners may try to get rid of a vehicle with hidden structural or mechanical programs. The dealer must correct these issues before selling the vehicle to a consumer.
Values can be negotiated in the dealer’s favor when the buyer trades their vehicle to buy a new one. Buyers often don’t want to go through the hassle of selling the vehicle independently.
There has been a significant increase in dealers willing to buy vehicles directly from the public. This “cash for your car” business model has become much more common as dealers struggle to find inventory.
