Buying an Auction Car From the Dealership: Is It Trustworthy?

Geoff Cudd

What if you find out the dealer bought the car you're interested in from an auction?

Understandably, it can be a bit concerning, but it's not always bad. You can still find a reliable and quality vehicle, and still have room for negotiations.

Where Do Dealers Get Used Cars From?

Used car dealers can get inventory from several sources, including:

• Trade-Ins: Vehicles that customers sell to dealers when buying another vehicle from that dealer.
• Auctions: Auctions are a major source of used car inventory for many dealers. Some auctions are open, while others only sell to registered dealers.
• Rental Companies: Rental companies supply larger dealer groups or sell to dealers through manufacturers.
• Fleets: Ex-fleet vehicles are often well-maintained and prepared for sale.
• Private Sellers: Some people may sell an old vehicle to a dealer without trading it in.

Why Cars are Auctioned

Auctions are a common way for dealers to get used inventory, but before considering buying one you'll need to understand a bit more about car auctions. Some reasons cars end up in auctions include:

• Dealer Sells. The car has been on the dealer lot for too long so the dealer auctions them off to recoup the investment.
• Default. The original owners default on payments, so the vehicle is repossessed and auctioned by the financial institution.
• Damaged. Some cars have been in accidents or suffered weather damage. The insurance company will pay off the owner and then sell the car in an auction to recoup some of the payouts. Many of these cars are only sold at specialized auctions due to damage that may include dents, scratches, and other malfunctions.

Types of Auctions

Public Auction

Public auctions are quite common. Most often, they're held by car auction houses and insurance companies. The purpose is typically to sell used cars that have been repossessed but have very little to no issues.

Closed/Private Auctions

Private auctions are only accessible by car dealers, not by the general public. This is the type of auction that a used car dealer will typically go to for inventory.

Online Auctions

Some auctions are now held online, and they allow people to buy the car virtually. Buyers register for the auction site to join and use the site's information to choose their car.

Government Auctions

The US customs service or another government body may also hold auctions. These auctions are meant to sell off excess or old vehicles that were impounded or seized. Police or government agencies may also use auctions to sell off their fleet of vehicles when they upgrade.

Why Dealers Buy from Auctions

• Choices. Wide variety of unique vehicles.
• Titles. Guaranteed title in a timely manner.
• Vehicle History. Some auctions include a condition report and Carfax guarantees.
• Faster Inventory Sourcing. Dealers can make several potential purchases in one location at one event.
• Low Pricing. Very low price vehicles allow the dealer to gain a large profit margin.
• Reliable. Generally reliable vehicles.
• Trading. Dealers may be able to trade vehicles at a private auction to get the inventory that fits their lot.

Should I Buy a Vehicle from a Dealer That Came From an Auction?

While some low-end auctions sell troubled cars, most cars at auctions are high-quality used cars. This is especially true of the private auctions that many dealers attend. Compared to an average car buyer, a dealer also has a better eye for vehicles and can quickly assess feasible options. They're also likely to get the cars repaired and cleaned up so they can sell them for more.

However, it would be best if you still were careful when buying a car from a dealer that came from an auction. Here are some things you should do to ensure you get a quality vehicle:

• Ask About Source. Find out about the source of the vehicle. Ask directly if it was from an auction, trade-in, etc. Also, consider these questions when buying a used car.
• Assess Mechanical Condition. Check for yourself for any glaring issues like worn-out tires, broken lights, dents/scratches, etc. Major issues that have not been fixed suggest there could be more beneath the hood.
• Consider an Inspection. Consider a pre-purchase inspection and an under-car inspection. It's a small investment that could save you a lot of money and stress down the line.
• Check Warranty. Ask about any guarantees or warranties the dealer includes.

Negotiating the Best Price on a Dealer's Car From An Auction

One of the major benefits of buying a car from a dealer from an auction is the ability to negotiate. First, pay attention to the window stickers. Two important stickers to watch out for are "MDA" (market value adjustment) and "ADM" (adjusted dealer markup). Both of those stickers indicate that the price adjustment could be to sell the vehicle for a larger price without a clear reason.

Either way, you can use the knowledge that the car came from an auction to your advantage. If the dealer bought the car from an auction, there's a great chance they got a huge deal on it, which means they will have more room to negotiate.

Final Thoughts

Auctions are a common source of inventory for dealers that sell used cars, as they offer an affordable way for dealers to get the inventory they want. Often, the vehicles that come from the private auction dealers are in good condition. Investigate the vehicle's source and condition and consider a pre-sale inspection when buying a car from a dealer who bought from an auction.

Frequently Asked Questions

Why should I buy from a dealer instead of a private seller?

Dealers provide a wider selection of inventory, financing options, and a bit more reliability (in the form of warranties) than a private seller.

Why do dealerships buy cars at an auction?

Dealers head to private car auctions to get quality vehicles at a reasonable price. They can purchase several vehicles that suit their lot with one trip which is cost and time effective.

Should I buy a car from a dealer that came from an auction?

You can get a quality car that came from an auction from a dealer, and you can often negotiate the price significantly. However, you should still proceed with caution. Consider a pre-sale inspection.

How much do dealers make on cars bought from auctions?

When dealers buy cars from an auction, they typically make a profit between 25-45% because they can pay far less than the trade-in value for the vehicle. Dealers then mark the car up to the market price.