Buying an Auctioned Vehicle

Many used cars bought from a dealer have been "remarketed"

by James M. Flammang

Making decisions in a matter of seconds isn't easy. Yet, that's what buyers at the nation's wholesale used-car auctions do every day. At the auctions, which normally are open only to dealer representatives, the action is fast and the rewards are risky. Pay too much for a tempting car that's going through the line, and you might not make any money on it. Bid too little and you won't get the car at all, giving your dealership one less vehicle to sell at a profit.

To an uninitiated observer, the ceaseless, rapid-fire cries of the used-car auctioneer sound like gibberish. But to each of the hundreds of buyers attending a typical big auction, those pleas for bids are an endless flow of opportunity.

Buyer Beware?

In the consumer's eyes, auctions still suffer from a serious image problem. The best used car, we've been told repeatedly, is the one that comes directly from a private seller: a one-owner, seldom-driven, nearly spotless vehicle that the owner is willing to part with for a pittance. Cars that went through an auction have been viewed as the dregs of the business—the vehicles that should be avoided at all costs.

Auctions, in effect, were held responsible for the sins committed by unscrupulous used-car dealers, who marketed shoddy products at high prices. That sort of stigma persists today, even though the auction business is booming and its practitioners have been striving for years to change people's perceptions of how auctions work.

Odometer Rollbacks

Although dishonest used-car dealers have not disappeared, their numbers have been diminishing—due in part to policing of the business by the large auction groups. In the mid-1980s, for instance, ADT Automotive—then a top auction chain—played a role in making odometer "rollbacks" a federal crime.

Protecting consumers wasn't their sole reason for wanting to crack down on odometer "spinners." Dealers, too, can be victimized when odometers are set back to display lower figures. If a bidding dealer thinks a car has lower mileage than it actually has, and therefore pays more than the car is worth, potential profit can disappear if the inaccuracy is discovered.

Late in the 1990s, ADT also initiated a program for certifying vehicles that go through the auctions, following the theme of used-car certification programs that had been introduced by many automakers. Vehicles are carefully inspected before sale to dealers, who can then point to that process as a selling point on their retail lots. Certification remained active when ADT Automotive was bought by Manheim Auctions in 2000. Even when full certification is not offered, auctions often offer reconditioning and detailing services.

Manheim and ADESA are the leading auction chains, providing what are called "remarketing" services. In business for 55 years, Manheim alone operates 83 auction facilities in the U.S.

During 2000, new-vehicle sales set a record at 17.4 million units—15.1 million of them sold to private individuals. At the same time, dealers, according to Tom Webb, Mahheim's chief economist, sold 41.7 million used vehicles. Private transactions added another 10.5 million secondhand units to the mix.

Auctions handled nine million of those used vehicles. Nearly half had been consigned by dealers, while two million were consumer-leased vehicles being remarketed after their lease terms ended. The remaining 3 million came directly from manufacturers, offered at sales limited to franchised new-car dealers, or from daily rental companies and fleet organizations.

Of all the vehicles that go off-lease each year, about 62% are remarketed through auctions, according to research by CNW Marketing and Manheim. They wind up in the front lines at both new-car and independent used-car dealerships. During 2000, the National Automobile Dealers Association (NADA) reports that franchised new-car dealers obtained 32% of their used vehicles from an auction, versus 40% that were traded in on a new model and 22% traded on a newer used car. A title search should reveal if the vehicle was ever on the auction block.

Recession-Resistant

Auctions "have increased their acceptance in the marketplace," said Thomas Kontos, vice president of industry relations & analytical services at ADESA Corporation, who considers the business to be "recession-resistant." If the economic downturn continues through 2001, new-car sales are sure to suffer. "During a recession," Kontos explained, "consumers are less likely to sell their vehicles," preferring to hang onto them a while longer. At the same time, though, the demand for secondhand vehicles escalates—and the auctions are happy to comply.

While it always pays to be wary when shopping for a used car, the mere fact that a prospective purchase went through an auction at some point doesn't automatically consign it to the also-ran category. After all, the car could have been returned from lease by your neighbor, then remarketed via an auction. And who knows, you might even be able to buy it for less than your neighbor would have wanted for