dealer car auction prices

[don911]

For cars purchased at auction, is there a questimate on what dealers pay for cars? I'm looking at a car that I know was a lease return that the dealer purchased at auction. If the retail value is $30K, approx what would the auction price have been? I'm thinking the dealer paid less than 25K but I may be way off.
Anyone have experience with dealer auctions?

Thanks, Don

[968rz]

Most dealers I know use the NADA book as their guide at auctions.

[don911]

Using trade in value?

[intakexhaust]

Chicago, Milwaukee metro area = Black Book (wholesale dealer auction tabulation by region).

The game is to get an excellent condition car with considered mileage allowance of 10-15K miles per year and call it in the Avg. catagory. The only way to get a book is from a dealer and they are frequent issued. If you can get one in your hands a few older months back works. I've been out of the game for a long time but I think its published by Crains.

Skip the retail talk or whatever the asking is. For all you know, perhaps the dealer stole it for $6K. What I'm saying it makes no difference and is only worth what someone is willing to pay. Base your best judgement from that particular car and wholesale guide and work the deal from there.

(Ps. Was a high-line import UC Manager many years back at top vol. selling stores.) Best of luck to you - Scott

--- Just read the comment of NADA guide. Dealer F&I use that guide along with banks for loan valuations, etc. --- The NADA pub's are higher values then Black Book.

[javadog]

Originally Posted by don911

Using trade in value?

No, that's way too high. Dealers used to use loan value, but many go even lower than that now.

JR

[jcommin]

Originally Posted by 968rz

Most dealers I know use the NADA book as their guide at auctions.

+1 Most insurance companies do too.

You will never know what a dealer paid for the car. As stated iin the previous post, the dealer could have "stole" it. Prices to vary by region. I would look at EBAY to see what a car sold for, not what the asking is. Ideally, if you could, get a list of sell prices at closed auctions. Condition, equipment, miles, make, model determine a wholesale price.

Just remember: there are (3) prices on anything: asking, liking and sell price.

[Christien]

Do you know what auction/location it was bought at? I can look up the actual transaction with enough detail: Y/M/M, auction house and mileage.

Here in Ontario, black book is useless. They claim their data is from the auction but the prices just aren't in line with the actual auction prices. I like to use real data - recent sales transactions at the auction.

[kaisen]

Originally Posted by javadog

No, that's way too high. Dealers used to use loan value, but many go even lower than that now.

JR

Buying a car "by the book" just doesn't work. NADA, for example, is at least two months behind the market. It is a published book. The production times are long. And, like magazines, December's book comes out in early November. So using December's book is really using September's data. You might think the web version is more up to date, but it mirrors "the book" exactly to maintain the integrity of "the book" --- after all, you're paying to buy/subscribe.

Right now, dealers would LOVE to pay NADA loan value for desireable cars at auction. Fact is, there is still a shortage and there is huge demand. So dealers pay a premium just to have inventory. The margins are pinched as not all of that margin can be passed on to a saavy buying public.

Other cars, however, go for so much less than book value that buying "by the book" gives a false sense of a bargain.

The analogy I use:

Using "the book" to buy a car is like picking up last month's Wall Street Journal, looking up Exxon's stock price, and expecting to sell your stock for that number. Unless you know what it sold for yesterday, or even an hour ago, that data is completely useless.

I'm with Christien. I used Manheim and/or Adesa actual transaction data. Even then, caveat emptor, ymmv..... you have to understand what drives the markets and why the spreads can be so large on apparently (by the data) similar cars.

So to the OP, what EXACT car are you looking for wholesale numbers on? Christien or I can look it up for you.

[Christien]

Originally Posted by kaisen

I'm with Christien. I used Manheim and/or Adesa actual transaction data. Even then, caveat emptor, ymmv..... you have to understand what drives the markets and why the spreads can be so large on apparently (by the data) similar cars.

Good point - much of the auction data will be from the last few weeks, even months, depending on the car. For example, if you're looking for a Ford Focus, there will be hundreds of sales each month, so tons of recent data, but if it's something less common, say an M5, there might only be a few bits of data over a few months. Point is, like stocks, you need to be able to read and adjust for today, with good knowledge of a local market's ups and downs.

[Zeke]

You really shouldn't worry about if the dealer is making a profit, that's what they do. You should worry about getting a good car at a fair price with an excellent deal. There's only one number to look at and that will be at the bottom of the contract after all interest, taxes and fees have been added in. If you don't like the number, the dealer can adjust it in more ways than one. Let them work for you. If you still don't like the number and are financing, go to a credit union and ask them for a rate on THAT car. Take your money to the dealer and they will work even harder to make a number for you.

If you do go outside for financing (recommended), make sure the new contract is for less than the dealer's. In this case the dealer is selling the car to the CU. It's all in one number at the bottom. That's your one and only target.

[javadog]

Originally Posted by kaisen

Buying a car "by the book" just doesn't work...etc.

Well, neither does looking at auction records, if you're lumping all cars of a particular type into one basket. Face it, there's more variability in condition, options, color desirability, etc. than a 2 month swing in the market.

FWIW, I used to be a dealer. We used the books, as did every other dealer, wholesale buyer, etc. that we dealt with. Any price is a starting point. Then you have to use your experience to adjust the number, for the things I mentioned above. There are other factors, too, but I'll skip those since I was addressing a simple question. To re-iterate, no dealer I know has ever used trade-in values as "the number" for buying cars at auction.

JR

[kaisen]

Originally Posted by javadog

Well, neither does looking at auction records, if you're lumping all cars of a particular type into one basket. Face it, there's more variability in condition, options, color desirability, etc. than a 2 month swing in the market.

FWIW, I used to be a dealer. We used the books, as did every other dealer, wholesale buyer, etc. that we dealt with. Any price is a starting point. Then you have to use your experience to adjust the number, for the things I mentioned above. There are other factors, too, but I'll skip those since I was addressing a simple question. To re-iterate, no dealer I know has ever used trade-in values as "the number" for buying cars at auction.

JR

JR, I've been in the industry on one side or another for almost twenty years. The game has REALLY changed in the last decade.

Books used to be the only game in town. Then auctions used to mail out the data from their last sale. Then that became available online. Then they developed that data as "query-able". So now the old published books are fairly useless to guys who know what they are doing.

But you and I are on the same page. There is so much more to the value of a car than what the last one(s) sold for. Whether it was last month, or the last one down the lane. Color, options, miles, seasonal, regional, closed/open sale, buyback, dealer-owned or repo or lease return, smells, tires, paintwork, etc, etc, etc....... used cars are like snowflakes. It's an art. Trying to make it into a science is futile.

[speeder]

My experience in the retail car business is from the last century but I can remember that almost no car was worth "book" back then. Times have changed drastically, as Eric points out. As recently as 10 years ago, only a hot/new model was a "book car", (at least in SoCal), examples would be a used Mini or a New Beetle within a year or two of their introduction coming on the used market. Porsche 911s were also "book cars" all day long in the old days if they were *right*.

We would be looking at a trade and the UC manager, if he did not know the absolute current value of said car, would call the UC manager at said car's marque. (A Toyota dealer if it was a Toyota, etc.). Based on the condition/miles/etc. of the car, he would ask the other manager how he should "look at the car". The answer would usually be something along the lines of, "$1500 back of book if it's really nice". IOW, if the trade-in was really nice, it's worth $1500 less than what it books for after all calculations are taken into account. (Miles/condition/etc.). My manager would then ask the other manager if he was a buyer at that price. Sometimes the answer was no, because he already had a boatload of said car on his lot. But someone else would want it for that stated price. That's how the wholesale game works, only the prices have changed. And the supply/demand for merchandise, which has changed drastically.

All day long in the old days I would have to explain to people that their car or truck was not really worth what the KBB said it was. "Books don't buy cars" was a common expression. Maybe in some other region of the country the book was more accurate but not in SoCal. At least not back in my day.

[Zeke]

OTOH, dealers can pay more for a trade-in if they add the overpay to the price of the car they are selling (one way or another). You wanna find out what cars are selling for wholesale? Try to sell one to a dealer without buying another.

To me the auction is just an exchange. Move 'em in and move 'em out. Everyone goes home with inventory.

I loved the car business for the short time I was in it. The people sucked.

[speeder]

Originally Posted by Zeke

OTOH, dealers can pay more for a trade-in if they add the overpay to the price of the car they are selling (one way or another). You wanna find out what cars are selling for wholesale? Try to sell one to a dealer without buying another.

To me the auction is just an exchange. Move 'em in and move 'em out. Everyone goes home with inventory.

I loved the car business for the short time I was in it. The people sucked.

Actually, they do not "overpay" for the trade in the situation you describe. The trade always has an ACV on it and the "overpay" that you think you are seeing comes out of the hide of the car they are selling. Always.

[kaisen]

Originally Posted by Zeke

To me the auction is just an exchange. Move 'em in and move 'em out. Everyone goes home with inventory.

I loved the car business for the short time I was in it. The people sucked.

The main volume at dealer auctions is a one-way deal.... banks, fleets, and manufacturers SELLING their vehicles.... but they don't BUY any.

Beware the dealer selling a desireable car at the auction. Why wouldn't they sell it themselves? Not always, of course, but beware.

And, yes, the people in the car business can really suck. Looking back, I've known some real characters. I could write a book....

[McLovin]

One of the biggest recent reasons franchised new car dealers sell their used cars at auctions is pressure from the flooring lender.

A lot of new car dealers don't run their used car sales very well. They'll price the used car too high, so it doesn't sell in the first month. They aren't on top of things, so instead of advertising it more, reducing the price, and really working to move the car, it just sits.

After 90, 120 or more days of sitting, that car becomes "aged inventory" and the flooring lender starts to get nervous. Because after some period of time, the lender becomes "upside down" (i.e., the car is now worth less than the amount they loaned on it). So the lender moves from fully secured to partially unsecured.

The lender sends demand letters to the dealer, demanding that the aged inventory be sold, and the loan paid down. The threat is if the dealer doesn't do it, the flooring line will be cut off.

The lender wants the cars gone, and quickly, there is going to be a loss anyways, so the dealer takes the quick way out and auctions it.

Also, dealers take cars in trade that are lines they don't sell. With limited floor financing money available, they'll often wholesale or auction those trade ins, to be able to floor the brand of cars they sell or help them to drive their sales.

As far as the car biz, IMO pretty much everyone in it is shady, at least to some extent. It's just the nature of the business.

[intakexhaust]

+1 on the 'people can really suck'. I loved the business for the cars and believe I did well because my customers knew my feelings. Management looks at it as just moving iron. Glad I experienced it and glad I left it.

[McLovin]

Originally Posted by don911

For cars purchased at auction, is there a questimate on what dealers pay for cars? I'm looking at a car that I know was a lease return that the dealer purchased at auction. If the retail value is $30K, approx what would the auction price have been? I'm thinking the dealer paid less than 25K but I may be way off.
Anyone have experience with dealer auctions?

Thanks, Don

As far as the specific question, IMO the Manheim numbers will give a good "guesstimate" of what the dealer paid, particularly if it is a late model, relatively high volume car.

Yes, it is not exact, that's why it's a "guesstimate." But for a 3 year old high volume lease return car that is being offered at 30K, you'd likely be able to come within $1500 of what the dealer paid for it at a lease return auction, if you ran some of the Manheim numbers.

For obvious reasons, though, the Manheim numbers are not available to the general public.

(If they are asking $30K, I think your $25K guess probably isn't too far off.)

[kaisen]

Originally Posted by McLovin

One of the biggest reasons I've seen franchised new car dealers sell their used cars at auctions is pressure from the flooring lender.

A lot of new car dealers don't run their used car sales very well. They'll price the used car too high, so it doesn't sell in the first month. They aren't on top of things, so instead of advertising it more, reducing the price, and really working to move the car, it just sits.

After 90, 120 or more days of sitting, that car becomes "aged inventory" and the flooring lender starts to get nervous. Because after some period of time, the lender becomes "upside down" (i.e., the car is now worth less than the amount they loaned on it). So the lender moves from fully secured to partially unsecured.

The lender sends demand letters to the dealer, demanding that the aged inventory be sold, and the loan paid down. The threat is if the dealer doesn't do it, the flooring line will be cut off.

The lender wants the cars gone, and quickly, there is going to be a loss anyways, so the dealer takes the quick way out and auctions it.

Also, dealers take cars in trade that are lines they don't sell. With limited floor financing money available, they'll often wholesale or auction those trade ins, to be able to floor the brand of cars they sell or help them to drive their sales.

As far as the car biz, IMO pretty much everyone in it is shady, at least to some extent. It's just the nature of the business.

I agree 99%

But again, beware. There is usually a REASON that the car is aged on the lot... it was passed by over and over for other cars. So why would another dealer want to do the same? Yes, sometimes it is price. But just as often it is just an edgy car with issues.

When I ran large dealerships, we retailed out of everything. The only cars I "wholesaled" I either knew about up front (i.e., knew we didn't want it when we took it in on trade) or found out we didn't want based on the shop's inspection. Those cars were sold to other dealers or wholesalers, whomever would pay more. Often I got buy-bids from dealers before they were traded in.

So in the instances where it wasn't selling, I would rather earn a customer. And therefore opportunities for trades, other products, and commissions for my salespeople. Even if it would bring the same (net) at auction, I'd rather sell it retail.

However, my policy was...... if it was on the lot 30 days, a salesperson or lot person went and did an "appraisal" as if it were being looked at for the first time. Were all the tires full? Rotors rusty? Was the car spotlessly clean? Did everything work? Did it smell funny? Run funny? Any scrapes, dings, dents, cracks, or other reasons a potential buyer would walk on by? More often that not, something needed to be corrected to be "lot ready" again. The correction was made, perhaps along with a price adjustment, and they usually sold. At 45 days, a manager did the same reassessment, and they'd take it home overnight. At 60 days, it was given a wholesale price, regardless of what we owned it for.

Believe me, a well-run dealership tracks everything. I knew how many times the keys were accessed. How many times each car was demonstrated to a customer. How many offers were made on that car. How many web-views that car got on our site and paid sites like Autotrader. How it ranked in price compared to other similar cars within 100 miles. Everything. You'd have to be an idiot, lazy, or have a huge ego to really screw it up. It took a lot more, of course, to do it consistently profitable

I love when people think dealers make $5000+ on a $30K car. I can't think of a single high-volume dealer that makes that kind of margin in today's market. That would be a homerun. The only way that typically happens is when the car was "stolen" when it was brought in on trade. But, if you think about it, that profit was really "stolen" from the first deal when it was brought in on trade. It's simply accounting, and a bad business practice. In other words, the ACV was too low. Used car manager = happy. New car manager = robbed. General manager = one pocket or another, who cares. Over hundreds or thousands of cars, it doesn't matter.