[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.