How do cars end up at auction?

There are many different reasons why cars end up being auctioned, and the specifics mostly depend on what type of an auction it is. For example, if a bank repossesses a car because an individual was not able to fulfill its obligations to the bank, the bank usually auctions the car because that’s the fastest way to sell the car.

Dealers are also known to often auction out cars because they were not able to sell them fast enough. These cars are usually sitting on the lot for a long time, so the dealership figures its best to sell the car fast for a discount before it dumps in value more significantly.

If an insurance company deems a car totaled, they usually compensate the owner and auction the car to sell it fast, just like banks do. Government and service cars that have reached their plateau of service usability are also auctioned out because doing so is a convenient way of selling multiple cars.

These are the main reasons why cars end up at auctions but there are plenty more specific reasons why some cars are auctioned out. Auctions are not perfect, but whoever wants a fast turnaround for a large number of cars, an auction is the best way to do it.

Salvage car auctions – A second chance for many cars

Whenever someone crashes a car, the insurance company has to evaluate the car to determine the most logical course of action. If the car is slightly damaged and the repair costs are not too severe, the insurance company is likely to cover those damages and move on.

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However, if the car is severely damaged, and the repair costs outweigh the costs of the car, then the insurance company is likely to deem the car totaled. If this is the case the insurance company will pay the owner and they will now own whatever is left of that car.

Although the value of that car might be too low for it to be repaired to an OEM standard, someone might be able to repair the car for way less money. Because of this, insurance companies are likely to auction out that car to amortize at least a smaller portion of the car’s value.

Someone will buy that car and fix it which will benefit both the insurance company and the person who bought the car. As an old saying goes “one man’s trash is another man’s treasure.”

Dealership overstock – Unwanted cars

Most manufacturers tend to refresh their models every 5-10 years or so. For example, if a company introduces a certain model, they are likely to give it a so-called mid-life cycle refresh after a few years. A couple of years after that, they are likely to replace it with an all-new model entirely.

As such, those older cars might still be sitting on the lot with no one wanting to buy them. A dealership is now then forced to sell those cars fast to make room for new arrivals. This means that they are likely going to offer tempting discounts, but that still does not mean that the cars are going to sell.

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If that is indeed the case, some dealerships decide that it’s best to auction out the cars because waiting for longer might lower the car’s value even more. These cars are often specified in uncommon exterior and interior colors, engine and transmission choices, and all the other crucial pieces of equipment.

 

Banks and service cars – Fast turnarounds

In today’s day and age one can buy a car through leasing, financing our paying outright. Of course, there are many other payment methods available, but these are the most popular ones. Besides this, any other contract between you and the bank is likely going to be associated with some form of crediting or asset obligations.

So, if you don’t fulfill your end of the deal, the bank needs something to make sure that they will be entirely compensated if you fail to deliver whatever you obliged yourself to deliver. A great example of collateral is a car because the car can be sold for money and that money can compensate for the losses.

On the other hand, if you are mostly interested in auctions offering all sorts of government/service cars, you are probably aware that those cars were used by government officials, first responders, and such. Whenever those cars reach a certain age, they are often sold at an auction.

FAQ Section

Should I buy a car at an auction?

Car auctions can be a great way to buy yourself a used/salvaged car for cheap. If you are well aware of how car auctions work, then it’s only logical for you to try it out. However, if you’ve never been to one and you are not familiarized with the ins and outs, it’s better to avoid them before you know what you are doing.

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The best thing to do is to visit a car auction and just look around, look at all the condition reports, how certain bidders are acting, which ones are there only to boost the prices and how does the whole process flow from the beginning to the end.

Why are high-end cars often sold at auctions?

Many auction sites such as Bonhams and Sotheby’s are selling multi-million dollar cars every year, and the reason why those cars end up at auctions is that the value of these cars is often determined by auctions anyway.

For example, if you are interested in an extremely limited edition classic car from the 60s, chances are that the market for those cars is almost non-existent. This means that the prices of these cars can not be predetermined, and the only way to do so is to auction such cars.

What do I need to take part in a car auction?

Most informal car auctions are opened for the general public which means that almost everyone can take part and bid on the cars offered. On the other hand, certain formal auctions will require you to either buy your seat at a hefty price, or they can even be reserved for licensed dealers.

Some auction sites will require you to pay a yearly fee for unlimited attendances while others will require you to pay a certain sum of money if you buy a car at an auction.

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    Marko Mikulic

    Why do you love writing about cars? I love writing about cars as cars are a huge personal interest of mine. I was raised in a car enthusiast community and ever since I was young, I always wanted to do car-related work.

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