All About Auctions

Chapter 4. Buying A Vehicle At Auction

Sale Day Preparation

Dealers buy more than nine million vehicles at auction per year. The better a dealer has prepared for the sale, the better chance he or she has of having a profitable experience.

Pre-Sale Inspection
Dealers have the opportunity to inspect the vehicles that will be going through the lanes. The most successful dealers arrive early and roam the pre-sale lot to assess the condition of vehicles they might be interested in purchasing.

Sales Lot Parking Plans
Some auctions provide a sales lot parking plan which outlines where vehicles are located. Vehicles are typically parked in groups that correspond to the lanes in which they run. Parking lot plans are typically available at the front desk at the auction.

Windshield Markings
Each vehicle ready for auction is marked on the windshield. This marking, either printed or written by hand, is prepared when the vehicle is checked in.

The markings contain:
• Seller name
• Model year
• Run number
• Mileage information
• Lane assignment

In some cases, the condition of a vehicle is also marked on the windshield.

Run Lists
Each seller group’s individual vehicles are listed on a run list.
Run lists are available online or via fax, but the most complete listing can be obtained the day of the auction. Lists are generally available at the entry of the auction facility, and can also be printed out from kiosks around the facility.

Understanding Lane Activities
Many elements converge in the lanes of an auction, where the vehicles are auctioned from the “block” one at a time.

Block Area
The “block” is the elevated area where the seller, the auctioneer and some auction administrative staff conduct the sale. The auctioneer and the block clerk are “on the block” throughout each sale. As a seller’s car enters the lanes, that seller may also be on the block to represent their car to the bidders.

The Auctioneer
The auctioneer provides detailed information about the respective vehicle for sale, makes appropriate announcements about the vehicle, discusses with the seller their price expectations and calls for bidders from the lane. The auctioneer manages the bidding process and assures that interested buyers are acknowledged in the bidding. Once there are no more additional bidders on a vehicle, the auctioneer will complete the sale – or discuss alternatives with the seller if the car did not meet the seller’s minimum price (also known as the “floor price”) – and all of this is done in about 60 seconds.

At some auction locations, ringmen assist auctioneers in identifying bids and clarifying issues in the bidding process.

Block Clerk
The block clerk is the person who records the winning bid for each vehicle, the amount and the dealer who purchased the vehicle, as well as all other transaction details.

Floor Price
(Also known as “the low” or “the reserve”)
A seller can put a “floor price” on vehicles they are selling, which indicates to the auctioneer the lowest price the seller is asking for the vehicle. If the floor price is not met, the seller can reach an agreement with the auctioneer while on the block to lower the floor price and attempt to sell the vehicle while it is still in the lane. If the bidding fails to reach the agreed upon floor price, the vehicle can still be sold on an “if bid,” otherwise it will leave the lane as a no sale.

“If” Bids
“If” bids are usually facilitated by the auction company and state that a bidder agrees to buy a vehicle “if” the seller will accept the offer within a specified period of time. “If” bids are usually made on vehicles that did not meet sellers’ price expectations. On sale days, the auction has a department dedicated to facilitating “if” sales.

“Title Absent”
When a vehicle is sold as “title absent,” the title is not available the day of sale. If this occurs, individual auction rules should be consulted.

Auction Monitors
At most locations, dealers can consult various auction monitors that have information on:
• Status of vehicles crossing auction blocks by their run numbers
• Status of “if” sales
• Status of vehicles in arbitration
• Status of post-sale inspections
• Special messages

What Do the Lights Mean?
The lights above the auctioneer are there to indicate the conditions under which that vehicle is being sold. It is the seller’s responsibility to make the proper announcement from the block and ensure that the appropriate lights are lit. It is the buyer’s responsibility to understand the announced condition and what the lights mean. Though lights differ by location, this is a summary of what might typically be found at an auction.

Green Light: Ride and Drive
Green is a statement by the seller that the vehicle is being sold free of any known major defects, including:
• Drive train
• Engine
• Transmission
• Rear end

It may also cover other items such as air-conditioning on vehicles of a particular age.

Yellow Light: Caution, Listen Up!
Yellow indicates a vehicle that is being sold under announced conditions. These conditions are announced prior to sale by the auctioneer for the seller. Buyers cannot arbitrate for announced conditions.

Red Light: What You See Is What You Get
The vehicle is sold “as is” and is not subject to arbitration.

Blue Light: Title Absent
Indicates a vehicle being sold without a title on the premises. It is usually announced from the auctioneer’s stand that this vehicle is “title absent” (or “title attached.”) If this vehicle is sold, the seller has a certain period of time to deliver the title to the buyer.

Types of Consigned Vehicles

Dealer Vehicles
Dealer vehicles for sale at auction are primarily trade-ins and aged inventory. In some cases, a dealer will take a vehicle in trade that does not meet his dealership profile and will immediately offer that vehicle for sale at auction. Often, if a dealer cannot retail a vehicle in a period of time they will bring the vehicle to an auction for a quick sale.

The condition of dealer consigned vehicles varies greatly. Most are not reconditioned at the auction, but this may be changing as auctions demonstrate the value of reconditioning to the seller.

Fleet/Lease Vehicles

Off-Lease Units
Vehicles in this commercial category are consigned from manufacturer's captive financial arms, fleet/lease companies, banks and financial institutions. Vehicles are usually limited in the number of miles that can be put on the vehicle and are held to some kind of maintenance contract; these vehicles are often in good shape and, therefore, desirable.

Off-lease units tend to be older than rental company or factory vehicles, and often meet the needs of a dealer who is looking for noncurrent year units. Auctions offer leasing companies the fastest and most efficient method of remarketing large volumes of vehicles. Moreover, because of the quantity and the desirability of these units, lease vehicles are usually offered in dedicated lanes.

Rental (Non-Program or Risk) Units
Rental units are vehicles that a rental company did not receive under a factory program. Therefore, the rental company has the responsibility of remarketing the vehicles.

The vehicles are current year models. They have usually been in a regular maintenance program and tend to have been well kept. These vehicles also reflect the reputation and integrity of the rental company.

Repossessed Units
These vehicles are generated by manufacturers’ financial arms, leasing companies, banks and financial institutions. Repossessions fall into two categories – voluntary and involuntary. Auto auctions meet all the requirements the Federal Uniform Commercial Code describes as a “commercially responsible” method to sell repossessed vehicles.

Fleet Units
Fleet units are vehicles that come to auction from a company car fleet or from trucking companies. These units may be owned outright by the businesses or leased from fleet management companies.

Fleet vehicles tend to be more than two years old and in most cases, the cars, vans or trucks have minimal options but have been satisfactorily maintained. Many dealers feel comfortable purchasing these units at auction.

Auctions offer fleet consignors the quickest way to remarket large volumes of similar vehicles.

Factory (Program) Vehicles
Based on manufacturers’ marketing strategies, fleets of vehicles are sold to rental companies under various programs. Manufacturers’ programs with rental companies may call for the repurchasing and remarketing of these vehicles by the manufacturer in closed auction sales.

Program cars are all current model year units and most are still under factory warranty. Often the manufacturers sell these vehicles in closed auctions only to their franchised dealers. This gives the factory's dealers first pick at current model year, quality used vehicles. Program cars also give the dealer an opportunity to put a customer who cannot afford a brand new vehicle into a current year used vehicle and thus possibly save the sale for the brand.

Winning Bids
When an auctioneer accepts the winning bid, the bidding is over. The block clerk will record the winning bidder’s badge number. The buyer signs the invoice and receives a copy which may include a gate pass.

Services for Buyers – After a Purchase
There are a number of services provided to buyers at the auction after they have made purchases, including post-sale inspections, arbitration services, test-drive opportunities, purchase payments, title services, vehicle transportation and advertising their purchased vehicles.

Post-Sale Inspections
Dealers who have purchased vehicles may use post-sale inspection services. A team of auction mechanics inspects the vehicle for items such as the engine, air-conditioning, frame, brakes, odometer, transmission and the rear end. Typically these services are provided on sale day. Fees for this service are set by the individual auctions.

Arbitration is a valuable service provided by the auctions to protect the interests of both buyers and sellers to assure the vehicle in any transaction has been properly represented. An individual employed by the auction company, which is a neutral party in the buying and selling process, arbitrates any disputes. Arbitration time limits vary by auction. Certain conditions such as undisclosed frame damage, a repaired frame or rebuilt cars must be arbitrated within set time periods.

All NAAA auctions have a procedure for investigating, and hopefully resolving, issues between
buyers and sellers. Arbitration usually applies to vehicles that were announced and sold under the green light. Controversies can be resolved by the two parties coming to some kind of financial adjustment on the selling price or if the arbitration finds the buyer’s complaints accurate, and no monetary compromise can be reached, the sale may be canceled or unwound. Auction arbitration services are free to buyers and sellers.

Test Drives
At many auctions, if a buyer presents a valid driver’s license and his “sold” invoice to the arbitration department, they can test drive the purchased vehicle. Many auctions have test tracks for this purpose.

Purchase Payments
After completing purchases for the day, buyers go to the auction’s front office to finalize their transaction, which includes paying for purchases, transferring titles and receiving gate passes. Buyers can pay for vehicles in a number of ways, including certified checks, cashier’s checks, company checks, money orders, cash, wire transfers, drafts or with authorized floorplan financing. The final price of the vehicle will be the bid price for the vehicle, plus the buyer’s fee to the auction and fees for any other services the buyer has requested.

Title Services
Once payments for purchases have been made, title specialists at the auction will assist dealers in the administration of transferring necessary documents. These title specialists are available on all sale days and are capable of processing titles for all 50 states.

Gate Passes
After the transaction is completed, a gate pass will be provided by the auction front office to allow the purchased vehicles to be released from the auction premises.

Vehicle Transportation
Transporation of purchased vehicles can be arranged by the buyer in a variety of ways, including:
• Auction local delivery service
• Independent transporters
• Dealer employed drivers/transports.

Auctions can assist dealers in placing classified ads for the vehicles they have purchased. Ads can run in various newspapers or specialized publications.

Gate Passes
After the transaction is completed, a gate pass will be provided by the auction front office to allow the purchased vehicles to be released from the auction premises.

Vehicle Transportation
Transportation of purchased vehicles can be arranged by the buyer in a variety of ways, including:
• Auction local delivery service
• Independent transporters
• Dealer employed drivers/transporters.

Auctions can assist dealers in placing classified ads for the vehicles they have purchased. Ads can run in various newspapers or specialized publications.

Frequently Asked Questions

Q. How do I make my vehicle preferences known so the auction can inform me as to when they might be for sale?
A. Dealers can submit “profiles” to auction marketing departments, describing the types of vehicles they are interested in purchasing. Dealers can indicate the make, model, price range, condition and supply source for vehicles they would like to receive pre-sale notification on. This “Want List” can be submitted electronically, by mail, by fax, phone or in person to an auction’s marketing department.

Q. Can a dealer bid on a car before the sale begins?
A. No, unless it is offered on an Internet venue.

Q. Is there a minimum purchase requirement?
A. No. Dealers can purchase as few or as many vehicles as they need based on their credit limits.

Q. What should a dealer do if he wants to purchase a vehicle that went through the lane as a no sale?
A. The dealer should communicate to the dealer representative, ringman or other auction official in the lane to facilitate a potential purchase.

Q. How does a dealer establish floorplan financing with the auction?
A. Most auction chains have in-house financing departments that can help independent dealers arrange for credit. Most franchised dealers use their manufacturers’ captive finance companies to establish a line of credit with auctions.

Q. What’s the difference between auction certification and post-sale inspection?
A. Auction certification is requested by the consignor and takes place before the sale. Post-sale inspection takes place after the sale and is requested by the buying dealer.

Q. Can a dealer buy a car at auction and resell it at auction the same day?
A. Yes. The dealer will have to re-register the vehicle.

Q. Do all auctions use electronic registration?
A. Most do, but some auctions do not yet have this technology in place.

Q. How long in advance does a dealer need to register for an auction?
A. The sooner the better, but dealers can register at any time – even on sale day.

Q. How do I register one of my employees or a representative who can bid for me?
A. Dealer principals can authorize representatives to bid for their organization at the time of registration or via a Letter of Authorization. Authorized representatives must have a valid driver’s license.