All About Auctions

Chapter 6. Evaluating A Vehicle

Characteristics of the Vehicle
Many factors need to be considered when determining the value of a vehicle. Condition, mileage, options, color and market conditions are among the most important.

Vehicle condition usually trumps all other factors in determining the price a vehicle will bring. That’s why many sellers do extensive reconditioning on their vehicles before they enter the lanes. A vehicle that has been washed and detailed, had its dings, scratches and dents repaired, and has been cleaned inside will bring a higher price.

Vehicle mileage is precisely quantifiable, and is key in determining the value of a vehicle.

The same used car can be sold for hundreds to thousands more dollars depending on the options and equipment. Items such as V6 vs. V8, 4-wheel drive vs. 2-wheel drive and hard top vs. convertible, can impact the value of a vehicle.

Conservative, mainstream colors usually fare well at auctions. Good-color vehicles can sell for $1,000 higher than the same vehicle with a less desirable color. According to the National Association of Fleet Resale Dealers, good colors are typically silver, white, red and tan while the difficult colors are typically purple, yellow and black. Of course, different models are affected differently. The bright yellow “cute-ute” can be an eye-catcher, while that same color on a traditional luxury car can be a tough sell.

Characteristics of the Market

Historical Look at Price Swings By Market Class
While broad movements in market pricing may be quantified, there are individual models within each class that move in the opposite direction. While price movement does reflect pure demand there is often much more than this single factor at play.

Compact Vehicles: Average auction sale prices for compact cars have remained relatively flat since 1998 but in 2002 (need info). Average mileage on these units at the time of sale, however has increased over 10%; therefore, the flat (and recently declining) sale price hides what in fact was a modestly strong market for these units. Compact cars also exhibit a wider seasonal swing in prices than do mid-sized cars. These swings are directly related to the consignment and purchase activity of dealers who are most desirous of these units during the spring selling season and the early tax-refund season discussed above.

Mid-Sized Vehicles: Due to the large number of competitive units in this category, seasonal price fluctuations are much smaller than in other markets.

Luxury: Over the past years, the luxury class has exhibited the greatest price stability. Large increases in household wealth, plus a strong tendency for buyers to move upscale, has provided a solid floor for these cars. Moreover, buyers of these cars are
less affected by economic downturns.

Sporty: This class of car, like the convertibles that are an important part of the segment, thrive on
the spring market. With the retail “spring market” coming earlier and earlier in the calendar year, dealers have become more aggressive buyers of these units earlier in the year.

Vans: Both minivans and full-size vans have been one of the weaker segments of the used vehicle market since late 1999. This is directly related to the record sums of incentive money that was applied to the new vehicle side of this segment.

SUVs: Since l998, SUV prices have been relatively flat. The used SUVs coming back to auction most recently consist of a much more upscale mix of units – vehicles that sold new at top dollar. Accordingly, the flat average used SUV price hides what in fact has been a disappointing market.

Pickups: Used pickups have shown stronger prices than any other market segment. Here again, a changing mix of units overstates the strength of the market. Many of the used pickup units coming back more recently are upscale models with four doors and luxury packages.

Used unit sales peak in summer months, often being twice as high as in the winter. This might be because used vehicle prices decline most rapidly around the time of new model introductions. Statistically speaking in the aggregate, November and December are the weakest months for used vehicle prices. March is the strongest. Since l995, February and March prices, however, have shown some strengthening, while September and October prices have weakened. This could well be because of an earlier flow of individual income tax refunds which serve to accelerate the arrival of traditionally higher spring pricing, due to electronic tax refunds.

Regional Differences
Different parts of the country tend to have differing vehicle inventories. The weather, income levels, gasoline prices and other factors can all influence the number of certain makes and models -- and even the abundance or absence of certain colors and features.

Overall Volume
The sheer number of vehicles available can affect the final price a buyer will pay. Over the last six years, 99 million new cars and light trucks were sold; that means an ever-increasing volume of new cars for buyers to choose from. The result is that both new and used vehicle marketplaces are becoming high-volume/low-price arenas.

However, within this volume expansion environment, buyers are finding that the number of off-lease vehicles will be declining. In 2001, the number of lease originations fell 22%, and then again in 2002, it dropped another 9%. Moreover, more realistic residuals are tempting more lessees to buy at the end of term.

Model Introductions
Manufacturers have become more flexible and have introduced new models in shorter cycles. As a result, new models will have shorter life cycles and the number of niche vehicles will multiply. All this means that buyers need to be more knowledgeable than ever before and evaluate a vehicle in the context of rapidly changing model lineups.

Sticker Price Comparisons
New cars are being sold with lavish incentives, so it is a mistake to gauge a used vehicle's value against the sticker price. Rather, one should consider the actual transaction price. Used vehicles' ability to maintain some percentage of the original transaction price is little changed.

Evaluation Tips
Conditions to Look For... May Indicate
Below are a series of appraisal considerations that can be helpful when evaluating a vehicle:

Exceptionally dirty or worn
Commercial or carpool usage
Clean rear seat
Commercial usage
Broken seat
Collision damage

Odometer Gauge
Not registering
May be disconnected
Low mileage compared to condition
Odometer reset
High mileage compared to condition
Good care, highway driving
Clicks while driving
Bad cable
Federal sticker on door
Odometer repaired

Low oil pressure
Bad engine or pump
Low charge
Bad voltage regulator
Lights not working
Faulty gauge;or disconnected to hide trouble

Missing Minor or major collision
Repairable damage
Minor collision
Irreparable damage
Major collision
Previous body damage

Improper operation
Body or frame twisted
Paint mismatch
Repainted vehicle/ possible collision

Sprung body
Collision damage
Rough road damage

Window operation
Sprung mechanism
Worn mechanism
Slipped off the track

Poor maintenance
Tow in or tow out
Worn edges
Poor maintenance

May be covered by insurance

Trunk Area
Missing spare tire
Worn spare tire
High mileage
Mismatched spare
Commercial usage

Repaired vehicle or wiring problem
Repaired vehicle
Not working
Bad switches

Severe damage
Frame damage
Mismatched paint
Previous damage
Previous damage

Rust on scuff plates or door sills
Surface rust, flood vehicle

Does not play
Fuse, bad wire, faulty connection
Faulty wiring
One speaker plays

Sheet Metal
Few dents and scratches
Wavy panels
Prior repairs

Over-all fading
Poor maintenance
Patches of uneven fading
Previous painting
Previous painting
Evidence of repair

Rust or “wet” streaks
Clogging from “anti-leak”
Oil scum in coolant
Cracked block
Rust by water pump
Faulty water pump or bad gasket

Low fluid level
Leakage of seals on pan
Burnt smell
Bad transmission
Water in fluid
Flood damage

Rough idle
Leaky valve
Loud whistle or roar
Bad exhaust manifold, muffler or tailpipe
Slow ticking sound
Valve train problem
Fast ticking sound
Lower engine problem
Engine runs with clutch engaged with brake on
Worn clutch
White smoke when first starting
Blown head gasket
Blue smoke
Worn pistons, rings or valve guides
Black smoke
Rich gas mixture
Burnt valves or rings

Water bubbles or streaky
Cracked block
Brown oil
Blown head gasket
Engine wear
Dirty oil
Poor maintenance

Engine Compartment
Signs of recent repair work
Previous mechanical repairs
Paint over spray
Collision damage
Heavy battery corrosion
Faulty voltage regulator
Cracked wiring
Poor maintenance

Steering wheel binds when turning
Bad steering rack
Oil drips
Bad gaskets
Grinding noise when starting
Worn starter gear or flywheel teeth
Hard start
Battery or needs minor engine overhaul
Clattering sounds at slow idle
Badly worn engine, loose piston, piston pins
Grinding at front of engine
Worn timing gears or water pump
Bent drive shaft or loose universals
Engine vibration
Broken motor supports
Jumps out of gear
Worn transmission gears or linkage
Wanders on level road
Front end out of line or bent frame
Brake pedal sinks to floor
Leaks in system
Brakes drift on braking
Worn front-end brakes
Emergency brakes will not hold vehicle
Worn rear brakes
Brakes – “metal to metal”
Worn linings, scored rotors

Frequently Asked Questions
Q. Can a dealer bring his mechanic to the auction?
A. Yes. Guests of auction bidders can inspect the vehicles before they run through the lanes. Rules with regard to visitors vary. Check with auction management.

Q. Can a buyer inspect a vehicle prior to sale?
A. Buyers are welcome to come to the auction site any time before the sale event to inspect vehicles that are to be auctioned. Many dealers do this the day before the sale.

Q. Does the auction offer classes on evaluating vehicles?
A. Yes. Contact your local auction, the National Auto Auction Association or the National Automobile Dealers Association for details.