Updated January 6, 2019
Every dealership knows the sacred mantra of the used car sales:
“You don’t make money when you sell a vehicle. You make money when you buy it.”
Last year, dealerships sold 42.7 million used cars. A large percentage of those started at one of the hundreds of dealer auctions around the country. If you plan on making money on used car sales, it starts with understanding how to get the most out of auctions.
How to prepare for an auction
Auctions are fast-paced and mistakes can be very expensive. A good strategy is all about preparation. If you don’t have a plan, you can’t make informed decisions.
Auctions are not car shows. You’re not there to browse. You’re there to stock your inventory so you can run your business.
Before heading to auction, be sure to follow these 6 steps to make sure you’re prepared to have a great day.
1. Analyze your inventory
Begin by studying your own inventory. What cars do you have and are they the proper product for your local market?
Look for the following:
- Vehicles you’re running low on
- Vehicles in high demand
- Vehicles which net you the most profit
Next, study other dealerships in your area. How are your competitors doing? They may be stocking a Nissan SUV that sells really well in your area, but you haven’t tried offering.
Pay attention to consumer trends on a national and local level. It’s probably not a good idea to stock a lot of sedans right now.
When you cross reference all the data, the vehicles you want to add to your inventory will be right there at the intersection. Ideally, you already employ a tech solution to track and manage your inventory. It should have many of these reports built it and help you connect the dots.
2. Learn the Rules of the Auction
Every dealer auction runs a little differently. Check the rules of the auction before it starts. Make sure you know the answers to the following questions:
- How does bidding work?
- What payment options are accepted?
- How do you collect the vehicle? Do you need to transport it on your own?
- What’s the auction’s policy for announcing damage, paint-work and other details that may impact your appraisals?
Register for the auction at least one or two days beforehand. This is a good idea even if you’re bidding online. Most auctions are only open to dealerships, so you want to make sure there are no issues on the day of the event. Also, some auctions offer membership perks if you register early.
Here are the rules or FAQs of some of the largest auctions companies:
3. Research the run lists
Check the run lists against your inventory strategy. Almost every auction publishes their run list prior to the event. While they aren’t 100% accurate before the day of the auction, they’re good enough to do your homework.
Do they have the cars you want to buy? Do these cars come with the popular trims and features your customers are looking for?
Use your go-to appraisal tool to get a good estimate for the retail and wholesale prices. Factor in reconditioning costs based on the information in the run lists. If you have a service department, it’s a good idea to talk to the mechanics. They may offer you additional insight.
4. Be there when the gates open
If you’re heading to a live auction, you want to be on their lot as early as you can.
Most dealer auctions open the gates a few hours before the bidding begins. This will give you plenty of time to review all of the cars you’re interested in and inspect them in full. You can check the condition of each vehicle, look for visible damage, and check window stickers for additional information (e.g. absent titles).
If you have a mobile appraisal tool, you can scan the VIN numbers to get the vehicle’s full data and history. This may or may not be different than what is already published online. The more time you spend, the more you will know about each vehicle before bidding.
Your appraisal tool is especially important when attending online auctions because you’re relying on this data to make your decisions. You won’t have a chance to see the vehicle in person.
Considering the market value of a vehicle, along with the cost to recondition and advertise, can you still make your desired profit margin?
5. Know your Price Ceiling
Doing the appraisal early on will give you time to clean up your strategy and focus on the vehicles that are good business. The best cars will always have competition.
You get into the most trouble when you’ve got an eye on a good car and really want to get it to your lot. It’s easy to get emotional and spend way more money that you can afford.
Make sure you set a price ceiling for each vehicle and NEVER go higher.
If the wholesale price eats into your profit margin, you’re throwing away your own money. Make sure you factor in the vehicle's condition, mileage, and history report. Also, account for reconditioning and advertising costs.
6. Don’t forget about transportation
Most live auctions don’t do transportation for the sold vehicles. Or if they do, you’ll probably get better prices elsewhere.
Make sure you have planned transport for all the cars you purchase. Auctions typically want you to take the vehicles out of their lot on the same day, so be ready to get them onto a truck and on the road.
Volatile markets can make you rich one day and have you selling at a loss the next. The faster these cars get into your lot, the faster you can start making money.
You’re Ready to Win!
Now that you have done your research, developed your inventory strategy and have drawn the hard spending limits, you’re ready to go buy cars at an auction.
Make sure you know the rules. Stick to your price ceiling and look out for warning signs and money traps.
All that said, just because you’re doing things smart doesn’t mean it’s all business. Auctions are exciting. Go and have fun. Make connections. Expand your network. There are more benefits in addition to immediate returns, especially if you’re doing what you love.