Auction Day: Irrational Exuberance

by Steven Lang

Published: April 9th, 2012

Did I really buy that car? Ohhh....

A base 1999 Jeep Grand Cherokee with 160k miles was coming to the auction block. Zip ties were holding up the passenger mirror. Options were minimal, and the various dings and dents did the trade-in no favors. It’s the type of vehicle that usually does no more than $2500 during most times of the year.

But with April comes tax season, and with tax season comes prices that hold only the lightest resemblance to reality.

It sold for $4500. Plus $180 auction fee. Plus a fair amount of reconditioning costs… the dealer who bought it is likely looking at around $5000 for a 13 year old base SUV that is incapable of finding a second-tier financing source due to its high miles.

At best, the fellow will yield a $1000 down payment on it and about $60 to $65 a week for 24 months. In two years they may realize a healthy 23% annual return over two years, or a brutal four figured loss.

That may seem like decent odds if we were talking about a secured asset like commercial real estate. But the buy-here pay-here business is a far riskier endeavor for one simple reason.

Most of the customers are riding on a proverbial pendulum that swings between ‘debt’ and ‘broke’. Tomorrow I will cover the nuances of helping debtors become owners. For some it’s easy. For others, it’s an allergy. But in the spirit of the light hearted banter of most Mondays, here’s a list of this week’s most interesting purchases.

2010 Dodge Challenger R/T (Loaded w/ 24k miles, cheap paint work from accident, good Carfax): $24200

2007 Ford Mustang GT: (Base w/ 29k miles, no sunroof, repo, paint work, bad Carfax): $16200

2000 Toyota RAV4: (Mid-model w/165k, dings and dents, sunroof, faded black paint): $3900

2000 Ford Explorer XLS: (Base model w/ 127k, Alloys & Automatic, cost just as much as one I bought four years ago that was two years newer and 20k fewer miles): $3300

and the one that blew me away

2002 Chevy Astro: (Mid-model w/182k, 3 door like all Astro’s but AWD, Alloy wheels, Faded grey paint): $3100

Like the Grand Cherokee, this Astro is a low demand used car that effectively doubled it’s ‘real’ wholesale value.

Steven Lang

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3 of 23 comments

Joeveto3 on Apr 09, 2012

A small used car dealer down the street has had later 80's Mustang convertible for months. Decent looking car (at least from a distance). But it's white and has crappy non-stock wheels. Up until recently, the asking price was $4995. Tax time? $5995. LOL!

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- Nickoo on Apr 10, 2012
  
  An 80s mustang would have barely went for over 5,000 even 10 years ago, (well, at least in 1999 I bought my 1989 camaro for 3,500) they must think there are a lot of suckers out there if they are asking that much for it.
  
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Mburm201 on Apr 11, 2012

I'm glad I don't need to buy a car right now. I've been shopping for about five months for my aunt. Twice I've gotten as far as having cars inspected, but both failed. Both were sedans around $4000 and 14 years old. One was so rusted out underneath I wouldn't even feel safe driving it. The other could have easily needed $2000 in repairs on top of the $4000 price. Last weekend I saw a 1997 Regal with unknown mileage and a missing AC compressor. They were still asking $3000. Yesterdays $1000 car is today's $2000 car, and yesterdays $3000 car is today's $5000 car. I'm just glad "Cash for Clunkers" revived the economy.

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