By on March 11, 2013

There comes a time when the prices for used cars at the auto auctions go the way of an exuberant bubble.

A small army of consumers get their tax refunds. The car lots wake up from their winter slumber, and values for vehicles go the netheregions of the human imagination.

I sell cars during this time, not buy them. In the last three months of every year I will usually buy a lot to avoid the tax time market prices. Sometimes as many as 12 vehicles in a day. But when tax season comes, I buy a chosen few and sell them by the dozen.

Then, after the buying frenzy begins to ever slowly ebb, there will be a welcome break in those hedonistic valuations. Where instead of winding up $1000 to $1500 behind the selling price, I wind up second to another bidder. Almost always to a guy who has been buying cars for a long time. Today was that day.

My first second was this 1991 Acura Integra. Now a lot of you folks will quickly realize that this vehicle is old enough to buy itself a drink, and you would be right. But age in a rust free climate that offers smooth roads is not that big of a deal.

The exterior? $260 paint job. The interior was presentable. A/C was fine. However the clutch was not shifting right, the big fartcan back muffler was a bit of a negative ding, and the hatch area had barely no semblance of the ultra-thin Acura fabric. The odometer showed 164k miles… which was probably inaccurate. I only bid up to $700 and watched a wholesaler outbid me at $750.

These sell quite well once they’re cleaned up. But I’m sure this one would have needed to be shucked to a paint shop, a mechanic shop, and an upholstery shop between the auction and the retail lot. Such time issues have a big hidden cost in our business and if you find another nasty surprise in that process, you can wind up ‘polishing a turd’. So this one simply went down the pipe.

Then we have the most heavily depreciate midsized car of the modern day. A Mitsubishi Galant. This 2009 model had 123,791 miles, and although the trunklid mentioned an ES trim level, apparently an ES in the rental happy Galant world only means alloy wheels as an option.

These lower trim vehicles usually sit at my lot for a bit. Cloth interiors. More than 120k… but an 09 model. I stopped bidding at $4900 for the sole reason that I usually can’t get the same margins with a higher cost vehicle with lower feature content. The final bid was $5000, and given that I already have several Tauruses and 3.5 Liter Intrepids that fit this bill at a far lower acquisiton cost, I can’t say I regret this decision.

Now this one was a gritting of the teeth moment. A 2007 GMC Canyon Work Truck with 111k and nothing too special about it. Except for the automatic. Late model, compact, automatic pickups are insanely easy to finance and this one had the added benefit of some paint transfer on the fenders that a less experienced buyer would falsely see as a permanent issue.

I bid up to $4500, and a friend of mine who buys up trucks was standing near me and bid $4600. I had to invoke King’s Rule and give him the favor of bowing out. In exchange for him looking out for me during the next go around. Hopefully that happens and I don’t wind up in a dogfight.

Finally we had the transportation equivalent of dog food go through the block. A 1999 Saturn SL. Based out. 5-speed. Perfect 35+ highway miles per gallon transportation for those folks who subscribe to the common practices of penny pinching and personal parsimony. I always have several of these on the road. Although the 5-speed is often a more challenging sale here in the Atlanta ex-urbs.

I showed a fist and held the bid at $1000. Waited for a few seconds. Then. Damn! Someone jumped in and I bid it up two more times before letting it go to some other nearby shadow for $1500. Typically I try to keep my costs under $2000 for a stickshift equipped basic vehicle, and this one would have likely cut it close once you added the buyers fee and the need for new rubber all the way around.

There was a ton of other stuff today. Fewer buyers came to the sale. But those who did show up bid all the money in the world. So if you’re in the market for a 1999 Lexus LS400 in clean condition and only 117k miles, you are looking at nearly $8000. Wholesale. If that sounds insane to you, just think about the financing terms that will be applied towards that vehicle. I’m seeing $1500 down. $80 a week for at least 36 months. Maybe even 48 months.

 

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43 Comments on “Auction Day: Seconds!...”


  • avatar
    Felix Hoenikker

    Steve,

    “If that sounds insane to you, just think about the financing terms that will be applied towards that vehicle. I’m seeing $1500 down. $80 a week for at least 36 months. Maybe even 48 months”
    I never heard of weekly car payments, only monthly. Is this something new to make the car payment seem cheaper?

    • 0 avatar
      segfault

      It’s generally the way BHPH lots collect their payments.

      • 0 avatar
        CJinSD

        Does this practice mean the repo man shows up when someone is three weeks late instead of three months?

        • 0 avatar
          ChevyIIfan

          CJ, according to this article, they will sometimes repo after 1 day of late payment!

          http://money.cnn.com/2010/11/29/autos/americas_car_Mart.fortune/index.htm

          • 0 avatar
            CJinSD

            Wow! I was hoping for an answer from Steven Lang. While I’m sure CNN is more trustworthy than MSNBC, it would be nice to hear the cutoff from someone involved in the industry.

          • 0 avatar
            Steven Lang

            It depends on the owner of the company.

            I have customers who have been as far off as a year behind due to life issues beyond their control. If life happens, and they let me know about it beforehand, I usually put a hold on payments for a couple of months.

            People lose jobs, get hit with medical bills, make bad decisions, or have others within their family making the bad decisions. I have pretty much seen it all at this point.

            I did have two customers over the last four years that I retrieved my property after the first missed payment. The first was arrested for breaking into vehicles and stealing electronics. The second falsified documentation.

            Most finance companies and auto dealerships do not want the car back, ever. Personally, I want to get paid for the vehicle and have that person become a long-term owner, not a debtor.

            But that outcome depends on three simple actions by the customer if ‘life happens’.

            1) If you can’t pay, just tell me the truth. I would strongly prefer to be given a heads up instead of having to contact the customer.

            2) If you can’t tell me the truth, at least return my call via voice or text.

            3) If you don’t return my call within a week weeks, and you proceed to keep on using my property without paying for it, I’m going to get it back.

    • 0 avatar
      Detroit-Iron

      I have been reading Steve’s articles for a long time and early on I was shocked at what the weekly added up to for a monthly. It was before cash-for-clunkers etc., I wish I could remember the car but anyway he said something like $500 down and $50 a week for ~$2000 car. I thought, “That’s not too bad,” then I thought “wait a second, that is over $200 a month!”

    • 0 avatar
      Athos Nobile

      Rent rates here are advertised on a weekly basis. I get charged monthly.

      Similarly with car loans in some places. The premium brands don’t usually disclose those details nor the amount of the “advantage package” (read cash on the hood) available to the customers.

      And from banks to utilities to landlord, everyone includes a note in the paperwork that states that if falling into hardship, inform in advance to arrange a different payment arrangement.

      In any case, weekly expenses are also a useful way to monitor your budget.

  • avatar
    28-Cars-Later

    LS400 for 8K… that seems high but then again that’s only roughly 20% of original MSRP on at least a 50K ride in 1999. I might’ve bid 6K myself.

    Now if that had been an ES300… way too much. But then again Camcords of similar vintage are doing 5 and 6 in some of your articles with more miles and crappier condition.

  • avatar
    corntrollio

    Steven, may I ask what types of auctions you typically go to? Apologies if you have covered this in a prior column, but I couldn’t find it in a quick search and haven’t seen it in a recent one.

    In addition, do you frequent any of the types of auctions where you have to be a regular in order to bid? For example, those police auctions where you have to be an insider in order for the auctioneer to recognize your bid, and if you protest, you’ll get booted?

    • 0 avatar
      Steven Lang

      I attend all different types of auto auctions. Dealer, public, city & county, online government sales, and pretty much anything else I find out about that remotely interests me.

      This article covers a dealer only auto auction. Hope this helps!

  • avatar
    Ex Radio Operator

    Mr Steve,

    I live in Deer Park, Texas. Not too far from me is South Houston, Texas. The main drag of South Houston is Spencer Highway. The frontage of this street is literally shoulder to shoulder with BHPH car lots. Anywhere from 10 to 50 or more cars in each one.

    My question is this. Multiply that by the thousands of lots across this formerly great land of ours and the numbers of cars sitting on them is staggering. Any guess as to how many billions, maybe trillions, of dollars those cars represent?

    What got me started was I have been looking for another Miata and after passing places like this and visiting a few of them I seem to see the same cars week after week. That’s a hell of a lot of blood, sweat, and tears just sitting there taking up space.

    Just how many of these castoffs do you have to sell a month to keep baby in shoes?

    • 0 avatar
      bill mcgee

      Since I live in Houston , I am totally familiar with this stretch of sleazy dealerships . Another similiar stretch of sleazy BHPH dealers is in the southwest Houston barrio. The last time I was car shopping I was looking for a first gen Scion xB . I wanted to pay cash , but these places were not willing to bargain at all . I saw a nice 2006 Scion but they wanted over $ 13k for a car with over 100k miles ! These BHPH places are really there just to make money from financing , usually to the undocumented .I wound up finding another xB , with 98k miles for $ 5900 cash . The lot owner lowered the price from $ 6700 for a cash offer.

    • 0 avatar
      fincar1

      My own version of this question is this: What percentage of the total number of cars in this country is sitting on car lots waiting to be sold to a new owner?

  • avatar
    olddavid

    I have recently made the decision to look for another project. I decided to give the Q45 Infiniti a try. I have the luxury of being able to wait until I find the right combination of mileage and price so I can afford to take as much as a year to get educated and complete all repairs correctly and enjoy it for a year at minimum. In December, I looked at two or three with 140-160k at $1200-2000. This last week, I saw several more and astoundingly, the prices had gone up to $3000 for 180k and no timing chain tensioner upgrade. Am I just not paying attention, or has this particular year become a “perfect storm” of rising demand and more discretionary income all coming together? Good thing I have an ace in the hole in the knowledge that one sits in a garage nearby with 115k, one slightly dinged fender and a $1600 buying price. This has been an eye-opener, even to an old cobbler like me. I can’t imagine what kind of adjustments a dealer would have to make with this much market volatility.

  • avatar
    Steven Lang

    It’s not based on what you sell in this business. It’s what you collect.

    I also study the history and condition of every single vehicle I get before I buy it. Castoffs are not my thing, and if you simply buy based on looks, you better have an army of mechanics and a fair amount of luck.

    If a car breaks down… you won’t get paid.

    As a guy who used to travel the country liquidating over 10,000 vehicles a year for Capital One Auto Finance, I’m pretty good at the assessment side of the ledger. However nobody is perfect in this business. You can only know so much with a car that can’t be driven down the road. On the other hand, nearly every passive investment out there offers considerably more risk and can be manipulated to a far higher extent to maintain the faults that lay within.

    I would rank the car buying process to be a bit like buying stocks and
    bonds, with the primary difference being that if you buy a bad car, you’re the first one to know. Buy a bad equity or debt, and you will almost always be the last one to know. To me, cars are a better buy which is why I have so much more competition these days.

    As for the row of BHPH dealerships, it’s the changing of the times. I used to sell all my vehicles for cash money until 2008. Once the economy began to change I followed suit. Many of my contemporaries did the same thing.

    http://www.thetruthaboutcars.com/2009/02/hammer-time-forays-into-finance/

    You can pretty much double the acquisition prices from 2009 and the length of the loans as well. The business has changed quite a bit over the last five years and if you want to blame someone for their greediness, you may want to look directly at those enlightened souls who created this financial crisis in the first place.

    The car dealer had nothing to do with it.

    • 0 avatar
      corntrollio

      “I’m seeing $1500 down. $80 a week for at least 36 months. Maybe even 48 months.”

      So, the break-even (assuming no additional costs beyond wholesale, which is not the case because almost every vehicle probably requires some reconditioning), is more than 80 weeks at that price.

      In your 2009 article, you had suggested break-even re: your equity in the vehicle was in 2-3 months. Does that mean that dealer would be expecting to repo the car and finance it it to someone else under typical conditions?

      Out of curiosity, what payment terms would you have offered on the cars mentioned in the article — Integra, not-so-gallant Galant, Canyon, and Saturn — if you had gotten the price you had been willing to put in?

      Your assessment skills seem pretty great, and your prior job at Cap One explains why. I’d love to have even half of those skills. Have you gotten seriously burned on a particular car lately? It seems like you have to be incredibly nimble with your business practices to compete in your business. Thanks again for your columns — I find them very interesting and entertaining.

  • avatar
    AoLetsGo

    I perked up when I saw your GMC Canyon post going for $4,600.
    I just traded my 2006 Canyon with 105,500 miles a little nicer than your picture but not that much and a manual. I got $4,200 from the Ford dealer as a down payment on a 2013 Ford Edge SE. The trade in was higher than I thought I could get but it looks like it was in the right ballpark.

    • 0 avatar
      Fordson

      I’m sure Steven Lang knows more about this than I do, but you can’t compare prices at an auction to trade-in price. The amount you get for a trade-in has a lot to do with the margin they make on the vehicle you’re buying – if it’s a high-profit deal on the face of it, they’ll have more room to move on the trade-in, and vice-versa. If you had been looking at a new Focus SE instead of the Edge, you would not have gotten that much on your trade.

    • 0 avatar
      sgeffe

      Believe me, I’m curious about trade-ins, too!!

      I was hoping to sell my 2006 Accord privately for $12,200, but getting no takers after a while (and not wanting to go the CL route–strangers driving my car, etc.), I reluctantly decided to trade it. The various Web sites pointed to ~$10,200. Car was clean inside and out, and in good mechanical shape! Only 57,800 miles!

      The best my broker could get for me was ** $8,600!! ** The dealer to whom he sold the car took three weeks to get it out front, and is now asking ** ~$13,000 ** for it!

      What else can I do (besides not keeping a car as long as I did) to avoid getting screwed like this in the future on a trade?

  • avatar
    MRF 95 T-Bird

    I’m surprised there are not some New Englanders down there scarfing up the Subaru’s like that Forester in the top pic.

  • avatar
    joeveto3

    I too find Steve’s contributions to be fascinating.

    That Acura caught my eye. Those were fun cars.

    The Rudolph Nose on the Subie…does it add value or subtract?

  • avatar
    Crabspirits

    I find these articles interesting. Especially where you feature the cars with one foot in the grave.

    The thing I don’t understand, is why you go to these things. You do all this research about a car you can’t test drive or even start sometimes (unless things are different in other dealer auctions than I’ve been to), have to beat off the hoard, and then have to pay a fee on top of the purchase price.

    I see an easier alternative as just buying cars off Craigslist from private individuals. You can take your time ensuring they’re in good shape. You can perhaps haggle and even get them for far less than you would at these auctions. It seems like it would be the easiest thing to call up the owner of a black 2000 Lincoln LS with a damaged fender, invite him to your establishment, and offer him $1800 and a ride home. I would SEEK out problems easily repaired with an hour at a salvage yard. Maybe you can even lock them in a trade. Is there something I’m missing?

    • 0 avatar
      danio3834

      Seeking out each individual car and dealing with each individual owner is time consuming and doesn’t always yeild results. Many private sellers expect retail money for their rides as well.

      Auctions are preferred because there are lots of cars and they’re there to be sold as fast as possible to the highest bidder. The highest bidder typically gets the car. Even if it doesn’t make the reserve (if there is one) the auction staff will make a call to the seller (usually another dealer or finance company) and persuade them to sell the car under their reserve.

      Dealers go to the auctions because it’s a one stop shop and they can make up for a few bad buys in volume. If they buy 10 cars in 2-3 hours at an auction, and lose or break even on 1 or 2, they’re still ahead.

      If they spend 2 hours to buy 1 car off one private individual and they lose, it’s a complete loss. Even if the private car turns out to be good, it’s less potential gain in a time where they could have bought 10 good cars.

      • 0 avatar
        Crabspirits

        It still doesn’t compute.

        Small guys like Steve don’t seem to buy volume. How often does he go to these things? Every week? Every month? Perhaps averaging 3-5 cars? Here, it seems like he went and got nothing.

        If all I was doing was buying cars all day off CL, I might manage 1-2/day.

        The larger dealerships send me junkmail all the time, wanting to offer cash for my xB and Taurus X, so it obviously works for them. This would just be a more personalized and focused form of that.

        • 0 avatar
          rodface

          After a year of reading his column, I get the sense that Steven buys perhaps 500-1,000 cars per year. This is likely completely wrong and I would love to hear the true number.

        • 0 avatar
          danio3834

          He said that in peak buying season, he can buy a dozen or more at a time. Right now is selling season when auction prices are high, so he’ll buy less.

          I do buy cars off Craigslist and at auctions fairly frequently and buying at auctions is much faster and easier if you know how to size a car up. You usually get the cars cheaper than off CL, without the haggling.

          The cars I buy off Craigslist are the ones that aren’t run of the mill and you don’t really see at auctions. Or if someone is looking for a very particular car like that brown manual transmission diesel wagon.

          • 0 avatar
            corntrollio

            “The cars I buy off Craigslist are the ones that aren’t run of the mill and you don’t really see at auctions.”

            Exactly, if you want a Chevelle or one of those three manual transmission BMW X3s, buy it off Craigslist. If you want a late model appliance/commodity, then there are tons available at auction.

    • 0 avatar
      corntrollio

      “I see an easier alternative as just buying cars off Craigslist from private individuals. You can take your time ensuring they’re in good shape. You can perhaps haggle and even get them for far less than you would at these auctions.”

      Yes and no. There are a few gems on Craigslist, but a lot of the cars are shite that people want an inflated price for. Obviously, you do have a better opportunity to check out the car, and maybe you can even see how that person treats their other cars too. However, it doesn’t seem that scalable, depending on volume.

      “The larger dealerships send me junkmail all the time, wanting to offer cash for my xB and Taurus X, so it obviously works for them. This would just be a more personalized and focused form of that.”

      This is not the same thing. Most of those dealers are trying to give you what sounds like a too good to be true number on your trade in order to screw you on the new car you’re buying.

      There are new car dealers that will buy your car outright without trying to sell you a new car, but these guys are buying largely at prices closer to auction price. The price CarMax quotes to people when buying cars that they don’t plan to sell themselves is often similar to to auction price minus a profit.

  • avatar
    Norman Yarvin

    “New rubber all around”… what does that involve, exactly? Coolant hoses? Door seals? Tires? Motor mounts?

    • 0 avatar
      brettc

      I take that to mean a basic set of tires with good tread. I don’t think people shopping at BHPH lots care what kind of tires they are, just that it has “new tires!”. I doubt he’s talking about coolant hoses or motor mounts. I don’t think Steve would buy a car that needed that much work if it could be avoided. Or at least I wouldn’t if I was doing what he does. Those costs can get high, especially if you have to drain the cooling system, replace a bunch of hoses, and then refill it and make sure it’s purged of air. Worn motor mounts can be ever more of a headache to deal with.

      Love these articles. It’s interesting to read about the sub-prime/repo aspect of the car industry.

      • 0 avatar
        dts187

        I bought a used Caliber as a work vehicle a few years back at an independent used lot. Written across the windshield in pink and green was “New Tires!!!!”. I was shocked when I looked at them and saw a brand I’d actually heard of. They weren’t fancy. Just a low-tier Firestone tire that probably cost $80-$90 bucks a pop. Definitely a pleasant surprise and much more reassuring than a no-name mystery tire.

        • 0 avatar
          corntrollio

          Standard 15-inch wheels or optional 17-inch wheels? I’d imagine if it was the standard 15-inch wheels, it’d probably be cheaper than that, but if 17s, it’d be slightly more.

          Of course, that’s retail price, not wholesale for a dealer that reconditions it.

    • 0 avatar
      CoreyDL

      Tires.

  • avatar
    krhodes1

    I find Steve’s various posts really fascinating, and also my travels in the South. Seems like a very different car-buying world to New England. We don’t have title pawns at all, at least here in Maine, and seemingly many fewer BHPH lots. Both seem to be utterly everywhere down South. Maybe the small family lots do it, they just don’t advertise it as much? There is one run by one of the big dealer groups here in my city though. Inventory seems to turn fairly slowly, or they just buy the same stuff over and over. And maybe 25 cars on the lot.

    • 0 avatar
      brettc

      There are several BHPH lots on the auto mile in Saco. But that’s about all I know of in Southern Maine.

      • 0 avatar
        krhodes1

        Yup, there are a few. But nothing like down South were they are literally EVERYWHERE. Not like we don’t have tons of new car dealerships around either. It’s probably a relative population thing – more poor people in ATL than there are people in Maine most likely.

        It’s really the number of title pawn places that blow my mind down there. They are just everywhere – you would think the competition would lower the rates!

  • avatar
    CoreyDL

    That LS is my favorite version (exterior-wise) of that car, but the rent is TOO DAMN HIGH!

    Gotta be kidding me! I’d never give more than $8K for that, in someone’s driveway, in perfect condition.

  • avatar
    kosmo

    Steve, you said “I stopped bidding at $4900 for the sole reason that I usually can’t get the same margins with a higher cost vehicle with lower feature content.”

    That is interesting. I typically find the opposite, buying a new BMW every 4 years with few (or zero) options. When I resell it, I do very well, since the market I am competing in is full of similar cars with typically ~$5,000 in options. I price a bit below the norm when I sell, and if a potential buyer complains about the lack of options, I will offer a small additional discount.

    I also find I do well reselling stick shift cars, as there are so few available anymore that those who have to have them really HAVE TO HAVE THEM. This is doubly true if the stick shift is paired with the sport package. But I will admit it usually takes me about 4 weeks to sell at the price I’ve set in my mind.

  • avatar
    chrishs2000

    Fascinating as always. Weekly payment schemes make me realize how fortunate I am to understand such things as amoritization tables. I guess as long as there are enough fools willing to effectively pay 35% (36 mo) or 50% (48mo) APR’s for years on a beater, have at it! My stepmom once paid 25% APR on a Chrysler Sebring (which, naturally, quickly disintegrated) from an actual dealership, so I have little sympathy for idiots who can’t do rudimentary math.

    Then again, speaking of fools, I still owe $60k on student loans from a private university.

  • avatar

    What are “king rule” and “based out”?


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