Auto Auctions: The best way to buy a used car?

Auto Auctions: The best way to buy a used car?

30 August 2022 Concept Car

Thanks to eBay, almost all of us have participated in an auction at one point or another. Perhaps you’ve bid on CDs, books or clothes. Or maybe you’ve even bought something more expensive. Like jewelry or an exclusive piece of furniture or art.

But buying a car at an auto auction? That’s something different entirely.

Still, auto auctions are quickly gaining in popularity. According to the Money Advice Service, close to 1.5 million cars are sold at auctions in the UK each year. Compared to the total sales of used cars (around 8 million), that’s still only a blip. But it’s an impressive number nevertheless.

So should you join the ranks of those flocking to auction houses in search for a car? In this special, we’ll help you find out.

How do offline and online auto auctions compare?

We started the article with a reference to eBay. So before we go any further, we should perhaps spend some time investigating the difference between an online and an offline auto auction.

Is it better to buy at eBay or one of the hundreds of physical auctions across Britain? That’s not an easy question to answer. We think of them as the same thing. But in actual fact, they are very different experiences.

Although eBay has done a lot to improve the tainted image of auctions, it doesn’t really feel like one:

  • You can bid at products 24/7 instead of having to spend a day at an auction house.
  • You can typically, at any one time, choose from different options for the same model.
  • Of course, you can automate your bidding, pre-defining a maximum bid, which means you don’t even have to watch the process.
  • Auctions usually take a few days, so a lot longer than the rapid-fire biddings at an auction house.
  • Payment options include Paypal, which offers comprehensive buyer protection.

Online or offline?

Obviously, there are also some overlaps. Online and offline auto auctions can yield both highly attractive and far too high prices. They create the same kind of suspense and rush of blood to the head, which can make them dangerous. And with both, you can not be sure you’ll actually get the car you want or walk away empty handed.

Usually, too, you won’t be able to test drive or properly inspect the car prior to purchasing it. This is called buying as seen. At an auto auction house, you will at least be able to see the car from the outside. And in some instances, you may be granted five minutes on the inside or you may be able to look underneath the hood.

On eBay, on the other hand, the sellers tend to carefully document the condition of the car with photos, close-ups and additional information. This is very helpful indeed, sometimes more so than standing right beside the car but not being able to go for a test drive.

Our general recommendation: If you’re looking for a car and want to give auctions a chance, it would be foolish not to take both options into consideration. But be careful either way.

Are auto auctions actually cheap?

Ask anyone participating in an auto auction for their reasons, and you’re likely to get the same answer each time: because it’s cheap.

We all dream of the perfect deal. Of finding the car of our dreams at a mind blowing discount. But dreams rarely come true. And in the case of auctions, that is probably going to be the case.

Here’s the thing: Auctions were not invented for people like you and me. They were founded to provide a service to car dealers and car dealers only.

Here’s why:

Car dealers make most of their money from selling used vehicles.

So they need to constantly update their showroom with new offers. One way of doing this is to buy cars off private sellers through part-exchanges. But this is time-consuming and slow and never generates the kind of selection that is required.

Auto auctions are the best possible way to buy a lot of used cars at reasonable prices. Most of these vehicles will be in a decent condition. And if a dealer should get unlucky and buy a below par model, they can usually get it fixed at their own garage.

For this reason, auto auction houses can charge quite high handling fees. To car dealers, these fees can be passed on to their customers. For private buyers like yourself, however, they make participating in the auction a lot less attractive.

Sticker prices are not the gauge

There’s another reason that auto auctions are rarely a lot cheaper than buying at a dealer: Sticker prices don’t mean all that much.

Even if you’re really bad at haggling, you should usually be able to shave off a few Pounds off the sticker price. Chances of this happening are better for a new car. But it’s just as possible with a second hand model.

Let’s say you can get a car at an auction for £1,000 less than at a dealership. First, you need to apply all the different fees, which can amount to a few hundred Pounds. Then, you need to consider that you can get a discount off the sticker price of around £300. As you can see, the difference between the two will quickly melt away like ice in the sunshine.

Add to that the fact that you enjoy a lot more protection at a dealership. You should be able to test drive the car, for example. (To understand the benefits of test driving a used car, see our blog post on the topic) The closer you look, the more an auction will typically lose its appeal.

Whether or not an auto auction is cheaper than buying used at a dealer depends on a lot of things. We’ll get to those in a moment.

First, however, let’s look at how an auto auction actually works.

If you’re serious about buying your next car at an auction, you need to come prepared. Part of that includes knowing about the procedure. It may vary slightly from house to house, but in general, this is what a day at the auctions will look like:

  • Prior to the actual bidding, cars are posted online through a new function called Auction View. This allows you to do some ‘window shopping’ and get a glimpse at what’s in store for you.
  • When you arrive on the day, there is some time to check out the cars on site. Each car sold at the event needs to be displayed. This allows you to get at least a rough impression of its condition.
  • There are usually two blocks of bidding. One in the morning and one in the afternoon, separated by a break.
  • Before bidding on a car begins, the auctioneer will read a quick summary of the most important facts. These are legally binding and describe the condition of the model in question and what you can expect.
  • Bidding will then commence. You can participate by holding up your placard to make a bid. If you get to make he final bid, the car is yours.
  • After you’ve won the auction, you need to pay a deposit of 20% or £500 at the cashier.
  • The other fees as well as the buying price will become payable soon after. There are various payment options, but both credit card and cash will incur additional costs.

As you can see, the process is simple enough. Still, there are plenty of potential problems, which you’ll need to know about.

Auto auction disadvantages #1: No support

We have got used to lavish consumer protection laws. When you’re buying a car from a dealer today, you can expect a warranty, protection against fraud and many more. You can also rely on dealer to allow you to test drive the car and to have it thoroughly inspected by a third party. All of this significantly reduces the risk of the transaction.

None of this applies to an auto auction. The auction house does not take responsibility for any technical problems. It just acts as a middle man between the seller and the buyer. In fact, your protection is even less than that, as you don’t have any means of contacting the seller. Once the car is yours, it’s truly yours and you’ll have to deal with it.

Obviously, it may be worth the trouble, if you can get a really great deal. But you need to be aware that you may just as well commit the biggest mistake of your life.

Auto auction disadvantages #2: Buy as seen

An auto auction is the Wild West of car sales: You don’t get to properly inspect the car. You don’t get to test drive it. Descriptions of its technical condition tend to be vague. And if you should experience any issues after the auction, you will have to deal with them all by yourself.

Auction houses dress up this somewhat dire situation under the far nicer term of ‘buy as seen’. Essentially, this means that the visual impression of the car determines what you’re getting. You can not access the parts of the car that are ‘unseen’, these will only become apparent once the vehicle belongs to you.

It takes a lot of experience to draw meaningful conclusions from the way a car looks on the outside to what it is like on the inside. Or at least it’s a lot harder than you might think. And even the experts get it wrong at times.

Buy as seen is the biggest problem with an auto auction. As long as you’re buying a fleet car, your chances of getting ripped off are very slim. But a risk remains nonetheless.

If you feel uncomfortable with this lack of protection and wish for an extended warranty, you’re probably better off with a regular used car deal.

Auto auction disadvantages #3: Getting caried away

Auctions feed off the excitement a bidding war creates. Some of us are more susceptible to this than others. But even the most cool and emotionally balanced among us can get carried away in the heat of the moment.

The thing is that this tension can be fun if you’re bidding for something as innocent as a CD. But a car is something entirely different. Here, going over your price goal can have far deeper consequences. Entire livelihoods can be destroyed in the last minute of an auction!

Professional car dealers don’t usually have this problem, because they arrive at an auction with very clear targets. But even they will sometimes pay more than what they planned or what the car may actually be worth. Now imagine how difficult it will be for you, as a first-time or occasional bidder, to stay calm!

Auto auction disadvantages #4: Inflated prices

Auctioneers at professional auction houses have very high standards they need to adhere to. And yet, their job is to get the highest possible price for a car.

To do this, they can use subtle psychological encouragement through careful wording and trying to encourage those present to put in a higher bid.

There is also something called ‘off the wall bidding‘. This is legal, but will push prices up. Imagine you want to bid on a car which has a reserve of £5,000. Now, if you just bid £3,500 and no one else is bidding, you may think you’ve made the deal of your lifetime.

However, since the seller has set a reserve of £5,000, you wouldn’t actually get the car. Instead, the auction would end without the car being sold. Instead of that happening, the auctioneer will now invent a bid to get the ball rolling again.

He could, for example, suggest a price of £4,000. If you are prepared to pay that much, you could continue the bidding with the auctioneer until the reserve price is reached. Only then will the car truly belong to you.

Off the wall bidding is not only legal, but sensible. But it does mean that you’ll very rarely get extremely cheap deals.

Auto auction disadvantages #5: Fees add up

We pointed out earlier why auto auctions are rarely as cheap as they are perceived to be. The most important reason for this is that there are multiple fees which all drive up the costs after you’ve won the auction:

  • Auction House fee/Buyers fee, which can be as high as 6-10% of the sales price.
  • Credit card fees, which will be around 2.5%. Paying cash also incurs a fee of half that amount. This is bad news, as most likely, you’re going to use either one of these options.
  • Usually, VAT will still need to be applied to the hammer price. This a rough awakening for many bidders, as it’s simply nothing you’d expect. Keep in mind, therefore, that 20% will need to be added on top of the hammer price to this end.
  • Storage fees if you decide to pick up the car after more than three days. These are not very high, though, and will not make a big dent in your budget.

An auto auction strategy

Despite all these disadvantages, people continue to go to car auctions. In fact, they are increasingly doing so, to the point that some worry auctions may suffer for it. If you want to jump on the bandwagon as well, then at least make sure to follow a few basic precautions.

In the end, you can still find a few good deals at auctions. And one of the serious benefits is that you can avoid unpleasant conversations and all the hassle that comes with buying at a dealership. In fact, an auction has a nicely impersonal feeling to it, that many actually prefer.

And contrary to an eBay auction, you can wrap everything up in a few hours, instead of spending weeks hunting for a suitable vehicle online.

So, here come the most important guidelines to follow for anyone interested in a car auction.

Auto Auction recommendation #1: Spend some time on auctions first

As with anything, you get better at things with experience. This is very much true for buying a car at a dealership, since haggling, too, is something you can learn.

It is even more vital when it comes to auto auctions, however. Auto auctions are very fast and follow a strict protocol, so you need to acquaint yourself with that before it makes sense to engage with the process for real. Also, the auctioneer is often quite hard to understand, so you may need to familiarise yourself with his voice and delivery first.

Even more importantly, the more time you spend at the auctions, the better you will be able to separate the wheat from the chaff. What appeared to be a great deal on your first visit can suddenly look like a mediocre offer at best.

There is no general rule here. But we’d say that you should at least spend three days at an auction house before committing yourself for real.

Auto Auction recommendation #2: Choose a serious, professional auction house

Not all auction houses were created equal. Today, each one specialises in something different. Just like sellers should aim to go through the house that is most ideally suited to their needs, so should you.

This specialisation relates both to the price category and the body type of the car you want to buy. So depending on whether you’re looking for a classic car, an SUV or more of a transporter, you may have to visit different auction houses.

Importantly, if you’re a private buyer, we strongly recommend using one of the bigger auction houses. Although some of the smaller ones may have better conditions, it’s not easy to distinguish the serious from the problematic ones. It’s your money which is at risk here, better play it safe.

BCA / British Car Auctions are a good starting point for beginners.

Auto Auction recommendation #3: Inform yourself

We live in the age of information. And so, without the necessary know-how you can only go wrong at an auction.

Before you even set foot into an auction house, you should therefore …

  • … know exactly how much you want to spend. You’ll need to count your reserves and determine how much you can borrow, if you need a loan. Once the auction has started, there is no way you can piece this together in your head. So come prepared.
  • To make a good deal, you first need to know the price of a competing offer at a dealership or an online platform. Thankfully, this is no longer a challenging task. Simply spend a day visiting dealerships in your neighbourhood and browse through the offers of online services to understand what a realistic price is for the kind of car you’re looking for.
  • Check the car’s history using an HPI check or something similar. This allows you to understand more about possible technical issues (by means of an MOT history check) and the likes. Usually, the auction house will have performed some sort of test themselves. So it is very unlikely that you’re in any danger of buying a stolen car or a model with outstanding finance still on it.
  • Never forget to keep doing the maths during the bidding. As we mentioned, there are numerous fees which you’ll need to add to the hammer price after you’ve bought the car. So make sure to always have at least a general idea of this number. It will help you understand if you’re still on course for a good deal.

Auto Auction recommendation #4: Select the best time

No day’s the same at the auction house. As seasoned professionals will tell you, the exact same car can fetch vastly different prices on different days. You will never be able to predict which way things will go with 100% accuracy.  But you can at least get a better understanding of when the best time to bid is.

For one, Winters tend to be better than Summers. This simply follows the rule for car buying in general. People are in a better mood for buying when it’s warm and they prefer to drive into their holiday with a new car. Car sales are generally slower in the Wintertime, so you should be able to get a better catch then.

Secondly, the afternoon sessions mostly yield lower prices than the mornings. By this time, many dealers have already fulfilled their mission and have left. So it’s more quiet, with less professional buyers present. This can help you achieve a better deal.

If you follow our first rule and visit the auction house a few times prior to bidding, you can get a better sense for the days with higher and those with lower prices.

Auto Auction recommendation #5: Never exceed your budget

Knowing how much you can spend should probably the first thing you should do when considering an auto auction. But what good is that if you don’t stick to the plan?

When bidding for a car, consider your budget as holy. Never exceed it, not even if it’s ‘just’ £50. Auctions are fast and before you know it, those £50 will have turned into £250, £500 or more. Suddenly, you’re well beyond what you can afford.

The thing is: Once that hammer comes down and you’ve made the final bid, you’re responsible for getting together the money. If you can’t, this spells a lot of trouble for you. But even if you can pay for the car, don’t forget you still have monthly obligations for maintenance and insurance to deal with.

So set your budget a little too low rather than too high and never ever exceed it. Most importantly, be prepared to walk away if things get too heated.

Auto Auction recommendation #6: Stay away from privately sold cars

When you’re at an auto auction, you’ll see an endless flow of cars passing you by. This can create the impression that they’re all coming from the same source. Nothing could be less true.

One of the first things a car dealer will look at when checking out a vehicle at an auction is who the previous owner was. Generally speaking, these cars will mainly come from four sources:

  1. Fleet cars, i.e. vehicles used by employees of (mostly large) companies.
  2. Motability cars, i.e. vehicles used by disabled drivers as part of their mobility leasing plan.
  3. Ex rentals and ex leasing cars.
  4. Formerly privately owned cars.

The Used Car Guy has made a compelling case against buying privately entered car and in favour of fleet models:

  • “They are all one company owner from new-
  • They are all serviced under contract annually.
  • Any faults are repaired at the main dealer.
  • Most have spare keys.
  • Plus, most have full-service printouts together with a stamped service book.
  • Most have earned their mileage on the motorway.”

Auto Auction recommendation #7: Listen carefully to the auctioneer

One reason you will want to do this is that, as we mentioned before, the auctioneer can be exceedingly hard to understand. The acoustics and often pretty bad sound systems of most auction halls is partly to blame for this. The sheer speed of an auction is another factor. Be it as it may, you’ll need to sharpen your eyes to catch the current bid and the state of the auction.

But you should also make sure to tune in before the bidding even begins. During the introduction, which will only take a minute or so, the auctioneer will read out aloud the relevant information for this particular car.

This information has very important details about the state of the car.

Auto Express has summed them up thus:

“‘No major mechanical faults’ – indicates the car should not have faults with engine, suspension, drivetrain or gearbox.
• ‘Specified faults’ – the auctioneer will read out the list of faults, pay careful attention here.
• ‘Sold as seen’ – the vehicle is sold with any of the faults it may have, the auction house will rarely accept any complaints about the mechanical or cosmetic condition of these vehicles after sale.
• ‘Sold with a warranted mileage’ – the mileage has been verified by an independent inspection and the car is sold on the basis of the report.”

Make sure to understand the specifications for the car you’re bidding at. These will determine your rights should anything go wrong later on.

Auto Auction recommendation #8: Carry the necessary cash on you

These days, buying at a dealership can be a pretty relaxing affair. People will take their time for you, answer all your questions, explain the paperwork and there’s usually complimentary coffee, which tends to be pretty good.

Buying at an auction in comparison feels like a course in speed dating. The faster the auctioneer can get you to buy and leave, the better it seems. And afterwards, there’s no remorse when it comes to your financial obligations.

Regardless of your financial situation, you will need to pay a 20% deposit straight away. You need to pay this using one of the accepted payment methods. Some auction houses actually require you to pay this deposit upfront. So if you make the purchase, it will automatically be added to your balance. You will also need to have your payment details at hand.

So, summing it all up, is an auto auction worth it?

We tend to think it isn’t. There are better ways how you can buy used cars and save money. But ultimately the choice is yours. One thing’s for sure, however: Many people with a bad credit rating think that auctions are great because they don’t require a credit check.

In reality, this only makes things more dangerous. The smaller your budget, the bigger your chances of exceeding it.

At CCC, we have made it our task to help people with bad credit. Before taking on the risk of an auction, visit us first. Not only do we have a great selection of current cars at excellent prices. We can also offer you finance even if your budget should be rather small.

Talk to us, we look forward to hearing from you.

30 August 2022 Concept Car