Many people go to public car auctions (the ones you don’t need a Dealer license for … anyone can go) in order to get a good deal on their next car. But the fact is that these auctions provide serious income possibilities as well.
While there are many older, higher mileage vehicles at these auctions that I personally am not particularly interested in, there’s almost always some hidden “gems” as well that are ideal for reselling. Profits on these sorts of vehicles are usually in the $1,000 to $3,000 range.
But what do you look for in a vehicle to capitalize on this? Well, it’s hard to explain exactly, but you’ll know them when you see them as you preview the listings a few days before an auction.
I either look for mid-priced vehicles with high demand and a reputation for quality (perhaps something like a Toyota Corolla) with average or lower mileage. Or, I go after vehicles that are nothing special as a make, but have very, very low mileage.
I’ll then target a buying price well below its trade-in value (you’ll be surprised how often you can be the winning bidder at a price like this). This means I can then resell it at or close to its trade-in value and this is a huge competitive advantage when it comes to reselling.
Perhaps a step-by-step example would be useful here.
The first thing I do is go to my data base of auctions and scout around at upcoming auctions in my area. For example, I see one now that’s coming up next week with about 150 vehicles. As I scan the list, I come across five 2000 Chevy Cavaliers. I really don’t care about Cavaliers one way or another, but the mileage on them is outstanding. Four of them have between 34,000 and 37,000 miles. And the fifth one has 40,000. For cheap, 7-year-old cars, this will be a huge selling point.
The listing also tells me that these are “government vehicles”. Well, that explains the mileage and now I’m super interested. It’s very likely that these were used by a local government office for employees when they needed to go out into the field, which wasn’t often in this case. The kicker is that government vehicles are usually extremely well maintained, so these are looking like prime examples of cars I can buy very cheaply and sell fast.
The next step is to set a purchase price target, so I need to get an accurate trade-in value. Sure I use Kelley Blue Book, but this is really just a ballpark figure that is often off the mark. What I really want to find out is what Dealers are paying for them at the Dealer auctions … this is the real trade-in value. So I call the loan department of a local bank and ask them for a Manheim Market Report (MMR) price. Most banks worth their salt subscribe to this data. They tell me prices for ones in average condition have been selling at these auctions for around $2,200.
Now, the Cavaliers I’m interested in are way below average in mileage and would likely go for more than this at a Dealer auction. But because these are at a “public” auction, where prices are often lower, I will target a purchase price of no more than $1,400.
Next I go to autotrader.com to see the retail prices for these in my area. I see they have an average sales price of around $3,500, but they have two or three times the mileage. So, I’ll target a resale price of $3,400 and my vehicle will jump off the page at prospective car buyers. It will likely sell in a day or two. But if it doesn’t sell in a week, I’ll lower it to $2,900 and it will be gone.
At these kinds of prices, a low-mileage vehicle like this will be irresistible to someone simply looking for cheap transportation, or buying a vehicle for a child to get them around college. And whether the profit is $1,500 or $2,000, it’s not bad for a few hours of work.
Okay, let’s maybe go over one more quick example, but without all the detail since the process would be the same.
I go back to my auction data base (there’s more information about data bases at the end of this article) and I find another upcoming auction. I spot several excellent possibilities in the listings and then come across some real standouts that are actually shouting at me.
There’s four 2002 Pontiac Trans Ams. The mileage is on the higher side in the 74,000 to 94,000 range for each of them. But this is a “muscle car” with lots of enthusiasts. 2002 was the last production year and buyers will travel from one state to another to buy one.
Also very interesting is the fact that these are also listed as “government vehicles”. It’s very unlikely that these were used by a local government agency. Instead, it’s much more likely that these were “seized” by the state government from a Car Dealer who went out of business still owing on sales tax. If I’m right about this, it’s also very likely they’ve been reconditioned and are in good shape as well.
So, any of these Trans Ams would make an excellent resell candidate. I would then go through the same pricing process to determine my “no-more-than” purchase price and resale price.
If the actual bidding goes higher than I want to pay, I will simply walk away. I’ll stay unemotional and will only purchase when there’s a tremendous price advantage built in from the get go. There’s always other days, other auctions and many opportunities to cherry-pick the offerings.
One other issue is whether or not you need a Dealer’s license to resell vehicles. Each state has its own rules on how many vehicles you can sell before you need to get a license. In Florida, for example, it’s 3. In New York it’s 6. In Ohio it’s 5 … and so forth. And it is easy to increase this by selling some in a spouse’s name, a father’s name, a friend’s name, a cousin’s name, and on and on. The point is that you can do this for a while before deciding on whether or not to get a license.
Well, I hope this has helped you learn how to make money at your local public car auctions. Some people simply buy cheap cars for a few hundred dollars and resell them … and that’s fine too. I just like taking a more studied approach myself which I find is the best way to lead to profitable and quick turnaround times.
Again, I can’t tell you exactly which make or model to look for. But I hope these examples help you identify a great candidate when you see it.