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Why Are Luxury Cars So Cheap at U.S. Auto Auctions?

What will you do if you know you can luxury vehicles like BMW, Lexus, Jaguar, or Porsche at a price at least 30% to 70% less? Sounds enticing, right? And yet it also makes you wonder how that is even possible.

 

There are plenty of reasons why luxury cars are sold at incredibly cheap prices, but these 10 are usually the most common ones:

 

  1. Seizure and Repossession

 

These terms are not synonymous, but they have the same concept: the vehicle is taken away from its registered owner.

 

Seizure, which is also known as a civil forfeiture or civil judicial forfeiture, is a controversial and debatable process, but it is enforced. In this scenario, the police seize your assets if the government believes they were acquired through direct or indirect criminal activities.

 

Repossession normally occurs in a more private or civil level. In this case, the lenders, such as banks, are allowed by the court to repossess your vehicle, which you may have used as collateral for a loan, in exchange for your non-payment or default.

 

Both the government and the lenders are not involved in the business of acquiring and selling properties, more so vehicles. Worse, impounded cars can stack up high inventory costs. To reduce these costs, cut back on losses, and declare at least a decent profit, they sell the vehicles through auctions. To get rid of the vehicles as quickly as possible, they are willing to sell them at a bargain.

 

  1. Government Surpluses

 

Government surpluses are different from the seized assets. In order for the various government agencies to function properly and provide basic services, they purchase vehicles through contractors. These vehicles may be trucks, ambulances, police cars, etc. Because government buys in bulk, it is in a better position to negotiate good deals i.e. ask for lower vehicle prices.

 

These vehicles can last for years, but like any owner, at some point, the government has to update. Surpluses, therefore, occur when new cars are added to the existing ones. Rather than spend millions on inventory, they sell these assets at a lower price. The profits are then used as additional government funds.

 

  1. Lemons and Salvage Value

 

Contrary to popular belief, salvage value and lemons are not the same, although they can both refer to car’s defects. Lemon cars do not have to necessarily mean old ones, and luxury cars can be classified as a lemon. This simply means the vehicles have serious defects or flaws they can no longer perform their purpose.

 

Salvage cars, on the other hand, are vehicles that have considerably lose their insurability. One of the foremost reasons is substantial damage wherein the repair is costlier than that of the insurance.

 

Salvage vehicles may be sold to the insurance company by accepting a payment calculated by reducing the car’s market value with deductibles. From there, the vehicle can end up in a junk or scrap yard. Another option is to sell the vehicle to dealers that accept salvage value cars.

 

Either way, lemon and salvage cars can end up in auctions. Moreover, due to their condition, sellers are forced to bring down the initial bid to make these vehicles attractive.

 

Tip: Buying lemon and salvage value cars are risky. There is almost no chance you can get auto insurance for them. However, it is difficult to know whether they have been totaled or defective. Some dealers can have them extensively repaired or lemon cars are new. To determine their actual condition, you can do two things: (1) bring an auto expert or mechanic with you or (2) check the car’s history record.

 

To check the car’s vehicle record, all you need is a VIN (vehicle identification number), which is unique in every vehicle. The car can change hands or look, but the VIN remains the same. The VIN can list down all the transactions including accidents and change of ownership.

 

  1. Competition

 

In the United States, hundreds of car auctions happen every year. This can work to the sellers’ advantage. If they can’t sell their vehicles in one auction, they can participate in another. Depending on the auction, they may be participated by hundreds or even thousands.

 

But even if there are a lot of potential buyers, not all of them bid. Not all who bid eventually push through with the sale (although they may have already paid for the down payment). Also, while many buyers would like luxury vehicles, a number would avoid getting them not only due to the initial high price but also the cost of maintenance. Auctioned vehicles also compete with one another.

 

This competition can drive sellers to provide a low initial bidding price in the market. This way, they can bring customer attention to their vehicles.

 

  1. Kinds of Auctions

 

Car auctions can come in many different forms. These include:

  • Public auctions
  • Car-dealer-only auctions
  • Bank auctions
  • Government auctions

 

Cheaper auctioned luxury vehicles are more likely to be found in three of these places: car dealer, bank, and government. In a car-dealer-only auction, the main driving force is business. In these auctions, dealers are expected to buy not just one but as many vehicles as they can. As an incentive to bulk buying, or to inspire them to buy more vehicles, sellers may have to begin with low bids.

 

As mentioned above, bank and government auctions can offer low-priced luxury vehicles since they are not in the business of selling and buying cars. Their ultimate goal is to dispose of the asset, reduce their inventory costs, recover losses, and get a decent profit.

 

Why can you expect more expensive luxury cars in public auctions? The answer is demand. In economics, the higher the demand, the more likely the price of a commodity goes up.

 

  1. History Record

 

It is possible that the luxury vehicle is not a lemon. It may even still have a resale value. However, it has been involved in a number of minor accidents. It may also be the vehicle has changed hands often or that the previous driver has been ticketed a lot of times. These factors can affect a buyer’s perception on the vehicle. Doubts can somehow compel any seller to offer the goods at a much cheaper price in the hopes the affordability covers the vehicle’s faults or you will not have enough time to doubt longer.

 

Tip: Perception is subjective. There are a lot of cases when owners overlook these defects or flaws as they are encouraged more by the low price and the chance of owning a luxury car. In other words, whether you continue to bid on and buy this luxury car, it is all up to you.

 

But it is always necessary to exercise due diligence. While you may acquire this vehicle cheaply, you may end up spending more money on its future repairs. Worse, you may have a hard time getting it insured.

 

  1. Physical Condition of the Vehicle

 

Remember the cliché “Do not judge the book by its cover”? It is happening more often than we thought and goes to show how perception affects our buying process. This also explains why a product with low production costs can still end up expensive in the market: a huge percentage of the additional costs can be attributed to sleek, nice packaging.

 

When you walk into an auction, the first thing you see is the physical condition of the car—its exteriors and interiors. If they appear brand-new or in mint condition especially from afar, you are more likely to be drawn to it.

 

On the other hand, if the vehicle has dents and scratches, or the cushion covers are already torn, you may have second thoughts of bidding on it. In turn, to convince you to reconsider, sellers can ask for a lower bidding price.

 

Tip: If you are wondering why sellers don’t take the time to make their vehicles look good, it’s because they’re not obliged to do so. In auctions, vehicles are sold as is. The cosmetic defects, however, should not discourage you. There’s a higher chance you’ll spend less on it than a good-looking vehicle with a defective engine or mechanical parts. Nevertheless, don’t be afraid to use these physical defects to your advantage and leverage to get a good bidding price.

 

  1. Age and Model

 

Logic dictates that the older the vehicle, the cheaper it gets. There are reasons for this. One is maintenance. Older vehicles are a lot harder to maintain due to possibly worn parts. Repairs may also become difficult if the parts are hard to find in the market. Second is depreciation. As the vehicle gets older, depreciation goes up, which then reduces its market or resale value. Older cars are also more difficult or expensive to insure.

 

It’s also known that vehicles can change models practically every year, so even if the car is just a year old, newer models can bring the former’s value down in the market.

 

Tip: When buying an auctioned luxury car based on age and model, remember the rule: no older than 5 years. Better yet, settle for at least three years. Five years is the ideal lifespan of the vehicle. After that, its value in the market can dip significantly. Insurability also becomes hard.

 

  1. Use of the Vehicle

 

How the vehicle is used will also matter. If the auctioned luxury vehicle has been used for business (rental, for example), the market or resale value may be low. This is because the wear and tear may come early for the car. The same goes for vehicles driven by owners who get a high on overspeeding.

 

There’s also the issue of mileage. Cars with mileage higher than 150,000 may also have a lower price due to warranty.

 

  1. Warranty and Cost of Insurance

 

Do you know some auctioned luxury vehicles can still have their warranties intact? In fact, it’s one of the details you should get from the seller. This means the vehicle is new or in good condition, still has enough mileage, and is easy to insure. So if no longer has one, the seller may offer the vehicle at a lower price to compensate for what’s lacking.

 

On the other hand, luxury vehicles are generally pricier to insure, more so if they’re already used. This may inspire sellers to give you a lower initial bidding price.

 

Getting Your Own Luxury Car

 

If there’s one thing these reasons do to you, it should inspire you to own your very own luxury vehicle. But how do you exactly get one? Be aware of the auctions.

 

As mentioned, there can be hundreds of auctions happening every year. In fact, the government organizes a lot of these usually through GSA (Government Services Administration). But you may be wondering why you’ve never heard of them. It may be because they’re not open to the public or there’s no need to advertise. There’s no marketing fund available, they already have a network of marketers, their target market is already aware they conduct auctions at specific times of the year, or the demand is high for auctioned vehicles.

 

If you want to have access to as many auctions as possible, you may subscribe to auction list websites like Gov-auctions.org. Although these sites publish photos of vehicles, you cannot bid on them because they are not auctioneers.

 

What they do is provide you with an up-to-date database on auctions around the country. You can narrow them in terms of location and dates. Each entry can have corresponding information about the auction, including a link where you can register.

 

To know where luxury cars are being sold, you can also use the vehicle search function. You can find cars based on brand, model, or year. The list may then generate vehicle photos and data you need to make initial decisions on your potential purchase.

 

Indeed, these auctions now allow you to get the vehicle you’ve always wanted, even if it’s luxury. Nevertheless, whether you’re getting an average or classy car, be a prudent and wise buyer. Never take auctioned vehicles at face value. Do your research.

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