Rant: Wholesale Auction Prices through the roof.

[TylerH860]

Be happy you're not a small independent used car dealer right now. I'm at about 30% inventory right now and struggling to restock. Quite literally retail prices being paid at auction as Buy Here Pay here's completely take over, and new car dealers hold on to their trades. The supply has never been this bad.

Need some examples of the insanity? Keep in mind these are dealers intending to resale these vehicles for some kind of profit.

2006 Honda Accord 4 cylinder auto EX 147,000 miles. $6900
2005 Toyota Corolla S Automatic 128,000 miles $6300
2003 Dodge Ram 1500 SLT 4.7 V8 4x4 110,000 miles $10,100
2003 Lexus GX470 175,000 miles $11,300.
2006 BMW 325i 98,000 miles $11,900.

[kerry]

I wonder if anyone has produced an analysis of the relative price of wholesale used cars to the general health of the economy. My impression is that what you are seeing not a good sign. It's an indication of the increasing credit unworthiness of the middle class.

[TylerH860]

Originally Posted by kerry

I wonder if anyone has produced an analysis of the relative price of wholesale used cars to the general health of the economy. My impression is that what you are seeing not a good sign. It's an indication of the increasing credit unworthiness of the middle class.

Based on the credit apps I'm seeing come through, absolutely.

Tax return season is at its peak. Lucky wage slaves actually get money back, and use it to make big purchases. With this money they buy as much as they can, using the return as a down payment to finance whatever they can get. This is prime time for a buy here pay here lot, as they mark the cars up $5000 over retail and charge 18-28% interest. They need the down payment to offset the risk as much as possible.

In my case, it may come down to adapt (go sub-prime/buy here pay here) or die (close up). I really don't see myself becoming a bill collector.

[Jim B.]

At those "Buy here/pay here" lots you actually will get the joy of repossessing and reselling some of the SAME vehicles over and over to bad credit customers that can't/won't keep up the payments.

It is ugly but can be quite profitable.

You come across as WAY too nice a fellow to have to wrangle with those types of bottom feeders....so I hope you never need to do that.

Best of luck to you...

[pj67coll]

Originally Posted by TylerH860

$5000 over retail and charge 18-28% interest. They need the down payment to offset the risk as much as possible.

Can you explain what you mean by that? What is retail exactly in your business. I mean if I as a car shopper need a car I seem to have three choices. Buy new - out of the question. Buy used, which means an outfit like yours, or a buy here pay here place. Or buy privately. But what's retail price on a used vehicle and who sets it? The price set by the new car dealer keeping the trade ins? The price set by the auction houses? The price set by private sellers?

I have just had a miserable experience trying to buy a car this last week. It culminated in a purchase on Sunday afternoon from an independent family dealer and returning the car for a full refund Monday afternoon. I wont' bore you with the details here.

However the dealership owner told me that he buys all his cars from new car dealers as trade ins, never from auctions. But that in his words it's becoming increasingly difficult to get them from the dealers. Maybe the same symptom that you are experiencing.

- Peter.

[Jim B.]

A LOT of car buyers (both new AND used) are so stupid that ALL they want to hear is HOW MUCH PER MONTH will this cost me?

If they like the number they hear, and the auto dealer can stretch the payments out for 5-6 years, even on a POS car, they'll often buy.

Even works on brand NEW luxury cars!

You hear on the radio every day, the ads screaming "Yes, now YOU TOO can be driving a BRAND NEW Mercedes-Benz TODAY. for just $299 a MONTH!!!

You'll never even OWN it - 'cause what you are doing is LEASING it. The allowed yearly mileage is typically (out in California anyway) is absurdly low, only 10,000 miles a year - and the average yearly mileage in that state, driven by a Californian, last I heard, was 15.000 miles a year.

For EVERY mile over that allowed 10,000 miles, there's an excess mileage fee - usually 25 cents to 50 cents A MILE! That can really add up to a LOT! And real fast too!

PLUS, you don't even OWN the car, in essence you just RENTED it, by leasing it, for the lease term. And *IF* you liked the car, then MAYBE you can buy it back at the lease end. Maybe.

Yet:

Some people are dumb enough to actually then lease again! Back on the merry go round!


Most of this doesn't matter if you can write off the miles and use on your income tax, this works ok often enough for business owners.

But for an average buyer without those available tax breaks, a car lease allows them to drive a way nicer car than they could afford to buy outright or buy on credit.

But oh boy, do those folks PAY for that privilege.

I think that in this arena, for the prospective auto buyer, in the end, there is NO FREE LUNCH.

[elchivito]

We suffered a bit of temporary insanity recently and entertained the notion of buying wife a new Subaru. Told the dealer we weren't sure but would probably keep the Element. I said you don't want it anyhow, it's got 170K miles. She said we used to wholesale out cars with that sort of mileage, not anymore. Clean ones go right on our resale lot, especially Hondas.

[Txjake]

Buy here, Pay here lots need to be more closely regulated, or shut down. They prey on low income people who don't know any better or can't come up with the $$ to actually buy a car. And, due to the abysmal state of public transportation, virtually everyone outside a few key cities needs a car.

[Air&Road]

I'm not directly involved with this, but after my Dad sold his business and "retired" in 1983, he started buying Honda's at auction, putting them in shape and selling them. It kept him busy and gave him some extra cash.

In the beginning he did real well with it, but then at a point, as I recall was about ten years ago, he started saying that the prices at auction were getting ridiculous, and he all but stopped doing it. He was starting to slow down a good bit, so it was probably just as well.

My point is that I think this might have been ramping up for a long time, but not in a neat linear climb, but in significant steps.

It does indeed make it tough for someone in the business to make a living and raises the question, "how the heck does anyone else make any money on them?"

[spdrun]

Thank oBUMa for his moronic Cash for Clunkers program. Though part of the problem might be Craigslist and friends. Why trade-in a used car when you can get more $$$ selling it online, and listing fees range from cheap to free. Thus the dearth of used cars available to dealers at auction.

I've never bought from a dealer, only in private sales. Not sure how necessary middlemen are in 2014.

[P.C.]

Originally Posted by spdrun

Thank oBUMa for his moronic Cash for Clunkers program. Though part of the problem might be Craigslist and friends. Why trade-in a used car when you can get more $$$ selling it online, and listing fees range from cheap to free. Thus the dearth of used cars available to dealers at auction.

I've never bought from a dealer, only in private sales. Not sure how necessary middlemen are in 2014.

The Cash For Clunkers program ended almost 5 years ago.

[spdrun]

Originally Posted by P.C.

The Cash For Clunkers program ended almost 5 years ago.

Anything that reduces supply will drive up prices.

[alabbasi]

You probably need to up your game and buy newer vehicles so you're not competing for the same cars as the tote the note dealers. Salvage is not any better. I've seen cars that were blasted sell for the same kind of money as retail.

[jcyuhn]

Originally Posted by spdrun

Anything that reduces supply will drive up prices.

During the great recession new car sales in the U.S. fell from approximately 17 million per year to 10 million per year. The supply of used cars in the 3-7 year old range is much reduced. I'm guessing the upward push in prices which Tyler is seeing is the result of people on used car budgets reaching farther back in time to fill their transportation needs. I agree with Spud, it's supply and demand. Right now demand is rebounding, and supply is way, way, way down.

[Txjake]

I don't know if supply is actually down. It seems like every car lot I see has lots and lots of inventory, lots of it not moving, in part I imagine b/c SUVs and pickups (older ones) are so expensive to operate. People with less money and not enough credit get stuck buying cars that they can't afford to operate.......