How To Profit From Public Car Auctions - Part 1

By: Joshua Rose


Public car auctions (the ones where you don't need a Dealer license and anyone can attend) are perhaps best known as a way of potentially getting an unusually good deal on a secondhand vehicle. They're also known for having a lot of junky cars in bad condition.

The truth is, both are true. Like most things in life, there are both pro's and con's. And by knowing how to tell the difference, you can uncover the significant money making potential of these auctions.

Yes, there are many older, beat up, high mileage vehicles at these auctions. While some people go after these cars to resell, I'm just not interested in them as a personal choice. But I'd estimate, and I'll give you some examples in a moment, that at the typical auction 10% to 20% of the vehicles are solid candidates for personal ownership or to buy and resell for profit. They are the "gems" ripe for cherry picking. And by picking up these vehicles at the right price, reselling profits are in the $1,000 to $3,000 range each.

So, how do you recognize those vehicles to cherry pick? Well, it's a little hard to explain exactly because there isn't a precise rule. But what I can say is that "you'll know them when you see them" by previewing the listings a few days before an auction. There will be vehicles that will just jump out at you.

My typical preference are 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 that I can get at extremely low prices.

My target buying price will be well below trade-in value (you'll be surprised how often you can be the winning bidder at a price like this). What I'm looking for is a win/win situation. This means that the people I resell to win because they're getting a great buy. And obviously I win because I'm making a profit.

Probably a better way to explain this so you can get a feel for identifying the most easily resellable vehicles is to go through some actual examples.

What I do to begin is to go to my data base of auctions and start checking out the upcoming auctions in my area. For example, I just did this for ten minutes checking only the first two auctions I saw. The first one is next week and has approximately about 150 vehicles for sale. As I run down the list, I spot several minivans that are two to three years old with very low mileage. These are definitely strong candidates.

But then, a group of cars literally scream off the page to me. I come across five 2000 Chevy Cavaliers. Now, I really don't care about Cavaliers one way or another, but the mileage on these are just outstanding ... and just what I'm looking for. 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.

Whats' more is that they are listed as "government vehicles". Well, this would explain the low mileage. It's very likely these cars were used by a local government office for their employees when they needed to go out into the field, which apparently they didn't need to do very often. But there's another kicker that has me super interested in these vehicles. You see, government vehicles are usually extremely well maintained. So, these are looking like prime examples of cars I can buy very cheaply and sell fast because my resell price will be low, the mileage is low, and the cars have been well maintained.

The next step is to actually set a price target to pay for any of these cars. To do 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 literally 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.


Part 2 explains more about locating public auctions in your particular area, how to quickly identify those cars in good condition at auctions (even for the non-mechanic), and more. Click here for "Part2 - Making Money At Car Auctions".


--------------------------------------------------------------------------------