The large auto auctions are loyal to their wholesalers because they need an endless supply of cars to sell and competition is heating up. Over the past 5 years Auto Sales have had Explosive growth so the Auctions have grown and other competitors have entered into the marketplace.
As a large used auto dealer I purchased 400-800 autos from these auctions each year and what I found was disturbing. I wanted to be a dealership of high quality and great customer experience. To ensure I had the best quality autos on my lot I used a tool provided by the auctions. It was called a Post-Sale inspection. I paid $125 on every auto I purchased for the promise that the auctions would do a 32 point inspection and compression test on the engine. If the Auto failed this test, I lost my $125 but they auction kept the car, if the auto passed the test I was happy because I knew I was getting an auto with no major problems, so I thought.
I can’t begin to tell you how many times I would get an auto in and immediately the transmission slips, or we found unannounced structural damage or the car needed major work. It really made me wonder what the heck the auctions were doing and how were they not catching this. It was so bad my dealership was one of the highest arbitration dealers in St Louis. That was just the cars we caught right away. Many cars had major issues and we didn’t find out until after the 7-day period of arbitrage.
I was a very successful dealership growing at a rapid rate so I made lots of connections and friends in the business. I started reaching out to friends asking why I was getting so many bad cars even though I had paid for this inspection. I had a friend in the wholesale business and what he told me floored me! He said “Chad, the really big wholesalers are key to the auctions, they need cars to sell, so when a large wholesaler sells a car and you order a Post Sale the auction calls the wholesaler and says. “Do you want us to do this inspection or do you want us to just pass it through?” I was appalled that such large organizations would operate with such blatant fraud. I paid for a service I was never given, that’s complete fraud.
The wholesales would always say just pass it through because they have nothing to lose. It’s a numbers game, they know after I bought a car it would take a few days for delivery and by the time I would catch the problem it would be past the 7 day arbitration period. The auctions favor the Wholesalers and give them advantages both legal and illegal.
Another interesting advantage and illegal activity I blatantly caught at one action will blow your mind. I purchased a Ford Truck and ordered the Post Sale inspection on. The wholesaler begged me to take the truck without the post sale, I replied I never buy cars without the post sale. I was really curious why he wanted so bad to not have the post sale. I called the Auction and made it very clear I wanted the post sale and if they didn’t perform it I would not take the truck. The Truck Failed the post sale for Structural Damage so I didn’t have to take the truck. What happened next was CRAZY. When you order a post sale on an auto anything found creates a permanent record. This truck now had a permanent record of Structural Damage (which significantly lowers the value). On my online portal it showed the Truck was sold to me with structural damage. I called the auction and argued that I was not taking the truck because it failed the post sale. Shortly after being on the phone, I got a personal call from the VP of the Auction saying I needed to take the Truck. I argued and argued with him. While I was arguing with him, I logged on my online sale portal and noticed they had reversed the Post Sale, like it had never happened. At that time, I said I was going to sue him for fraud because they unwound the Post Sale inspection. He said, that’s Impossible Chad that’s illegal we would never do that. I said well yes you did and the reason is, that wholesalers Truck would be permanently marked Structural Damage and you did this so he could sell the Truck without that mark. At this time, the VP now became nervous because I caught the problem, the VP then said hang on let me call you back Chad. About an hour later he called me back and said he was very sorry that yes the wholesalers post sale had been reversed and he was personal looking into every car that wholesaler had ever sold at the auction. He then said don’t worry about the truck we will keep it. After a week I kept watch on that truck and it was never noted structural damage and was sold to some unsuspecting dealer for way too much money.
Another trick the Auctions are using to keep prices high is a trick called the Proxy Bid online. There are thousands of Auto Auctions across the country, so buying online is becoming very popular, especially since dealers can buy the inspection (which is not always getting performed). So the auctions got smart and created a proxy bid. I could go online and look at cars coming up for auction and if I liked them put in my highest price I would pay for the auto. This would then auto bid me at the time of the auction. What I found out really fast is to never ever use this Proxy bid process because they scam you. How is that that you ask? Well I look at the car today and online it says all good things about the car, excellent condition etc. At the time of the Auction, right as the car rolls up on the auction spot, they change the car to Structural damage or major problems etc. But instead of putting it in the right place where it kicks out the proxy bid they just put it in the notes. So now you have a bid on a car that you thought was a great car but has major problems. This causes you to overpay and buy a bad auto. This outraged me so bad I sent a certified letter to one of the CEO’S of the auctions. I was never called back, never responded to at all.
The auto auctions control the Used Auto Market and they are necessary to independent dealers. The independent dealers are overpaying for autos and buying autos without proper disclosures. This is an area the government needs to investigate and put controls in place to ensure these sort of experiences do not happen. Until then, Independent auto dealers are paying the Ultimate price and some consumers get stuck in cars they shouldn’t.