In 2015, the average cost of new cars and trucks sold in the United States was around $33,560 or 2.6 percent higher than in the month the previous year. Furthermore, in a 2006 Consumer Expenditures report released two years after, a typical American driver spent a little more than $8,000 to own and drive a car.
The total vehicle expenses, which already included fuel and insurance, differed among income earners. Twenty percent of the lowest income earners spent almost $3,000 a year while the highest 20 percent among the richest shelled out $15,000 annually.
In other words, owning a brand-new car isn’t exactly cheap. Even if you buy one at a more affordable price, it’s not the only expense you have to consider. There’s insurance, fuel, and maintenance, to name a few.
So if you’re planning to add another vehicle or if it’s your first time to drive, perhaps you should consider looking for a vehicle at an auto auction. To be more specific, look for former for hire cars.
How Rental Cars Work
Car rental is one of the biggest businesses in the United States. Although it seems its main market is tourists, it also captures Americans who:
- Don’t want to be tied down to only one car over the next few years
- Don’t like to spend a lot of money on maintenance, insurance, and monthly payments
- Can cancel the contract more easily and quickly
- Want to get their hands on the latest car models
One of the most popular people who love rentals is the late Steve Jobs. The Apple visionary was famous for driving swanky cars with no license plates. This is because he took advantage of a loophole in the California driving law. The state issues a temporary registration, but one can get the license plate within the next six months.
Jobs then coordinated with the leasing company to ensure when the six month came, he’d be given a new lease.
Depending on the agreement with the rental company, you can choose to hire it for a few days to months. It’s common among them to give you huge discounts for a long-term lease. Usually, the contract also states whether you have to pay for insurance and have to return the car in full tank. Some may allow you to drive the car long term, but you need to send it to their garage each time.
But this is normally the picture one has about a rental company. What many people don’t know is these groups earn money in another way: they trade or sell their vehicles.
It makes perfect sense. It’s not a secret that people will always pick more modern, trendier vehicles to drive. This then leaves the older units not generating income for the business. However, they continue to create expenses.
Moreover, given the nature of the business, a car can easily reach its maximum miles covered by the warranty. It can put a company in a huge predicament if the vehicle meets an accident. It can also drive the costs of maintenance up, not to mention it may mean a more expensive insurance premium.
Rental companies dispose these old vehicles in different ways. One, they can offer them to their drivers, who may want to convert them into personal or for-hire vehicles. They may also allow long-term lessees to buy them. In this setup, a part of the payment made by the lessee can go toward the cost of the vehicle. Lastly, they can sell their vehicles in an auction.
Why Should You Buy Ex-Rental Cars?
To be clear, buying ex-rental cars does have risks. One of the biggest contentions is the fact you don’t really know how the vehicle was used. It may look fine on the outside, but the truth it has several hidden signs of abuse.
However, the benefits outweigh the cons. Getting an ex-rental car means:
- Access to newer models – It’s not uncommon for rental cars to let go of vehicles that are 1 to 2 years old only. Again, most prefer to drive the newest models.
- Maintenance – Whether rental companies invest in maintenance or not is actually a subject of heavy debate, but more often than not, these vehicles are cleaned and well maintained. Simply put, they are offered in mint condition.
- Lower price – There are many reasons for this (and some you’ll know as you read about buying them at auctions). Buyers may look forward to as much as 25 percent or more of discount from the book value of the vehicle.
Buying at Auctions
Joining car auctions is one of the best ways to buy the used vehicle of your dreams at extremely discounted prices. One of the major reasons is competition.
An auction can have hundreds of cars that are up for disposal. It may also have hundreds of participants, but not all of them are going to buy a vehicle. In order to attract a potential buy, owners may want to offer their cars at a much cheaper price than their competitors.
Owners also have an upper hand since they can sell their cars in an “as is” basis. This means they don’t need to repair or upgrade the vehicle (although if there are problems, these would have been ideal) just to make a purchase. If there are issues, and you’re still willing to buy, then you bear the burden of the repair or upgrade costs.
Furthermore, owners have the chance to get money fast. Not only that, they usually don’t have to think about shipping the vehicle since it’s your responsibility to do so.
How Does the Car Auction Work?
Perhaps you’ve seen some movies showing scenes at auction houses. The auctioneer stands at the front and calls out certain numbers. Someone may also display the auctioned item on the stage for everyone to see. Then the bidding process begins. The highest bidder wins the item.
A car auction works similarly. It still follows the basic principle, which is the highest bidder wins. The good thing is there are already different ways to participate in a car auction.
- Dealers-Only Auction
As its name suggests, a dealers-only car auction is an event mainly for car dealers. It is a closed event, which means you need to be invited or show proof that you should be invited. Normally, you will be asked for any document showing the nature of your business. And because you’re a dealer, you’re expected to buy more than one vehicle.
Many rental company owners would like to join this one. These companies own not just one, two, or three cars. Rather, they have a fleet. A dealers-only auction allows them to get rid of as many vehicles as they can.
- Private Auction
A private auction is similar to the dealers only because you still need to register and pay a fee to join. The cost can range from a few bucks to hundreds of dollars. This one is not refundable. But it will give you exclusive access to the auctioned vehicles.
Some auctions begin the process online. They will show photos and descriptions of the vehicle. If you wish to bid for the car, then you can do so online. But you still need to attend the auction to complete the buying process.
There are times when lenders such as banks organize private auctions, and it’s possible they offer ex-rental cars. This happens when the car is under a loan, and the owner goes on a default (he or she wasn’t able to make the payments for the last three months). These lenders are not in the business of keeping vehicles, so to recoup their losses, they offer them through an auction.
Public or Government Auction
It’s also possible for the government to start an auction itself, and yes, some of them may have been previously for-hire cars. How did this come to be? One of the possible explanations is seizure.
If the government suspects these cars were obtained through illegal means, or if they think the owner is involved in criminal activities like smuggling or money laundering, they can begin civil forfeiture. It means they can get all the assets they believe have been instruments, involved, or products of such crimes.
It is a judicial process, so it can be lengthy. But if the property is seized, the case is closed, and the vehicle remains on their hands, they have the option to make them available for bidding for disposal.
What Happens during an Auction?
Let’s say you’re ready to participate in a car auction and get yourself a heavily discounted ex rental car. What should you do?
- Know where the auction is. Car auctions are more common than you think. However, you don’t hear them often since many houses don’t advertise them. It could be they already have a steady stream of participants, or they are private and exclusive. You can try your luck using search engines, but the best option is to subscribe to an auction listing.
An auction listing is not managed by an auction house. Rather, it is a comprehensive list of car auctions around the country. It will give you an idea of the upcoming, ongoing, and online car auctions. It will provide you with links and information about the auctions. These may include their location, schedule, and the types of cars up for bidding. Usually, you can pay for a one-day subscription or for as long as two years.
- Take note of the viewing. Many auction houses allow you to check the vehicles prior to the actual event. This is called viewing, and it usually happens a day before or several hours before the bidding.
It is something you should not miss. This is the best time for you to see the vehicles up close and personal and even inspect them. You can bring your own mechanic who can help you decide whether the ex-rental cars are in good condition. There are several checklists available online, and some of the essential ones include:
- Check the VIN. The vehicle identification number (VIN) can give you a comprehensive history of the vehicle such as the owners, crash records, etc.
- Spot problems. Check the tires, especially the depth and tread. It can reveal the types of drivers the car had. Spot any rusting or newly painted sections. It’s possible the coat is simply concealing a problem like a scratch. Notice the seats. Do they have tears? Are the lights still working? Always remember: you’re buying the vehicle as is.
- Get your Kelley Blue Book handy. Or you can also go to Edmunds.com. These are handy tools to help you compare resale prices. When you bid, you don’t really aim for the resale price. You can go up or low – it’s up to you. But at least you have a range, and you can budget accordingly.
- Place your bid. You don’t have to be physically present to bid. Many appoint a representative. Either way, you need to still place your bid once the lot number of your preferred car is called out.
Be realistic. No matter how much you want to the get the vehicle, somebody else may win it. If you’re keen on driving an ex-rental car, though, consider at least three to five vehicles.
What Should You Do if You Win?
You need to pay the bid price, as well as other charges and fees. But it’s common that you don’t have to settle everything on the same day. You may have to spend at least 30 percent of the total costs. The remainder you can settle by other means including checks.
Transportation is your concern, and no, you cannot drive the car immediately. For one, you need to transfer the title to your name. So you need to secure transport for it. If you need a recommendation, ask help from the auctioneer.