Reverse Car Auctions – Better deal? Perhaps not!

Reverse car auction websites have recently become flavour of the month here in Australia. There are minor variations between them, but here are some pitfalls you should watch out for if you decide to use one of these sites:

1. Are you required to make a committment to buy the car before you get the final price? There are usually monetary penalties if you do not buy the car. Why pay hundreds of dollars if you end up with a bad price? Look closely at the terms and conditions. If a site requires you to send in a Certificate of Death for a refund, you know they’re keen to hang on to your cash…
2. How many dealers will respond to the auction? Can they guarantee a certain number of bids? How many times can each dealer bid?
   I know from over 20 years in the business that dealers detest putting in bids if they don’t get a very high sucess rate. Check how long the site has been around for.
3. Who runs the site? Is it a website marketing company, or someone who knows about the industry? Anyone can set up an automated system to email dealers to ask for bids, but the real strength of a car broker lies in the dealer network. Do they have solid dealer network, or are they just emailing dealerships blindly?
4. Ask yourself this: If they can run a “reverse auction”, why can’t you? Virtually all dealers have websites, and emails. Do it yourself and save hundreds – if you really believe the reverse auction system works!
5. How can you be sure that it is a genuine auction? I am sure there are people who never believed the real estate industry was (and still is?) plauged with “dummy bidding”. Online reverse car auctions are totally unregulated. That means buyer beware. Ask the questions up front and the answers in writing!
6. In talking with dealers, I have found out that some marketing companies run these online “auction sites” and charge “membership fees” to dealers that participate. Up to thousands of dollars per month! Who pays for this undisclosed money changing hands? You do!
   Make sure you ask whether the auction website charges any fees whatsoever to any dealers – including “advertising” or “membership” fees.
7. Can dealers “work the system”? Of course they can. The hands-off approach taken by website operators (i.e. take your cash and hope for the best) means dealers are free to cooperate between themselves to limit your discount. Many have also experienced “auction sniping”at ebay – which is one of the main drawbacks of these types of auctions. The dealer would submit his price only seconds before closing, thereby not allowing anyone else enough time to respond with a counter bid.