Inside the Swift, Strategic World of Used Car Auctions

RY_Autopia_HiRes_11 In Hayward, California, thousands of used cars are sold at auction each week. Ryan Young for WIRED



Once the 2011 Impala has been rolled into place, the bidding begins immediately. Standing near the back, by the free earplug dispenser, I make eye contact with the auctioneer, and quickly look away: He doesn’t need much of a sign to think you want to jack up the price, and I’m just here to watch. A wink, nod, or twitch of the finger is plenty to join the fray.


Clint Esken, one of my guides for the day, bids so subtly I barely notice. It’s strategy: In the small crowd around the Chevy—roughly half a dozen guys, some of them smoking—you don’t want to seem too eager, too willing to pay more. After one final nod, it quiets down, and the auctioneer calls it for Esken, at $9,900. The whole process takes less than a minute, and within another 60 seconds, the next car has taken the Impala’s place and the action has started again.


I’m at 29900 Auction Way in Hayward, California, in the midst of a massive car auction run by vehicle wholesaler Manheim. The sale I just watched is one of a dozen going simultaneously, each 20 yards or so from the next. In the space of one morning, 2,300 cars change hands. (If you’re sticking around for the full three hours, take the earplugs over the headache.) This isn’t a rarity, it’s a weekly event. Americans buy and sell 40 million used cars a year, and this auction is one of many pipelines, usually unseen, feeding that demand.




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Pre-Inspection


Esken is one of more than 900 professional dealers in Hayward that morning, another 650 are bidding online. He works for DriveTime, an Arizona-based used car dealership that caters to customers with poor credit. His quick fire purchase of the Impala, with 61,000 miles on the odo, is the final play in a process that started the afternoon before the auction, when he toured the humongous Manheim parking lot, looking at car after car and picking out the ones worth his company’s money.


DriveTime’s work starts with a list of every car at the Manheim auction, when it’s computer program whittles a list of thousands down to hundreds of candidates. Nothing too expensive ($10,000 is a rough ceiling) or too old (11 years max). No manual transmissions, no cars from sellers with shady histories. Lots of mileage isn’t a problem, but unknown mileage is a no-go. Anything with a third row is valued, especially Japanese minivans known for reliability, like the Toyota Sienna and Honda Odyssey. Beetle convertibles and Pontiac Bonnevilles get crossed off.


Once that list is prepared, the afternoon before the auction, Clint and his DriveTime colleagues, Marlon Barnes and Dennis Galang, split it between them and head out into the field of cars. They’ve can pull up the basic info on each vehicle with a smartphone app—the model, mileage, crash history—but before spending any money, they want to see each one in person.


Barnes starts his inspection of a 2005 Toyota Corolla by walking a wide circle around it. It helps him take everything in, before he gets too close to notice bigger picture issues. He spots a dent in the quarter panel, and that’s a problem: It’s repairable, but not without spending a hunk of cash, and even then it’s a process that would involve messing with the frame of the car—something DriveTime doesn’t like to do. Frame damage weakens the structure of the car, making it less safe in the event of a crash.


Looking for that kind of damage is the main mission of the inspection process. If there’s no obvious damage, Esken, Barnes, and Galang check out the paint job. They run their fingers along the edges of the hood and doors, looking for rough patches—a sign of a body shop’s handiwork. They open the doors and pull out the rubber seals to get a look at the weld job. The small circles in the frame are made by factory machines. If they’re messed up or gone, it’s a safe bet the frame was damaged and repaired. They open the hood and look for chipped paint around bolts, a sign someone took them off with a ratchet (then replaced them).


RY_Autopia_HiRes_3 It’s a busy scene, with a dozen or so cars being sold off at any given moment. Ryan Young for WIRED

If the car has what’s called a “green light”—a guarantee from the auction house that it’s in basic working condition—the whole process takes about 90 seconds. If it’s “red light”—if you buy it, you can’t give it back—the DriveTime guys take more time. They’ll jump in the car and start it up, shift the gears, maybe roll it back and forth. They’ll make sure the windows work.


By day’s end, the team has a list of cars it wants to buy, with an idea of how much it’s willing to spend on each. It’s a tricky calculation, considering how much the car’s really worth and how much they can get for it. A sunroof lets them charge a customer more. Bald tires mean DriveTime has to sink money into replacing them before selling to a customer. The fact that it’s tax season makes everything more valuable: With rebate money in customer pockets and summer vacations coming up, DriveTime can charge more. Things get more meager around Labor Day, when back to school spending leaves people with less money for cars.


Game Day


This morning, the DriveTime guys want to take home just a dozen or so cars, a tiny fraction of the 2,300 on offer. The range of vehicles is enormous: This morning, an Audi R8, McLaren MP4-12C, Tesla P85, and 2014 Porsche 911 will be called out by an auctioneer. They’re the lookers in this field; cars like the Honda Fit, Toyota Camry, and Nissan Altima are far more common. Then there are the real clunkers, the beat up Chevy vans that huff and rattle their way to the auction block. They’re being sold by places like dealerships (who want to dump traded-in cars) and rental fleets (dumping old models), sent to Manheim to handle the auction and take a cut of the final price.


When the action starts at 9 am, Esken, Barnes, and Galang spread out, each with a list of targets in hand. They’re prepared, because once the bidding’s going, they don’t have time to fumble through their notes. Most cars are sold within 30 seconds, as the auctioneer speeds through the bids, barking “Hip!” with each raise. A pretty blonde in heels walks among the crowds of buyers (about 98 percent male), encouraging higher bids. A man walks between the cars, mopping up oil left behind.


After three hours, they’ve picked up 20 cars, more than they needed. Once the paperwork’s filed, Manheim does a closer inspection before releasing each car to DriveTime. Then the used car company runs each vehicle through a 14-day inspection and repair process, checking that all the vitals work with test drives. If the car’s not up to snuff—which happens about 8 percent of the time—it’s dropped. Otherwise, they make any necessary repairs and cosmetic touchups and send it to one of the company’s 128 dealerships. Then it’s off the customer, who’ll most likely have no idea of the journey their “new” car has taken.



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