Car dealers have always loved going to auctions—for many, it's the highlight of their week or month. But let's face it, when a dealer takes a vehicle to auction, it's usually not because they think highly of it. Cars end up at auctions for a reason, and often dealers only discover that reason after they've become the new owner. These hidden issues frequently manifest as costly reconditioning needs.

The Impact of Reconditioning Costs

Reconditioning (recon) costs can greatly affect the bottom line of a dealership. It can mean the difference between what seemed like a great buy and what turns into a financial burden. Industry estimates suggest that dealerships may spend anywhere from $1,000 to $3,000 per vehicle on reconditioning after purchasing from auctions, not including the auction fees paid to acquire the vehicle. Recon is often seen as a necessary cost of doing business, but what if there were a way to reduce these costs and make operations more efficient?

Could buying vehicles directly from private sellers reduce holding costs, accelerate Time to Line (T2L), and enhance overall profitability? Let's find out.

The Hidden Costs of Auctions

In automotive retail, time is money. The longer it takes a vehicle to hit your front line, the more it costs you, eating into your gross profit. The challenge with buying from auctions is that you're never 100% certain about a vehicle's condition. Condition reports can be incomplete, and physical inspections or test drives aren't possible before purchasing. This inability to thoroughly inspect vehicles often leads to hidden mechanical and cosmetic issues, along with increased holding costs.

According to NCM Associates' 20 Group studies, the average holding cost per vehicle is $37 per day. These costs, which include depreciation, insurance, and interest, steadily erode gross profits.

The quickest ways to reduce your Time to Line (T2L) are by minimizing transport time and streamlining reconditioning. Vehicles bought at auctions often take up to 10 days to arrive at the dealership, and the longer the vehicle sits in the shop for recon, the more gross gets eroded.

After adding up buy, transport fees, holding costs, and hidden recon costs, there's not much wiggle room for margin at the auction. With auctions being more competitive than ever, traditional used vehicle acquisition is not easy right now.

Advantages of Private Party Vehicle Acquisition

Acquiring vehicles from private sellers allows dealers to personally inspect and test-drive cars before purchase. This hands-on approach ensures they know exactly what they're getting into, minimizing surprises and allowing for more accurate assessments of reconditioning needs.

In a recent interview Nick Markosian, Owner of Markosian Auto (One of Utah’s top-performing Independent Dealers) had this to say: 

"The big thing is that you know what you’re getting yourself into; you can inspect the vehicle. You have to keep in mind that these folks are prepping these vehicles to sell to a retail consumer. These cars have already had a lot of the reconditioning stuff done that we would do ourselves. It’s like you’re buying a frontline vehicle when you buy from private sellers. The last thing I want to do is go on an auction website and buy a car right now. I’d much rather buy from private sellers."

Markosian Auto makes cost saving on reconditioning a priority, turning it into a strength, whereas it’s often treated as an afterthought by other dealers.

Private sellers often:

• Replace brakes and tires
• Perform oil changes
• Fix minor dings and dents
• Detail the vehicle

Private party vehicles on average have a higher likelihood of being Frontline-Ready Vehicles compared to vehicles purchased at auctions. 

Our partners Markosian Auto Saw their reconditioning costs go from $2,000 per vehicle from the auction to $800 with private party vehicles. 

Now when we multiply that by 35 cars a month, that's no drop in the bucket. 

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Embracing a Strategic Approach to Vehicle Acquisition

Too often, dealers buy vehicles now and figure out the rest later. However, forward-thinking dealers are changing this approach. They determine their optimal Time to Line (T2L), set maximum reconditioning budgets, and conduct full inspections to know exactly what they're getting into before making a purchase decision.

The days of flying blind are over. Of course, there are exceptions—some auction vehicles are in great shape, and dealers handling significant volumes may not have the time to inspect every vehicle. But by adopting a more strategic acquisition approach, dealerships can make informed decisions that positively impact their bottom line.

I'll leave you with a quote from Terry Baird, Acquisition Director at Markosian Auto:

"The best part about private party acquisition is we get the cars the same day we buy them, versus waiting for the auction for about 10 days and paying transport and auction fees. We don't have any of that, so it just goes to our bottom line."

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