Classic Car Auction Basics

As we start another year; January means another round of classic and vintage car auctions. Having attended a few classic car auctions over the years across the county; the attendees quickly get caught up in the carnival like atmosphere. Eager to join in on the fun you need some perspective on what you are getting involved with before you drop your hard-earned savings on an auctioned classic car. Let’s discuss classic car auction basics so you know where to start no matter if you are attending in person, via computer, or even watching on TV.

The Autction Scene

Purchasing a classic car at an auction is becoming more and more popular every year, and, although we are frequently seeing tasty models going for astronomical prices, that does not necessarily mean that you cannot snatch up a real bargain — if you are savvy enough. There are some major differences between actual on-site auctions and online car auctions, however, including the requirements for bidding on each. And, since your recourse if something goes bad on these transactions differs as well, it is best to arm yourself with knowledge.

“Going once, going twice, gone!” These are the words you hear just as the gavel drops, followed by “Sold to bidder number (whatever your number is) for the high bid of (whatever the final amount is).” If you are the high bidder, you get a huge adrenaline rush as the realization that you just won the auction sinks in. You are now the proud owner of the car that was your car the minute you laid eyes upon it. But you did not just show up with a pocket full of money and join the bidding; there were several things that led up to this happy ending.

The most important thing to know is that you will know truly little. You will not have an opportunity to test-drive the car. You will not have an opportunity to perform a thorough inspection on a lift. You will have extraordinarily little time to verify condition, originality, maintenance, and provenance. This is not an ideal way to buy a classic car, but that does not mean that you should not buy at an auction. It means that you must do everything possible to minimize your risks, including adjusting the price that you are willing to pay to compensate for these risks. A more experienced collector who has learned how to manage these risks might be willing to spend more than someone attending their first auction. Do not forget to consider the “buyer’s premium” which is usually between 5% and 10% of the sale price, as well as transportation cost for your new classic car. And do not forget insurance before you ship your new classic car to its new home.

Be prepared. If you are the successful bidder, you now own the car. You will have to pay for it immediately. The auction company will not accept postdated-third party-out of-state checks. They will accept cash, bank checks, letters of credit, and in most cases, credit cards. I have found that it is easiest to bring bank checks in increments of $5,000. Any change that is due will be paid right on the spot by the auction company. You will also have to remove the car, but it will not be registered or insured, so you cannot drive it. Unless you have a trailer, or a friend with a dealer or transporter plate, you will have to pay to have the car transported. Most auctions have transporters on stand-by but check first.

You will need to know some important terms. A “reserve” is a pre-determined minimum amount that is set by the seller. If the bidding does not reach the “reserve,” the seller does not have to sell the car. Likewise, the high bidder does not have to buy the car. You will not know what the “reserve” is set at, until (and if), the bidding reaches the “reserve,” but once it does, the high bidder and the seller are obligated to complete the transaction, no matter how high the bidding may go. “No reserve” means that the car will sell to the highest bidder, no matter how low that bid might be. Some sellers believe that selling a car at “no reserve” will create somewhat of a frenzy, thus driving the bidding to a high level. Sometimes it works, and sometimes the buyer gets the deal of a lifetime.

“Chandelier bids” are make-believe bids that auctioneers call out to create the impression that there are bids at a certain price when there really are not, thus driving up the price of the car. Hard as it may be to believe, this is legal in almost every state. However, the auctioneers are not allowed to meet or exceed the “reserve price” with “chandelier bids.” The reason is that being that below the “reserve price” the car cannot be sold, so technically they are not creating a contract. Once the “reserve” has been met, the high bidder owns the car, and of course a non-existent “chandelier bidder” cannot purchase a car.

Even if you are not the high bidder, there is still a good chance that you can buy the car in an “Off the Block Sale.” The fact is that many cars do not sell when they are up on the auction block. Either nobody bids on them (do they know something that you do not know?), or they fail to meet the sellers’ “reserve” price. In either case, the unsold cars are usually driven from the auction block into some type of “holding area.” Here you may find the owner, and you can talk further about the car. Be forewarned, however. If you decide to buy the car from the owner, this is called an “off the block sale.” The auction company will be more than happy to facilitate this transaction, but you are still responsible to pay the auction company their “buyer’s premium.” All auction companies will take possession of the title and/or registration papers at the time that the seller consigns the car to the auction, and some will not return them to the seller (consigner) until 30 days after the auction ends, effectively preventing transfer of ownership for that time period.

Remember, buying at an auction is all about minimizing risk. The better you become at minimizing this risk, the more likely you are to be satisfied, if not downright pleased with the results. If there is one piece of advice I could offer, it is this; Do not buy a classic car at an auction if you are not able to meet and speak with the owner before bidding. A picture may be worth a thousand words, but a conversation with the owner is priceless.

The typical reader of this blog will not be firing up their private jets and heading off to Florida or Arizona for a classic car auction. Even so, auctions are still a popular place to buy collector cars. For those of you who have never attended a classic car auction, let me try my best to describe what it is like.

Imagine this. In the short span of several hours, you will search through hundreds of collector cars trying to find one that interests you. If you do find one, you probably will not find its owner, so forget about asking any questions about the car. And since you cannot ask the owner any questions, you cannot ask for permission to thoroughly inspect the car. You can also forget about test-driving it. Do not even ask (if you could). The best that you can hope for is to have your mechanic give the car a thorough visual inspection.

At some point, you will probably get to meet the owner, and hear the engine run. Unfortunately, that will be when the cars auction number is called, and it is driven up to the auction block. This is not a good time to talk to the owner. Often, you will see the owner trying to maneuver several tons of steel through several layers of flesh and bones, while people are crowding around the moving car asking questions such as “Do the numbers match?” “Is it the original paint?,” “How does the transmission shift?,” “Why are you selling it?,” “Does it come with the stuffed tiger in the back seat”?

Finally, the car arrives at the auction block. The auctioneer begins by barking out “Who will give me $60,000 for this fabulous piece of American automotive history?” No bidders. The auctioneer tries again. “O.K., who will give me $50,000?” Still no bidders. The auctioneer tries again. “Ladies and gentlemen. I sold a car like this just last week for $55,000. Surely I can get an opening bid of $20,000.” No bidders. The auctioneer will ask for an opening bid and somebody will raise their paddle, bidding $10,000. Now the fun starts, and things begin to move fast. The auctioneer will announce “I have $10,000, who will give me $20,000, $20,000, $20,000, O.K. $15,000?” An unseen person bids. “I now have $15,000, who will give me $20,000?” Another person bids. “I now have $20,000, who will give me $25,000?” A paddle goes up. “I now have $25,000, who will give me $30,000?” No bidders. “Can I get $27,500?”

For some strange reason, several people are bidding furiously on a car that they know virtually nothing about, except that it is shiny. For the privilege of buying this car, not only do they pay the auction price, but they also pay a bidder’s fee (typically $50 – $500), and a buyer’s premium (typically 5% – 15%). Usually, the complete process takes three minutes or less. Now they must figure out how to get it home. Sometimes you get lucky and sometimes you do not. The more that you know about the car, and the more that you understand the auction process, the more likely you are to get a deal.

Buying a Collector Car at Auction

As I noted earlier, there are on-site auctions and then there are online auctions; both are substantially different from each other, so let us take a good look at each.

On-site Auctions

On-site auctions are held by such companies as Kruse International, Barrett-Jackson, Mecum High Performance Auctions, Silver Collector Car Auctions, and Carlisle Auctions at the various events held at Carlisle, PA, among others. These are well-known and well-respected auction companies with excellent track records and reputations.

The advantages of purchasing your collector car at an on-site auction are that you will have a good opportunity to inspect the vehicle in person before it comes on the block, there will be a lengthy description of the vehicle and its features and options, and the auction company will have done some due diligence to make sure that the cars credentials (VIN number matches title, etc.) are in order. In the event of some misrepresentation, the auction company may also intervene and solve such problems if they are reported by the buyer within twenty-four hours of the sale.

Other advantages of on-site auctions are that they may (but not always) have services available that could be useful to buyers including financing, insurance, and vehicle transport services. And, if you are the buyer, another advantage is that the expenses of the sale, including the commission the auction company gets, are usually paid by the seller, which is good news for you.

Be aware, however, that some auctions do charge a “buyer’s premium,” which means that you will have to pay a percentage of the final bid price to the auction company (this is in addition to the actual final bid price). Since these companies also charge a “seller’s premium,” they collect on both sides of the sale, and this is known as “double-ending.”

The downsides of on-site auctions are that they may be far away from where you live, so travel and lodging expenses must be figured in. Also, if you are the winning bidder, you will have to get the vehicle from the auction site to your home, either by driving it or having it transported, so this must be considered as well. You also may want to trailer the vehicle home yourself, which is something else to take into consideration.

Online Auctions

Without a doubt, eBay Motors is the most viewed and most-used on-line automotive auction, and a huge number of collectibles makes, and models are bought and sold every week on it, and there are lots of other on-line auctions coming on strong as well. Now, while these online auctions are indeed gaining in popularity, there are several downsides to them, so they are not at the top of my list for buying a collector car this way. To be perfectly honest, the only real advantages are that they are convenient, since you can bid without leaving the comfort of your home and that they offer quick gratification — you know if you have won the bidding as soon as the auction is over. That is about it for the plus side.

Now for the disadvantages, and there are many. First and foremost, you are bidding, literally, on a pig in a poke. In most cases, you cannot physically inspect the car and you are relying on the honor system. Whenever you are buying a used car, the honor system is strained to some degree, and often it is to the point of outright misrepresentation and lying. After all, the seller wants to move the vehicle, so he is bound to put some extra spin on it to make it sound better than it is.

Throw into the mix the fact that dealers are very often the ones offering the tasty collectible vehicles for sale on these online auctions, and that compounds the problem by several orders of magnitude. Now do not get me wrong here; there are indeed some very reputable dealers who offer vehicles via online auctions. Unfortunately, they are also the bad apples since this type of auction readily lends itself to the unscrupulous and even to outright swindlers and crooks.

That having been said, if you are hell-bent on getting involved in online auctions for a collector vehicle, here are some things to remember. First, do not place a bid on the vehicle before you know more about it. Contact the seller with a list of questions regarding the car’s actual mileage, the number of previous owners, matching numbers, realistic description of its condition (not the blurb on the internet auction description), known problems and the availability of receipts for any work that has been done to the car. You also want to know about anything that is “incorrect” about it, especially if this is going to be an investment as well as a fun cruiser for you. Be sure to ask the seller to fax you a copy of the title and a tracing or digital photo of the VIN number. The reason for this is to establish there is no lien on the vehicle (the title will show if it is encumbered or clear).

Auction Terms You Should Know and Understand

RESERVE — this means the seller has set a minimum price that he/she will accept for their collector vehicle at the auction. If this minimum (the reserve) is not met, the auctioneer will ask the seller if he or she wants to waive the reserve and accept the final bid; if the seller declines to accept it, the vehicle is not sold.

NO RESERVE — means the vehicle being sold at auction will go for whatever the high bid on it is; there is no pre-set bid threshold that must be met. There is always a minimum starting bid, however, although this may also be waived at the seller’s discretion.

DOUBLE-ENDING — this describes an auction that charges a “buyer’s premium” (commission) and a “seller’s premium” (commission) when the auction ends successfully. The auction company collects a commission from both parties at the end, hence the name.

Participating in double-ending auctions is not a good idea and should be avoided unless you absolutely must have the car being offered. There are many other auctions available that do not charge a “buyer’s premium,” so participating in a double-ending auction is just adding to other costs including your bidder’s registration fee, the final bid on the car and the expenses of getting it home from the auction. Why incur additional expenses if you do not have to? You are better off using that extra money to restore or refresh a slightly-less-perfect collector vehicle rather than helping to make the auction company’s wallet fatter.

RING MAN — this is a unisex term for a male or female auction employee who calls out bids and points to the bidder, so the auctioneer knows from whom and where the bid came. It is the job of the ring man or ring men (since there are usually several scattered throughout the buyer’s area) to keep the pace of the auction fast and to build the bidding frenzy, urging bidders to keep bidding higher. Do not forget for one second that even though the ring man acts friendly, kibitzes, and jokes with you, he or she is not your friend; the ring man’s job is to drive your bids up so the seller gets the most money for the vehicle and the auction gets the biggest commission – and that is at your expense.

SHILL BID — this is a false auction bid placed on an on-line auction by the seller’s friend, accomplice, relative or even himself using an altar-email ego to increase the bids against you to drive the price up on the vehicle.

Finally

But there is more. Ask the seller to email you additional digital photos of the car showing multiple views (15-20 shots at the minimum) of all four sides, engine compartment, interior including the seats, door panels, dash, instruments, and the odometer showing the mileage (compare this number to the mileage shown on the title — the odometer figure should be somewhat higher). You also want to know about any collisions the car was involved in — replaced fenders, body filler on the rear quarters, etc.

You might also ask the seller to shoot a videotape that shows all the above views as well as his commentary if you are really interested in the car, assuring the seller you will return the tape if you do not win the auction or decide against bidding on it. These are not unreasonable requests if you are a serious candidate for buying the car and the seller is serious about doing a deal — especially when you are talking about a serious amount of money.

Next, we will discuss some helpful hints when participating at a classic car auction. Knowing the classic car auction basics will not guarantee you will buy the classic car of your dreams, but it will help you understand what you are getting into when buying the car at an auction.