Before we begin, let’s put it on the table that there are many types of auctions and many types of dealers, and of course, there are also individual sellers. We’ve written extensively about the pro’s and con’s of Live Auctions vs Online Auctions here. In this article, we’ll talk specifically about buying classic cars at auctions vs dealerships.
With vehicle auctions, a live auction, such as the Mecum or Sotheby’s auctions, can present great opportunities. Sometimes the bidding may be light on a particular car on that day, and you can get a good deal. The car will sell at the hammer, and you can jump in.
Reserve vs No Reserve is always a factor in auctions. No Reserve cars WILL SELL that day at the auction, while cars with Reserve may not sell when bidding ends. Some sellers place a higher reserve, but generally auction houses want the cars to sell and will not be in favor of unrealistic reserve prices.
Online auctions are a big more difficult. With an online auction bidders have several days to review value, examine the market, and make a decision. Like in person auctions, there are Reserve and No Reserve auctions. I would typically say the prices at online auctions are more favorable for sellers, although occasionally good deals can be had.
Unfortunately, buying at auctions can sometimes be close to buying sight unseen. You may see the car in person, but if you don’t have all the documentation, third party inspections, etc., it can be difficult to be 100% confident you won’t find surprises.
Lastly, the auctions will include a buyers premium. This premium can be as high at 15%. If you are buying a $200k, tack on an extra $30k in fees, not to mention your state sales tax, etc. Auction houses connect buyers and sellers, and they collect a premium for doing so.
When you buy at an auction, I think it’s generally assumed that you have enough money to pay the premium, pay for a few minor fixes or updates to the car, and that you’re not looking for a deal, but buying something to add to a collection.
Buying from a Dealership
Purchasing directly from a dealership separates you from the individual seller. But like an auction house, the dealer needs to make a profit. Generally a reputable dealer will give you much more information about the condition of the car, and opportunity to review documentation, and the chance to schedule an inspection. For beginner collectors on a tighter budget, and where you can’t afford a potentially costly oversight that can come with auctions, dealership can be better.
Of course a dealership will also give you the chance to do a test drive, and really get to know the car a bit more. I think dealerships are generally better for people that will only own 1 “Sunday driver”. It’s a purchase that has to count, and you want to feel good about it. While this will restrict you to buying a car within 60-100 miles of where you live, for the purpose of finding a nice weekend driver, it can work.
I don’t want to lose sight of the fact that there are also dealerships out there that focus exclusively on high end collectibles. In contract to auction houses, they do give buyers every opportunity to come for inspections, test drives, etc. They’ll happily coordinate shipping anywhere in the country, and sometimes anywhere in the world.
The nice thing about purchasing from a dealership is that you’re not forced into the timeline of an auction. You can buy a car today, or simply wait for the next one to come up. However, at any given time, there simply may not be what you want available. If this is the case, either waiting for that car to hit a dealership or come up at an auction may be the best bet.
While some dealers offer consignment (selling a car for a customer without having to own it in their inventory), most dealers have a substantial inventory. This can be to your advantage if you’re looking at a car that they have been holding for a long period of time. But if you are looking for something that is a hot commodity, they know the value of the car as much as you do.
Ultimately, if you’re a buyer who knows exactly what you’re looking for, whether a car is at auction or a dealer makes little difference as long as you’re willing to pay fair market value. The hope of the vehicle appreciating in time will be based on the future market of classic cars, and that model in particular.
If past rates of appreciation are any indicator, there are certain vehicles that historically do well, Porsche, Ferrari, a few specific American Muscle Cars, etc. Obscure cars that don’t have a strong following may not change significantly in value.
How to get a good deal on a car?
Buying the cheapest house in the best neighborhood applies to cars. But just like buying a fixer upper house, buying the cheapest car in the hottest category will require mechanical skills.
You first must make sure you know what you’re buying. Numbers matching is critical for any true collectible. Color should be factory original, even if it’s a fresh coat. Some vehicles will be easier to restore than others.
If you have never restored a vehicle, it’s unrealistic to think you’re truly getting a good deal. You’re buying a low priced car that needs work, and you’ll have to pay a dealer or restoration garage to perform the work.
I’ve looked at cars before that are in need of total restoration, and it’s overwhelming just to stand next to them. Wheels with flat tires, sunken into the ground. Rust creeping up the doors. It’s a huge endeavor, and not for the faint of heart.
Unless you do all the work yourself, after months or even years of restoration, you’ll have a car at only slightly less than fair market value (assuming market prices hold stead), but you can’t get back the time.