Last year Americans purchased 16.3 million cars and light trucks. At the same time approximately 2.2 million of them were repossessed. That last number was up significantly and estimated to rise even further in 2026. That means there was almost one repossession for every seven new vehicles sold.
New cars have risen to stratospheric prices since the pandemic ended. Loans that used to be 3-5 years for the typical buyer have now stretched to 6 or even 8 years in some cases. We are also in a K shaped economy, where the top 50 percent of us are doing pretty well and the bottom 50 percent not as much. Some buyers have bitten off more than they can chew, or their circumstances have changed.
When someone misses car or lease payments, eventually the “snatch man” will come and take the car. The finance company will then sell the car to recoup as much of the outstanding balance on the loan as possible. Invariably they will sell the car at a dealer auction, in a process known as wholesaling.
A dealer auction is a marketplace, increasingly online, where the buyers and sellers are finance companies or car dealers of some sort. Unlike consumer auctions like Bring a Trailer or some classic vehicle sites, you the general public are not welcome. The pricing at these auctions is usually well below what a vehicle would sell for either privately or at a dealership. In general, car dealers buy these vehicles, clean them up, sometimes add a warranty and mark up the price by many thousands of dollars.
What if you could buy the repossessed vehicle at the dealer auction for far less money than the final retail price? Often you can. There are “dealers” who although they don’t have a sales lot, meet the standards of the dealer auction. They will buy these cars on consignment for the public. You, the buyer select the car you would like to buy from the auction’s online selection and tell your dealer what the maximum is you would pay for that vehicle. For comparison, auction results are available for the previous few auctions.
Since the dealer auctions are now heavily online, most cars have a Carfax report, and the auctions offer sellers an independent 3rd party evaluation of the vehicle. This evaluation has tons of photos and a description of any damage or missing parts, trim, keys, etc.
Your dealer will bid online for a car you select up to your maximum price. If you win the auction, you pay the sales price, a buyer’s auction fee, and a fee to the dealer – usually $750-1,250 (sometimes a bit more for high end luxury or sports cars). You will also pay for the transportation of the vehicle to the dealer, as the auctions are not usually local. From a transactional standpoint, the dealer buys the car from the auction, and you buy the car from the dealer. You then pay tax, title and registration fees – sometimes your dealer can help you with that as well. It’s important to remember that financing can be a bit more difficult in these situations. Traditional banks usually won’t finance a car not purchased at a new car or national chain used car dealership. So, if you want to finance an auction purchase, you may have to do some homework. On the other hand, these cars will usually appraise (remember they are using book value) for far more than what you are paying, so loan to value should be an easy hurdle to clear. Your dealer will also require you to give them a deposit prior to bidding for you. That protects them and is refundable if you don’t win an auction.
A car is a depreciating asset. It is possible to buy a late model, low mileage repo or off lease for many thousands less than retail. As an example, the Toyota RAV4 is the most popular car in the country. It is likely that this purchase method could lead to a savings of $10K or more over a comparable late model trade in on a dealer lot. Many of these cars will also still have the balance of the factory warranty. A soft economy and continued repossessions are only going to make these purchases even more compelling.
A note to my business owner clients and friends, this is also a viable option for your light business work trucks.
The Bottom Line: Take advantage of economic opportunities.
–Michael Ross, CFP®
