Cheap EV’s, budget prices? Forget it. This is a cut-throat world of commodity trading that most people don’t understand.
This in response to two recent Jalop articles. The first one pointing at cheap EV’s:
Cheap EV Articles
The second one pointing at a trip to a red-light auto auction:
I want to correct a few “newbie” mistakes made in those two articles. I buy thousands of cars annually for Carlypso and have built very intricate machine-learning systems to analyze vehicle pricing and interpret vehicle condition to find the best “deals” in wholesale markets.
Of course ... every consumer thinks they know better so let’s get a few things straight!
Everything is so Cheap here!
The first impression everyone gets when looking at auction prices is how cheap some of the cars are selling for. Inevitably, you’ll anchor on the lowest sorted price in some of the post-sale price reports.
Here’s a Screenshot shown of Tesla Prices
Wow you’ll think - a Tesla for 36k with just 44k miles! What you don’t realize is thats not a deal at all... there’s a reason its cheap. Consumers don’t have access to the info, but each car comes graded with a condition report (generally these reports range from 1-5).
That particular Tesla as it turns out was a 2.9 ....
Now a 2.9 in some cases just means that has a huge amounts of fixable dents and dings... but in this case....
This car is a complete piece of shit. Its got severe structural damage, and has been repainted on the entire left-side of the car as a result of a likely huge impact.
But not to worry ..... its got a CLEAN CARFAX (Carfax detects < 50% of accidents in my experience).
Unscrupulous dealers will happily resell this car as “Clean Carfax” which consumers think means “Accident Free”, and most consumers can’t pickup or detect signs of major paintwork.
If it sells for $36,000 why do I pay $40,500?
The other thing EVERYONE forgets about is what else is involved in expense by the time the car is actually ready for a customer.
Let’s take the POS Tesla as an example:
- Car Cost: $36,000
- The Auction Fee: $450
- Transportation to Dealer: $100-200
- Remove Dings / Dents: $100-350
- Brakes/Tires Reconditioning: $200-850
- Detailing: $100-250
- Consumer Ready Car Before Profit or Paying People: $37,500
Of course dealers need to pay people, they take financial risks on buying the car, and they’ve got overhead to pay for too. On a car like this expect $2-4k depending on the dealer.
But I saw one listed for CHEAPER sold by a dealer?
So we’ve shown that not surprising bad cars sell for cheap at wholesale auction.
So that deal you thought existed is really a piece of shit. Now after finding a GOOD condition car you actually do like, you’ll inevitably cross check those references with some retail cars (cars that are available from current dealers).
So while I might quote 35-37k for a Good condition low mileage 2014 X5, you’ll find this one online and say something like “But this one is cheaper!”
And it looks GREAT in photos! But remember how things are cheap for a reason.
Yup .... once again condition reveals this one has also been in unreported accident, entire front hit.
Looks pretty dirty... it must be worthless:
This last one is just consumer nature. One e-commerce exec once said “In e-commerce you don’t sell products - you’re selling photos”.
Its true. Its all people use to judge condition.
Here’s the photos available from auctions. These are GREAT condition cars (4.0+ ratings, very few dents/dings, all under manufacturer warranty).
For a $70k BMW M3, you get a shady, side titled, undetailed photo. So most consumers immediate assumption is “No effort to take the photos, car must be neglected”.
Here’s how it looked after a brief detailing (and in higher resolution).
Unfortunately, dealers buy cars more like commodities than consumers. So when a consumer sees a shady photo they dismiss the car.
One large dealer executive had recently invested $100,000 in a new photo booth told me “Rather than sell the cars quickly, we now get $250 more per car as a result ONLY of the better photos. People think the cars are nicer...”
So remember the Lessons!
- Most of the time a car is cheap for a reason (you didn’t outsmart experienced people)
- Wholesale markets typically have BETTER information than you as retail consumer. A good dealer will disclose the Condition Reports (CR’s).
- Don’t be fooled by photos. Treat cars like commodities or diamonds, and buy them based on “grade” and features.
- You can’t buy a bad car cheap enough