Most, if not all independent dealers get their inventory from pre-owned vehicle auctions. Some only buy from local auctions and some buy from all over the country. As a result, the auctions hold significant power over independent dealers. It is in a dealer’s best interest to stay in the auction’s good graces. Great, but how do you do that? In this article, we’ll walk through how auto auction blacklisting works using a Lefkoff case study.
If you prefer an audio/visual version of this article, click below.
Auction Blacklists
A lot of folks don’t know this, but auctions have blacklists where if a dealer violates the auction rules, the auction can actually ban the dealer from ever participating in that auction or many other auctions ever again. The auction can also put them on the banned list for floorplan financing, so the dealer can’t even get the financing to participate in other auctions. It sounds crazy, but I promise you, I have seen it happen.
Now, most blacklisted dealers violate the most obvious auction rules, but there are more nuanced cases. For instance, one of our clients at Lefkoff was temporarily banned from auctions for a nuanced mishap. We were able to get them unbanned and reinstated, but let’s dive into this case study in an effort to prevent such mishaps from happening to future dealers.
Auction Blacklist Case Study
A customer traded in a vehicle to one of our clients who is a dealer in Georgia. The dealer did what many used car dealers do: they sold the vehicle at auction. It was bought by another dealer out-of-state, who sold it to a new customer, which is a typical used car lifecycle. Unfortunately, things took a strange turn.
The new customer was driving the car and eventually parked it. The finance company from when our client sold the car (before the trade-in), repossessed the car from the new buyer. The new buyer contacted their seller (the out-of-state buyer from the auction), who then contacted the auction. The auction then took the money out of my client’s account from the money they received for the sale of the car and gave it back to the out-of-state buying dealer to then give to the customer.
In summation, the car had been repossessed by a finance company, so my client (the dealer) didn’t have the car and their money had been pulled back out by the auction. The auction then blacklisted my client (the dealer). It turns out that when the customer traded in the car to my client, it had been stolen but it hadn’t appeared on the stolen registry list. why this issue was not caught is somewhat of a mystery and may have been a glitch in various systems. Regardless, my client (the original dealer), had no idea it was a stolen vehicle because there was no record of it anywhere. Even though my client (the dealer) had no idea, the auction did not care. The auction puts the responsibility on the dealer to know everything about a car they intend to sell at auction because it protects the integrity of the auction itself.
Fortunately, we were able to resolve the issue without having to go too far. And thank goodness because, otherwise, it would have been very, very expensive for the dealer. They were able to sell the car, the auction reinstated their status, and they got their money back.
The Takeaway
My client (the dealer) had been an auction regular for over 20 years and was still blocked just like that. This communicated, very clearly, that loyalty is valuable, but it does not matter when it comes to blacklisting. All the auction cares about is the rule book because following the rules protects them. As generations past have said, you want to ensure you cross your t’s and dot your i‘s when it comes to buying and selling at auctions because blacklisting can happen to even the most well-intentioned, loyal dealers. Knowing everything possible about a vehicle is a must. Additionally, proactively enlisting legal support to examine all the necessary paperwork can prevent expensive legal issues.
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