Determining the Best Price for a Vehicle at Auction
Anyone involved in the sale of cars understands that setting the right price point is key to selling vehicles. Question of what is the best price for a mall or auction is very important. Set your price point too high and potential buyers may be deterred; set your price point too low and your profit margin will be cut too thin. Therefore, the first step to setting a price point, involves understanding, what price buyers in a foreign market are willing to pay for your vehicle.
Calculations
Although it is not possible to know the exact amount a foreign buyer will pay. It is possible to determine a car’s average market value. From this reasonable market price, the optimum price you should pay for a vehicle at auction (not in-store or shop) can be calculated by deducting shipping costs, other exporting fees, and your expected profit. The remaining figure will be what price you should pay at auction. This type of calculation would look like this:
Average Market Price: $25,000
Shipping Costs: $800
Import Duties at Destination: $1,000
Insurance $200
____________________________________
$23,000
The difference between the sum in the calculation above and the price paid for a car at auction would represent the expected profit.
The remaining consideration then would involve finding a good margin between wholesale price and market price after exporting expenses. Therefore, one should always try to keep as much space in between the purchase price and the selling price.
Finding the Right Auction Purchase Price
Finding the right auction price involves doing a bit of research to find vehicles with the best differential between the foreign market price and selling price in the United States. There are a number of online resources to determine the market value of a vehicle. The most common method involves using services such as Kelley Blue Book, NADA, Black Book, or Edmunds. All of them offer optimal vehicle value for shopping, discount, etc.
Bear in mind that car valuation resources only provide an approximate value. And are primarily geared toward traditional car buyers and sellers. That will be negotiating with a car dealer on the trade or retail value of a car. For auctions, the task of valuing a car becomes a bit more tricky.
However, it is not impossible if one uses a consistent method. One method, in particular, involves looking at the classifieds in the area in which you will buy the car at auction. These can include sites such as Cars.com, Autotrader, Craigslist, and eBay to determine what the public is paying for a vehicle.
Establish groups of vehicles in a similar condition and with similar features. From this, you can set price points of what the market will accept for a particular vehicle.
Salvage Vehicles
A car with a branded title, either salvage or rebuilt, will have a reduced value when compared to a car with a clean title. According to Carinsurance.com, “Generally, a vehicle that has a salvage or rebuilt title can be worth thousands of dollars less than one that does not have this type of branded title. Auto and insurance industry sources report that the decrease in value of a vehicle that has a rebuilt or salvage title is typically between 20 percent up to 50 percent depending on the type of vehicle and its age.” (1)
Establishing Market Price in the Export Market
Foreign markets do not always have the same resources as the United States. Therefore, it is important to approach valuation with a different mindset. For markets that have high internet penetration and are more advanced in e-commerce, there will likely be a way to determine car values through online car classifieds.
For example Carmudi.com, an online classifieds platform operates in various parts of Asia, Africa, and Latin America. It also operates in Vietnam, Indonesia, Philippines, Pakistan, Cameroon, the United Arab Emirates, Saudi Arabia, Qatar, Sri Lanka, Ivory Coast, Rwanda, Congo, Jordan, and Senegal. For European markets, eBay, Craigslist, Autscout24, and Autoguide.net provide comprehensive listings where a potential exporter can assess the current market price for a vehicle.
Evaluating a Vehicle
It is also important to keep in mind two important considerations when evaluating a vehicle for a foreign market. Firstly, currency conversions need to be considered when looking at a vehicle’s value. For situations in which up-to-the-minute currency exchange rates are needed foreign exchange trading firms such as USForex will often provide real-time currency exchange rates.
There are also a number of free currency exchange websites that provide daily updates. It is not likely that a currency will deviate large amounts from its exchange rate on a week-to-week basis. However, if trading in a country that has a currency that is volatile or does not trade well against the dollar, it may be wise to periodically check exchange rates.
Secondly, keep in mind most countries have considerably fewer vehicles for sale than are available in the United States. Therefore, the law of supply and demand will dictate as more cars on the market will depress prices as the supply outpaces demand.
So keep in mind when you see that 10-year-old BMW in Nigeria going for the equivalent of a 5-year-old BMW in Lithuania. There simply may be more of this make and model in Europe as compared to Nigeria. Therefore, due to scarcity, the price will be higher.
In sum, keep a two-pronged approach to valuation by looking both at the task of buying an investment vehicle and who may be purchasing it, and where it will be sold. With so many variables present, arming yourself with ample information increases the odds of carrying out a good return on investment.
Do Your Research
It is also important to note that, export markets will not be easily comparable. Due to variations in the supply of vehicles on the market and currency exchange rates. Ultimately research and attention to detail will provide a great deal of assistance when trying to leverage the best profit margin possible.
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