Pros and Cons of buying from the Japan car auctions compared with purchasing from a dealers stock

What are the pros and cons of buying from the Japan car auctions compared with buying from a dealers or exporters stock?

First of all, the advantages of buying from a dealers stock.

  1. The car is there before your eyes, or to be more precise, it’s photo are and you can see them.
  2. The price is fixed.  There is no need to calculate a bidding figure.  Often also the car is sold as FOB, so there is no need to calculate the commission as well.
  3. There are usually more pictures than available on the auction’s homepages.
  4. For vans, (Hiace vans etc), the number of seats are very clear.  For trucks, the detailed specs of the truck can be checked before purchase.

Disadvantages of buying from a dealers stock.

  1. No dealer is going to give you a 100% honest explanation of the vehicle, it will be bias.  It doesn’t matter how nice the dealer is, he is going to be biased towards this vehicle.  His stock is always “good” stock, even if it was a grade 3 or a grade R when purchased from the auctions.
  2. Unlike an auction, there is no “independent” appraisal of the vehicle, you’ve got to take the dealers word.
  3. Often the used car exporters, especially if they are not Japanese, do not have an ability to read the auction sheet of the car they purchased, and then do not know the faults written about the car from the auction.  Even if the can read, they don’t usually mention them.
  4. Price.  Perhaps the most important factor.  For a dealer to buy a car and sell it in stock.  It is a risk.  A larger risk than purchasing in the auctions on order.  There is a possibility that the car will not sell from his stock, he doesn’t want that. Higher risk must be equal to higher returns.  The dealer / exporter needs to add value, not just commission to make this extra risk worth while.  That is why a dealer`s / exporter`s stock is more expensive than buying directly from the auctions.  Often this adds up to $100s even $1000s of dollars difference between buying from the auctions or buying from stock.  Have a look at the link below as an example:

Comparing auction prices to selling stock on a homepage.

Illogical buying! The reason it is safer to buy from the Japan car auctions yourself

Have a look at the purchase below.  Two Toyota Premios, 2002 that sold in the Japan car auction yesterday.

One sold for 207,000yen (about $2500 FOB), the cheaper one, and it had done 46,000kms.  Nice car, wouldn’t mind driving it myself!  Grade 4 and all!

The other one, grade 3, 208,0000kms, the more expensive one!  Yes, this one sold for 249,000yen (about $3000 FOB). Even if the price was halved I still wouldn’t want to buy this one.  Imagine all the worn out parts that need replacing soon!

So what is the logic here?

The worse a car is the more it sells for in the Japan car auctions?

No, the logic is the exporters all thought this would be a good one for stock.  To sell to Africa for example.  They also thought the car with the highest kms, MUST sell for the cheapest price, so they all ignored the better cars and competed for the “cheap one”.  The end result is, the “cheap one” became the “expensive one”.

Now your challenge!  Find this car on someones stock page somewhere.  2002 Toyota Premio.  With a bit of fancy plug in computer work, I bet you the kms will be different!

premio

 

Where you source your vehicles. Perhaps the most important question part 2.

So where should you as a dealer get your used car stock from?

You need to obtain them from the same source that the large used car exporters obtain them from: the Japan car auctions.  You need to buy the best vehicles available in these auctions each day, at the price they are sold for and not at any inflated FOB prices.

The used import car market in New Zealand is perhaps one of the most competitive markets in the world, and to compete in it you need an edge.  That edge is being on the front line of what is available each day at the source of most used cars sold in New Zealand, the Japan car auctions.  It requires understanding and a little skill, but if you choose a good exporter to help you through the process you can succeed.  Also, in choosing your used car exporter from Japan, try and choose one that does not have many customers from your country.  Again, if you are trying to buy online from the Japanese used car auctions from a large exporter, the large exporter faces a conflict of interest.  They may have 10 or 20 dealers all wanting to bid on the same vehicle.  They are also wanting to buy for their own stock.  Put yourself in the position of an agent for a large used car exporter in Japan, they have to get there 20 to 30 “good” cars per day for their own stock to sell to New Zealand dealers.  The stock that they do buy must sell for them in New Zealand (or any country they export to).  Where do they get their information about what is a good selling car for New Zealand?  Suddenly they have their dealers all bidding on a yellow Mazda Atenza sport.  Now what is a good car for our large exporters stock?  The car everyone wants to bid on in the auctions that day.  Who wins the competition?  The large exporters stock wins the competition.

So as a used car importer, you need to compete against these large dealers to survive.  You need to own the best available vehicles each day in the auctions.  It is a competitive world and the man with the best stock wins.

I have written this specifically thinking of the New Zealand market, but to an extent it applies to all used Japanese car importing markets that operate in a competitive market.
Get to the front line.  Choose the best stock, survive and succeed.

Sourcing your stock. Where from? Perhaps the most important question. Part 1

I once spoke to a used car dealer in New Zealand.  I asked where he was sourcing his stock (used cars) from.  With his fears that I was a salesman trying to change his status quo, he quickly replied that he sourced his cars from one of the very large importers into New Zealand, at their stock yard in Auckland, New Zealand.   And, that he was very happy with the relationship, thank you very much!

My next question was “How sales were going?”

His reply was “Sales were terrible.”

Something to do with the weather, or the downturn in New Zealand, or something (the moon perhaps, tides?)..

He didn’t go the extra bit to connect the two questions together.  Just perhaps he was sourcing his stock (used Japanese cars imported from Japan) from the wrong source.

Without naming companies let’s have a look at the source of this used car dealers stock.  This large export company purchases these vehicles in Japan and then immediately makes them available on their homepage, at whatever price they like.  If this car exporting company thinks their purchase was a bargain then they will sell it at a much larger margin in their own stock than they actually purchased it for.

They are a large company and they need to do this to survive.  Simple commissions are not enough for them in this economy and they need to make that plus alpha as much as possible.  Their goal is their profit and not the end users profit (in this case the New Zealand car dealer).

Let’s imagine this exporting company buys 50 cars a day for the New Zealand used car market (or any market).  Of those 50 cars, there may be 10 cars that will sell very quickly, highly suited for the New Zealand market.  Through much research they know their cars.  They are like Google, they have they client orders, they can see and use their clients information and capitalize on it.  They sell these vehicles at higher margins to what they could be bought directly from the auctions, so the profit margin of the New Zealand used car dealer diminishes.

Now we have 40 cars left.  From these 40 cars, the better of these are bought in Japan by other New Zealand dealers.  What is left for the exporting company’s stock yard in New Zealand?  Boring, standard, plain, common vehicles that could sit in a dealers yard for a month or may be a year!  Well why buy these used cars, they don’t seem to be good stock right?

Good question!  The large car exporting company knows this weak side of their equation, so what do they do?  They need some sort of incentive for their dealer network to buy these stock standard boring cars, that the public basically don’t want to buy.  The incentive is credit.

Because many dealers have gone belly up in New Zealand (and other markets), the New Zealand banks will not lend to them.  They may have $500,000 worth of stock on their yards, but the New Zealand banks will not lend them a cent.  The large car exporting company capitalizes on this and gives the New Zealand dealer a line of credit on the car they are selling …. can you see where the story goes?   Can you see the stranglehold these large exporters exert on the weakened New Zealand car dealers?  I also know that the large used car exporters from Japan also have their strong links to the New Zealand debt collecting companies.  It is a no-win scenario for the New Zealand car dealers that you definitely don’t want to try to compete in.

So how can you win as a small car dealer in New Zealand or any other country facing a similar situation?  Join us in the next blog for some great ideas.

Risks of NOT purchasing from the Japanese car auctions

Some people consider buying through Provide Cars cars from the Japanese used car auctions as a risk.  How do you know the cars in the auctions are alright?

Personally, I would find buying from a dealers stock list as a greater risk!

Is the appraisal of the car exporter unbiased?

Is there something the exporter doesn’t want you to know about the car?  It may be major, it may be minor!

Are you sure the car has done 53,766kms not 153,766kms?

The obvious point in this argument is that of course a Japanese used car dealer is always going to be biased about his stock that he is selling to you!

Now, the important question:  is the appraisal of a car purchased through Provide Cars in the Japanese car auctions unbiased?

Although the appraisal system in the auctions is not perfect, it needs to be excellent, or at the very least, “good”, for the whole process to work.

You need to understand that the majority of vehicles sold in the Japanese car auctions are bought and sold for the Japanese local market.  Exports are a minor in the whole process.  If the appraisal system of a certain auction was biased in favor of the seller, unsatisfied buyers would stop buying from that auction, the auction would have no income from commissions from the sale of vehicles and then would fail to be a viable economic entity for the owners.  For an auction to function and exist, there needs to be happy buyers.

Secondly, there is a claim period after purchase (usually about 4 days) where the purchaser of a vehicle can claim to the auction about defect unlisted on the auction sheet.  If the fault that is listed on the auction sheet can not be claimed on.  Any fault that is NOT listed on the auction sheet can be claimed on.  It is in the interest of the auctions to reduce, or even better, have no claims involved in cars sold each week.

Finally, odometer readings.  The auctions run together a computer system recording all chassis numbers of vehicles and odometer readings at time of sale in any auction.  If any vehicle appears that has differing data (kms reduced) to that which is on the systems history, the auction “pounces” on the seller demanding to know an explanation.  If a good explanation is not given, the seller can be banned from purchasing from that auction.  Worse still it could involve being investigated by the police.  I have known of a dealer who spent 6 months in prison for altering odometers.

No such case with used car exporters selling their stock.

It is common for exporters selling from their stock to adjust the odometer.  A car with 53,000kms on the clock is worth a lot more than a car with 153,000kms on the clock.  The exporter knows that in certain countries it is not possible to sell an adjusted odometer reading vehicle (like New Zealand), so they make you “Log In” to your region before viewing their stock page.  If your region is New Zealand, you will see the stock listed as 153,000kms.  If your region is not like New Zealand then they will show you the stock as having 53,000kms.  As they are not sure which region will buy the stock, they do not adjust the odometer until the car is sold.  If it is sold to New Zealand, it is not adjusted.  If they sell it to another region with 53,000kms odometer reading, they adjust it.  If there happens to be a whistle blower, informing the Japanese police about the crime, then they can claim it was an input mistake on their stock page.

Differing companies may vary their tricks like above, but their motivation is the same: deceiving you!

To make it clear on odometers:  used car exporters can modify and deceive at will, auctions can not.

So I ask you:  which is riskier to buy from?  A used car exporters stock list or by purchasing through the auctions through Provide Cars?

Japanese Car Auctions

Is there any variation from one Japanese car auction to another?   Should I purchase from any Japan car auctions or should I ask my agent to look for vehicles in certain specific Japanese vehicle auctions?

Personally I would only choose to purchase from certain auctions if I was purchasing a car for myself.  There are a number of factors to consider.

1.  Locality

Purchasing a vehicle from one of the three main centers: Tokyo, Nagoya, Kansai, means the costs of internal transports from the Used Car Auction to the wharf area where you are having your car exported, are minimal.  Always ask our sales staff to search for your car from auctions such as CAA Tokyo, TAA Tokyo, USS Tokyo …. basically anything with the word Tokyo or Yokohama included in the used car auction name.

The same goes with Nagoya:  Honda Nagoya Auction, USS Nagoya, CAA central (Chubu), TAA central (Chubu).  Also any words using Gifu is also in the Nagoya area.
Kansai is a little more complicated as you have used car auctions in the areas of Kobe, Osaka, Kyoto, and Nara to name a few.  One of the largest, also being close to the port so not needing large transportation fees is HAA Kobe.

If you view a car on another site from a USS auction in a place you have not heard of before, and you are interested in purchasing this car through us, ask us where the used car auction is and how much transport would be to the nearest exporting port.  Just reduce that inland transport amount from your purchase price.  Sometimes you can get bargains from these distant auctions EVEN WITH the extra inland transport.  Think of the over all picture and costs.  Although we can not show you USS car auction details due to copyright inflictions, there are many, many sites out there that blatantly show their data, so check their sites and then come back to us with your order.

Once you are outside of the 3 main auction areas of Japan, inland transport is a major factor.  Purchasing used cars in auctions in Kyushu or Hokkaido means transportation costs as these islands usually do not have shipping lines that export to your country.  Make sure you know the most likely cost of your internal transport to your local port for export before you purchase.

2.  Locality warnings

Just a small note to say, some used car auctions in Japan, are just not worth bidding on.  First of all, you all know that there was a nuclear meltdown in North Eastern Japan that nearly spiraled out of control.  Well it did have an impact on some of the cars sold in the Used Car Auctions of Japan.  These auctions include anything with the name Tohoku and Fukushima.  Our staff regularly check number plates in ALL Japanese used car auctions with license plates relating back to these areas.

Apart from “glowing” car warnings, there is also a “rusty” car warning.  Some cities in Japan receive huge amounts of snow, Niigata I think receives world record amounts of snow, being on the wintery cold western side of the Japan alps.  To melt this snow, certain salts are spread onto roads that helps reduce the melting point of the snow, and therefore the snow itself.  The chemical result of this chemical reaction is … acid, sulfuric acid.  Sulfuric acid has a natural ability to turn all your iron associated parts of your car into red rust!  So avoid any small mention of rust from auctions in the Niigata area as well as the snowy Hokkaido used car auctions.  Just ask our staff whether the auction you would like to bid on may have a rust problem.

Again, we have a network of people throughout the auctions to check cars you are interested in purchasing from.

3.  Used Car Auction reputations.

Although we’d like to present to you a picture that all used car auctions in Japan present their cars in equal presentation with unbiased judgement, unfortunately that is not true.  The reality is, some are more honest than others.  Rather than writing a list of the “good used car auctions” in Japan against the “bad used car auctions” in Japan (we might get in trouble here, the Japanese used car auctions can cause us trouble), just ask us the reputation of the auction that we find a car for you to purchase from.

Having knowledge as a tool in your purchasing arsenal about what auctions to purchase from is your edge in this competitive industry.  We strive to give you that edge.