Pros and Cons of Buying Repossessed Cars in the Philippines
Looking to expand your used car inventory while managing tight budgets? Repossessed cars present a compelling option for dealerships in the Philippines. Purchasing repossessed vehicles can offer several advantages, but it also carries some risks. Understanding both sides of the equation is crucial before you make a decision.
What Are Repossessed Cars?
Repossessed cars are vehicles reclaimed by financial institutions, usually banks, after the previous owners failed to meet their loan obligations. The banks subsequently sell these vehicles at discounted prices to recover unpaid debts. Dealers can acquire repossessed vehicles either through auctions or directly from banks, lending institutions, or intermediary dealers.
Before committing to buying repossessed cars, it's important for dealers to carefully consider the pros and cons involved.
The Pros of Buying Repossessed Cars
1. Lower Price Point
A major draw for dealers is the significantly lower price of repossessed cars compared to typical used vehicles sourced from private sellers. Since banks aim to recover losses quickly, repossessed vehicles are often priced below market value, providing dealers an opportunity to acquire inventory at a cost advantage and potentially increase margins.
2. Good Condition at a Lower Cost
Contrary to some assumptions, repossessed cars are often in good condition. Many are repossessed due to financial difficulties rather than accidents or neglect. In fact, some vehicles are relatively new with low mileage, which means dealers can offer quality cars at a competitive price point.
3. Wide Selection
The repossessed car market in the Philippines offers a broad variety of makes, models, and conditions. Whether your dealership specializes in affordable compacts, family SUVs, or higher-end vehicles, there's usually a suitable selection available. Banks and dealers typically have multiple vehicles on offer, expanding your sourcing options.
4. Opportunity for Financing
Though banks generally do not finance repossessed vehicles directly, some finance corporations do offer loan products tailored for these purchases. OneLot, for example, provides financing options specifically designed for repossessed cars, making it easier for dealers or buyers to acquire these vehicles without paying the full amount upfront.
The Cons of Buying Repossessed Cars
1. Limited Vehicle History and Potential Neglect
One significant challenge dealers face with repossessed cars is the lack of a complete vehicle history. Maintenance records may be incomplete or unavailable, and undisclosed accidents or mechanical issues might exist. Additionally, some cars could have been neglected by previous owners, increasing the risk of hidden damage or needed repairs. This uncertainty can lead to unexpected post-purchase costs.
2. Lot-Based Auction Risks
Repossessed cars are commonly sold in lots of about five vehicles. While buying in bulk can reduce per-unit costs, dealers should be aware that these lots often contain at least one "lemon" or problematic car. To mitigate this risk, many dealerships maintain contacts who buy large quantities of repossessed vehicles in bulk and then allow other dealers to cherry-pick or purchase the better-quality cars individually.
3. Auction Pressure
The auction environment can be competitive and unpredictable, even online. Auctions often run for several days, but there is always the possibility of being outbid at the last minute. Prices for popular models may escalate beyond initial expectations, requiring dealers to be strategic and patient in their bidding.
4. Limited Inspection and Customization Options
Inspecting repossessed vehicles can be challenging due to restrictions. Viewing times may be limited or entirely unavailable, and test drives are often prohibited or severely restricted. This limitation increases the risk of acquiring vehicles with undisclosed issues, so dealers must weigh these risks carefully.
Tips for Buying Repossessed Cars in the Philippines
If you plan to source repossessed cars for your dealership, consider these best practices:
1. Do Your Research
Thoroughly research the vehicle's market value and condition before bidding or purchasing. Compare prices for similar models, check model years, mileage, and any accessible records to avoid overpaying for inventory.
2. Inspect the Vehicle Thoroughly (If Possible)
Whenever the bank or auction allows, inspect the vehicles carefully. Some listings may offer limited viewing windows or restrict access entirely, so take advantage of any opportunity. Bringing a trusted mechanic can help identify hidden issues, protecting your investment.
3. Ask About Financing and Payment Plans
Since direct financing from banks for repossessed vehicles is rare, explore options through finance corporations that cater to repossessed car purchases. Ensure you understand loan terms, interest rates, and payment schedules to align financing with your dealership's cash flow.
4. Know the Auction Terms and Processes
Familiarize yourself with the entire auction process, not just the terms and fees, but also the timing and logistics. Know when auctions are announced, how long bidding windows last, where bids are placed (often online), and the post-auction process, like obtaining gate passes and receiving car documents. Understanding these details helps you navigate purchases smoothly.
Sourcing repossessed cars in the Philippines offers dealerships an opportunity to add quality vehicles to their inventory at competitive prices. However, it is crucial to strike a balance between the benefits and their inherent risks.
Whether looking to grow inventory or buy cars at a discounted rate, repossessed cars continue to be a valuable opportunity for savvy dealerships.
