If you’ve been online in the last year, you’ve seen the ads for penny auction sites.
32GB iPad: $15.88
Canon T2i DSLR camera: $16.74
The deals, splashed across the sidebars of all sorts of free e-mail accounts and reputable news sites, promise deals that seem too good to be true. Of course, they sometimes are, but now we can add another item to the list:
2011 Chevrolet Camaro SS: $5.28
To understand how a $30,000+ car sold for the price of an expensive latte, you have to understand how penny auction sites work. I wasn’t aware of this intricate world of deal-seekers until I saw the story of the Camaro on CNN. It’s complicated, but it goes something like this:
Auction sites like the one that sold the Camaro (fastpennycars.com, if you’re interested) sell packages of bids. Each bid represents one penny. However, each bid costs 80 cents of real money. In this case, the site sold 528 bids for a total of $422.40. Granted, that’s nowhere near the price of the car, but you can be sure after the site receives all the free advertising from blogs covering its first deal, the next one will attract many more bidders.
Should 50,000 bids come in on the next car, the site will pocket $40,000 and easily cover the cost of the car it is selling. (Yes, that means the losers of the auctions pay, too, unlike sites like eBay.)
The winner of the $5 Camaro, Jonathan Mason of Michigan, was out however much he spent on bids plus the $5.28 sales price for the car. Still an unheard-of deal!
While penny auction sites are billed as “auction sites,” they should more accurately be billed as gambling sites. Wagering money for the possibility of winning is *not* an auction. It’s a gamble.
While Mr. Mason certainly scored the deal of a lifetime, I’m pretty sure the next guy won’t be so lucky. I hope bidders are smart enough to avoid dropping big bucks on bids, only to come up empty when the “auction” ends.
Had you heard of, or ever participated in, a penny auction? Would you consider one as a way to buy a vehicle? I’ll stick with DealFinder, thank you very much.