AutoCheck vs. Carfax: What you really need to know

by Zach Shefska | Last updated Apr 25, 2023 | Car Buying

As a result of ongoing new vehicle production shortages, used cars, trucks, and SUVs are in high demand. This means that “rougher” and “edgier” used vehicles are making their way to dealership lots for sale to the public. One way to protect yourself from unknowingly purchasing a clunker is to look at a Carfax or AutoCheck vehicle history report.

Today we’re going to share a few stories from the CarEdge Community about AutoCheck and Carfax, and provide our recommendations for how you can protect yourself if you are buying a used car.

Let’s dive in.

How do Carfax and AutoCheck work?

Let’s start with the basics … How do these two companies work? AutoCheck and Carfax both operate in the same way; they source data from different places and compile that information into reports that are easy for a consumer to understand. With this in mind, it’s clear how the two companies compete. Who can get more (and better) data about a vehicle? That’s the challenge.

Carfax and AutoCheck both boast impressive lists of data partners on their websites. For example, Carfax says they have 112,000 data sources, while AutoCheck was developed by Experian and has access to all of their resources and relationships. Both companies provide compelling credentials as to why they are superior to the other. That being said, they both face the same issue: if data is not reported to them from one of their data partners, it will never show up on a report.

Which is more reliable?

This brings us to the most important question of them all … Which is more reliable? Carfax or AutoCheck? We’ll answer this question by providing a few anecdotes from our experiences, as well as what we’ve heard from CarEdge Community members who have shared their stories with us in the community forum or via Live Chat with our Auto Advocates.

AutoCheck doesn’t show damage, but Carfax does

Sadly, this happens more frequently than we’d like. Take for example the case of Chris, a gentleman in Alaska who purchased a 2019 Ford Fusion from a local independent dealership.

Chris went to the dealership, took the Fusion for a test drive, reviewed the AutoCheck report that the dealer provided, and purchased his car. A few days later he took it to the local Ford dealership because a light came on in the dash. Within an hour, Chris had a sinking feeling in his stomach when a technician came to him and explained that his vehicle had been in a severe accident. Chris, unbeknownst to him, had bought a clunker.

How could that happen? The AutoCheck had been clean. In case it wasn’t obvious, this is why we always recommend getting a pre-purchase inspection completed on any used vehicle (even certified pre-owned). That being said, what was scary about Chris’ experience is that Carfax had different data than AutoCheck—they did report damage to the vehicle (but not an accident).

Let’s look at the two reports, and some photos of the vehicle before it was repaired.

As you can see on the AutoCheck report, the Fusion comes back “clean” and with an average AutoCheck score. Let’s look at the Carfax report.

As you can see on the Carfax report there are no accidents reported either, however there is a report of damage to the vehicle.

Right there on the Carfax report it says clearly “get the vehicle inspected before you buy.” Carfax knew about the damage, and AutoCheck didn’t. Chris obviously didn’t get the vehicle inspected, and he trusted the dealer who sold him the vehicle because they provided a “clean” AutoCheck.

Does this mean AutoCheck is inferior to Carfax? We’ll let you be the judge …

We heard a similar story from a CarEdge Community member named Kristen.

Kristen had a nearly identical experience to Chris. She bought a vehicle (and even got the extended warranty), only to find out a few weeks later that it had previously been in not only one, but two accidents!

Does AutoCheck not collect as much information as Carfax? Based on some of our communities experiences, it appears that way.

How to protect yourself

Get a pre purchase inspection

I know we sound like a broken record, but getting a pre-purchase inspection is one of the best things you can do to protect yourself when buying a used vehicle. A pre-purchase inspection isn’t bullet-proof, but it certainly increases the likelihood of you avoiding a fate like Chris or Kristen.

Ask your insurer to check the VIN

Another trick you can use to get more information about a vehicle is to ask your insurance company to check the VIN in their systems. Insurance companies have databases similar to Carfax and AutoCheck that they can access on your behalf. Once you’ve found a vehicle you’re interested in, call your insurance company and ask them what info they have on the VIN. If it comes back clean on their end, then get the pre-purchase inspection.

Understand that when you buy used you are buying “as-is”

In nearly every state, when you purchase a used vehicle you are purchasing it “as-is.” This means that no matter what condition the vehicle is, you are purchasing it as such. This doesn’t mean a dealership can sell you any clunker (vehicles have to pass state safety inspections to be sold), however it does mean that once they’ve sold you something it is entirely yours to deal with. The contract you signed stated it is being sold to you “as-is” and that the dealer cannot be held liable for the condition of the vehicle.

It is important that you understand the “as-is” concept, because your recourse post-purchase if something does go wrong is limited. If you’re like Chris or Kristen you have a few options to remediate the situation, however none are ideal. It is critically important that you understand you are purchasing the vehicle “as-is” and that you should be measured and pragmatic before signing the contract.

What’s Going to Happen When the Bubble Bursts (Car Prices)

by Zach Shefska | Last updated Apr 25, 2023 | Car Buying

Currently, there is a global shortage of new cars, trucks, and SUVs. Manufacturers like Ford, GM, and many others have been struggling for months to supply their dealerships with enough new inventory to keep up with demand.

Market days supply, a metric that sales managers and industry executives track religiously, is at historic lows. Dealerships typically carry a 60 to 90 days supply of inventory. This means that if a dealership did not receive another vehicle, they would have enough inventory to meet demand for 60 to 90 days. To paint a picture of how dire the situation is, Subaru currently has an 8 day supply of inventory. 8 days.

Get market days supply data for your area for FREE. Run a Market Price Report NOW!

Why is there a lack of supply? Because of an ongoing semiconductor shortage that has plagued the automotive industry for all of 2021, and likely into 2022.

The “chip shortage” as many are referring to it, and the subsequent new vehicle shortage have had ripple effects across the entire automotive industry. With fewer new vehicles available for sale, used car prices have skyrocketed. Used vehicles are worth 25% more right now than they were at this exact same time last year. Considering a car is a depreciating asset, that’s not supposed to happen.

It’s fair to say that we’re currently experiencing a seller’s market of unprecedented magnitude. That being said, many people find themselves in a position where they need to buy a vehicle. In that case, there are a few things to be aware of in advance of signing on the dotted line of your buyer’s order.

As we’ve learned from CarEdge Community members who work in dealerships and financial institutions, lenders are still financing vehicle purchases, even as loan to value ratios are severely out of whack. What impact will consumers face once the bubble bursts? Let’s unpack exactly that.

Negative equity

When you buy a car it depreciates. The exception to this rule has been 2021, however we expect that once new vehicle production returns to normal, all vehicles will depreciate as per usual.

Before the chip shortage, a car buyer could expect their new vehicle to depreciate about 20% in their first year of ownership. For many owners who financed their purchase, this meant that they likely owed more on their loan than what the vehicle’s market value is after one year.

How so? Consider this scenario.

If you bought a $40,000 car and it depreciates 20%, it’s worth $32,000 after one year. Even though the vehicle selling price was $40,000, you likely financed more than $40,000. This is because the selling price of a vehicle isn’t the actual, or total price you pay. The total price is what we refer to as the out the door (OTD) price. The OTD price includes all fees, taxes, and accessories. When you finance a vehicle you finance the OTD price, PLUS any ancillary products you purchase in the finance office (unless you purchase them in full upfront).

Now the OTD price before you go to the dealership. Use the FREE OTD Calculator NOW!

That means your loan amount will be more than the $40,000 selling price (unless of course you plan to pay taxes and fees in cash, or make a substantial down payment). Every state and locale has different tax codes (we calculate those for you in our free OTD Price Calculator!), and dealer fees vary from state to state (we’re looking at you Florida), but a general rule of thumb is that your OTD price will be 10% higher than the selling price of the vehicle.

That $40,000 purchase is actually a $44,000 purchase, and unless you’re putting some serious cash down, you can quickly see how you’ll be in a negative equity position the moment you drive off the dealership’s lot. Your loan is for $44,000 (with zero down), and the value of the vehicle you are purchasing (new) is $40,000. You’re already in a $4,000 negative equity position.

What we described above is a typical negative equity situation consumers would face last year (pre-pandemic). Our concern is what will inevitably happen to consumers in 12, 24, or 36 months from now. Their negative equity position will be magnitudes greater than the example we just shared.

What’s going on right now

New vehicles are frequently selling for thousands of dollars over MSRP. Consumers are buying and financing thousands of dollars of “additional dealer markup” simply because of the supply shortage. In 2021, on a new Kia Telluride with $8,000 in additional dealer markup, you may have financed $54,000 on a $40,000 MSRP vehicle. That’s a serious negative equity position!

That being said, many lenders are not approving loans without significant cash down payments. Lenders need to abide by loan to value ratios that make sense based on your credit score and history. However, from everyone we’ve met with, lenders are still lending, and somehow consumers are manufacturing a large enough down payment to justify getting a loan approved.

Right now, at this very moment, the new Kia Telluride you just bought brand new might actually be worth MORE now that it’s a used vehicle (what a crazy time we are living in), however that is exactly the “bubble” we are talking about. Everyone knows that the Kia Telluride you just bought with $8,000 in additional dealer markup isn’t actually worth more used than it was new. That’s the craziness of our current supply/demand imbalance.

So what happens in 24 months when that Kia Telluride price has normalized and it has deprecated the way we all expect it to? The owner who financed that purchase is going to be looking at a sobering reality, their Telluride will be worth considerably less than what they owe on their current loan. If they want to move into a different vehicle they’ll have a tough pill to swallow.

The same reality is playing out in the used car market. With used vehicle prices highly inflated, consumers are financing purchases on used cars and trucks that aren’t worth as much as they appear to be right now. The negative equity position they’ll be in will be staggering. The first impact of the “bubble bursting” will be the reality that millions of Americans will owe thousands of dollars more on their auto loans than what their vehicle is actually worth. This will have some interesting effects on vehicle sales in the near future.

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Digital dealers are in for a surprise

By now you are likely familiar with massive “online” car dealers like Carvana, Vroom, and Shift. Each of these companies has gone public over the past few years, and with valuations north of $50B, each has a lot of money to invest in growing their business.

What’s interesting about their business model (and Carmax’s too) is that they make most of their money not selling cars, but on selling loans, and ancillary products (extended warranties) tied to the purchase of a vehicle. To sell a loan or an extended warranty, you have to sell a car. Selling a car is actually really expensive. You have to find a vehicle to buy, recondition it so that it’s “showroom” ready, and then market it for sale.

Even with all that overhead, there is enough money in loans and extended warranties (and occasionally in the actual sale of the vehicle) that they make money (or at least make enough money to justify raising more capital from investors).

As used car prices have skyrocketed, we’ve seen an intensified bidding war amongst the deep pocketed publicly traded used car dealers. We’ve documented for months how Carvana, Carmax, Vroom, and Shift are paying incredibly high prices for used vehicles. Remember, if they don’t have inventory, they can’t make money, and if they can’t make money, their investors won’t be happy. It’s a vicious cycle.

What happens when the bubble bursts and used vehicle prices fall? Each of these dealers will be looking at their portfolio of hundreds of thousands of VERY expensive cars they paid for that are NOT worth what they paid for them. Depending on how quickly prices fall, each of these companies could be looking at hundreds of millions of dollars in inventory that is worth less than what they paid for it.

In a “post bubble burst” world we’ll be looking at quarterly reports from each of these companies that discuss how they’ll need to offload inventory at a loss to free up cash to be able to purchase new inventory at a lower price. This practice is called cost averaging, and it’s inevitable it will happen. The companies that don’t handle this well will certainly suffer, and as consumers we may be able to benefit from some sort of “fire sale” if/when it happens.

There will be less in-market car buyers over the next five years

The third impact we see when the bubble bursts, is that there will likely be fewer in-market auto buyers. Like we discussed above, with expected negative equity positions to be very large, there will likely be a substantial number of buyers who take themselves out of the market when they realize that they owe thousands (if not tens of thousands) more on their current vehicle than what it is worth. We expect that many people will decide it makes more sense to hold onto their existing vehicle than “roll the negative equity” into a new loan and try to purchase another vehicle in 12, 24, or 36 months.

How can you protect yourself

If you need to buy a car in this market, there are a few things you can do to protect yourself.

Step one

Become educated about the market situation. Reading this article will help you, and we also suggest you watch a few of our recent YouTube videos to get up to speed.

Step two

Be aware of your local market conditions. Although the supply shortage is global in scope, be sure to understand your local market conditions by running a Market Price Report.

Step three

Get support negotiating with the dealer/seller. Post your OTD worksheet to the CarEdge Community Forum, or live chat with our Auto Advocates On Demand. No matter what, get a second set of eyes to review your deal before you sign the dotted line.

Step four

Get pre-approved for financing instead of relying on the dealer!

Step five

Be patient! We’ve heard from dozens of community members that they’re still able to get fair deals right now. It takes patience and persistence. You’ve got this.