Salvage titles exist because it is obviously profitable for someone to buy totaled cars and rebuild them. But this even existing would imply that in some cases, an insurance company paid out more than the actual cost to repair the vehicle, because otherwise it couldn’t possibly be profitable.
For example, let’s say a car has a value of $30k and gets totaled. The insurance pays the owner $30k and sells the wrecked car to a rebuilder for $1k, so they are out $29k. If the rebuilder then spends $15k repairing the car and sells it for $20k due to its reduced value, they will make a $4k profit.
Thus, why wouldn’t it be better for the insurance company to just spend the $15k themselves to repair the car, write the owner a check for $10k for diminished value, and pocket the $4k while also avoiding whatever overhead it takes to do the transaction to sell the wreck? In addition, one would imagine that insurance companies could achieve much better scale and/or vertical integration by moving this operation in-house vs. small rebuilders.
In: Economics
First off most totals don’t sell for 1k dollars. I know there will always be outliers, but in your 30k total scenario that car will probably sell for closer to 15k or more at auction. So the insurance company is recouping a fair amount on what they paid out.
To answer your question about the economics of fixing totals and selling them for a profit. The most important take away is this, they are not being fixed correctly or well 99% of the time. Capitalism means that in order to have the largest profit margins the vehicle must be put back on the road for as cheaply as possible. Which means shit parts and shit repairs. I know this to be factual because I have been a collision repair tech for 22 years and a shop owner for 4 years. If said totaled vehicle was financially feasible to fix correctly and to pre-accident condition it would not total. The vast majority of salvage title vehicles that have been scabbed back together and resold are very poorly repaired and usually unsafe to some degree. Like I said before there are some small percentage of outliers, I for instance could buy a total from an auction and repair it correctly because I have the tools and knowledge to do so. Because the labor doesn’t cost me anything, and in most repairs labor is the most significant cost. Most body guys don’t fuck around with rebuilding salvage titles very often though because it’s usually more hassle than it ls worth, unless it’s going to be a personal vehicle. Or a good deal falls in their lap. Every rebuilt total I have seen come through the shop during my career has been a safety hazard to some extent. Some more alarming than others.
Latest Answers