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
>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.
The rebuilder does not do this.
There are a couple of different ways to make far more than the 1k he spends without dropping a fuckton of money like you suggest.
1) If Rebuilder has one car totaled from a rear end collision, and finds another of the same car totaled from a front end collision, he will make an insane amount of money(using your numbers).
At that point, it’s all labor. In your theoretical, he pays 1k per car, so he’s out 2k.
Now he doesn’t have to spend anything aside from his own labor and some incidentals, one might be a paint job or a new window or some such. In an ideal situation, same paint, and there’s a full car between the two, he could make 18k on that car, with the numbers from your model, selling it for 20k….and still be able to make money on what’s left….which brings me to the next method:
2) Just sell the parts to people doing DIY repairs on their own vehicles or paying a garage to do it. If the engine is not damaged, it could easily recoup the cost of the vehicle if it’s new enough. And there’s the rest of the car, doors, electric window motors, electronic boxes, seats, suspension, tires, etc etc.
3) When you’ve got what you want out of a carcass, then scrap the carcass for metals which can be a good chunk depending on your location.
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