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
Salvaged cars usually come with no warranty and have issues. They are not proprely repaired. Not only that, but there is often questionable repairs and damaged parts that are usable that they leave there and work around it. Like a bent direction part? Can it still be aligned? Actually, can the steering be straight? Yes? But the tires will wear out faster? Meh, good enough.
Flooded car? All the wiring should be replaced and all flooded modules and electric parts. Does it still work? yes? Good enough. It will fail in a few months but who care, it’s out of warranty.
Now, Insurances need to pay the big price for all the parts, because they buy them at market value. Salvage cars can be special in a way. Buy a car with front end damage, and a car with rear end damage, cut them both, weld together, and you have a car. Let’s say 1k per car, that is 2k only. As a rough rule of thumb, calculate 1k per panel. Hood, fender, plastic bumper, metal bumper, subframe… 5k minimum.
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