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
I can pay a local shop to replace my alternator for $165/hour, plus 65% margin on the part. If the part is $300 from their “partnered supplier”, it’d be $750. Assume 2 hours labor. If I take it to that shop, it’ll be $1,080. If I just want my car to be good as used, I can probably get one from a salvage yard for $50, and install it myself. Total cost to me now: $50. Both repairs are functional and result in a used car with used parts. They don’t have the second option, though. Even if I myself bought the new part and put it in myself, I still save around $750. That’s about 1/4 the estimated repair cost through the shop.
Now scale that up. That can easily make something ‘not worth it’ to have a shop repair, while being plenty worth it for myself to repair. I might also not care, in the case of say a front end collision for instance, if the panel colors match, or the one panel is a little broken still, or the rim that got scratched gets fixed too, etc. Paint can be a HUGE portion of a collision repair, and insurance isn’t allowed to just tell you “tough shit, live with the cosmetic loss”. You however can make that call.
This simplifies things a bit because repair shops (which I have a lot of experience in) and collision shops (which I have comparatively little experience in) have different practices, standards, rules/regulations, and so on, especially with insurance involved. But you get the gist.
Latest Answers