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’m an autobody technician by trade and the short answer is, it almost always doesn’t make financial sense to fix totalled out vehicles. Because of this, people who fix a lot of salvage vehicles are known to cut corners and do the absolute bare minimum to get the car back on the road.
That being said. There are actually circumstances where it can make sense for an individual to fix a totalled out vehicle in a manner they make some money while delivering a well repaired vehicle to a buyer. These circumstances however, are rare enough that you couldn’t make a full time living fixing totalled cars this way because the vast majority of totalled out cars just aren’t economically viable to fix in an honest manner.
This has a lot to do with how insurance companies work. Right off the bat they can’t really repair the example car for 15k unless they have their own auto shop to do it, and the overhead on that is enough to eat up the 4k of supposed profit they could make. So they don’t bother at all. Also when they’re paying for a claim they have to pay for the vehicle to be restored to an as new condition, which means every part that has been affected has to be replaced by a new one. There’s some leeway there, that can be negotiated between the repair shop and the client in case where using new parts may end up totaling the car in terms of cost, but from the insurance company’s side they have an obligation to pay for this level of repairs.
From the repair shop’s perspective though, there is a small profit margin on salvaged cars because repairs cost less to them than it costs to a customer or an insurance company, because they’re not expected to be paid with an hourly rate but with a lump sum from the sale. They already have the means and personell to carry out the repairs. Also when reselling a repaired vehicle, they don’t have to necessarily return it to the condition it was in before. They can use used parts, they will repair functional and mechanical faults but probably won’t bother with minor damage or aesthetic damage save for a cheap repair of a partial repaint and the like. They won’t care if the rims are scuffed or something like that. To them what matters is only that the cost of repairs in parts doesn’t exceed the profit they can make from selling it. They’re not truly losing money on the work hours either since the techs will be there either way and they can accomodate the repairs for salvaged cars according to their usual workload.
Basically it’s like any other product, where the price for the product increases from the factory to the shop window. If you can skip links in the supply chain, and then sell at the retail level, you can make profit. In this case the repair shop buys parts cheaper than retail customers do, and they obviously won’t charge themselves for their own work hours, so they can repair a car cheaper than a private owner could and then sell it for a similar price that the used car would go for. But it takes a keen eye in order to do this job. You have to know right off the bat what the parts costs will be and that it won’t take an unreasonable amount of time that would have been better off spent on paying customers.
When a car is totaled, the insurance company takes the “totaled” car.
They don’t necessarily scrap it, they may have it repaired.
Some insurance covers a car rental for you while your car is repaired. If the repair in a totaled car will take weeks of a car rental, that may be expensive- so why not just skip the rental and have the insured party get a new car?
Question: why are salvagebtutles illegal in some states?
These days insurance companies often total a car in name only. The then take possession and then sell it at auction. This helps them recoup a good chunk of the money they’ve paid out. The damaged cars are bought by companies that specialize in rebuilding cars. Then they sell them with a salvage title.
Bottom line: Totaled doesn’t necessarily mean totally totaled. It’s just totaled as far as the original owner is concerned.
Your truck gets tboned and the insurance company totals it. The doors won’t open, the cab is not usable on one side, the engine has damage as does the bed. Your insurance company sees this and realizes that in labor alone you’ll pay more than what’s it’s worth. Joe comes along and buys the salvage title for a few hundred, you’ve already gotten your money, the insurance company is recouping a small amount of that by selling the title. Joes spends a couple weeks fixing everything to the best of his ability, he’s a mechanic or hobbyist who has the tools and knowledge. The truck now runs, but it’s ugly, loud, maybe has a few issues here or there that aren’t a big deal but make it less valuable (window won’t roll down, side mirror doesn’t adjust using the button anymore, bed lining is a little beat up/missing). Joe knows that this truck he bought for a few hundred bucks is now driveable and worth maybe a thousand(hell in today’s market maybe two thousand). So for a couple weeks of his extra time(that he will likely spend working on a car anyway) he’s made a few hundred bucks. Possibly even more than that. It’s not a full time job but as far as hobbies go it beats dumping thousands into something with no return. My grandfather used to do exactly this and always said “I couldn’t feed my family with it, but it made my mortgage hurt less.”
I haven’t seen anyone mention it yet, but a lot of those salvage cars end up overseas where labor is cheap, so they can repair them at a fraction of the cost.
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.
>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.
A vehicle worth $30k is probably going to sell for a lot more than $1k at a salvage auction.
If a vehicle worth $30k gets a $15k estimate written, then it’s probably not going to be totaled.
An insurance company generally does what results in the least money being paid out in compliance with state laws and regulations. In this case, they would probably pay the $15k to repair the vehicle.
Aside from extreme examples, a 30k car that’s totalled out would still likely sell for 10k+. So they pay the 30k settlement, then take possession of the car and sell it at the auction for 10k and mitigate 33%of their loses. The bmws and Mercedes with their 3k headlight for a 5k car means many of those get totalled as a technicality. Those otherwise decent shape sell for damn near fair market value, which means the insurance company mitigates the loss nearly entirely. Don’t forget all those sweet premium checks you send every month. 100 bucks a month for 4 years is 4800 dollars they got paid. Then they total out your Benz and cut you a 5k check. They sell that Benz at auction for 3k. Now they are up 2800 dollars plus the money they made investing the 4800 in premiums. Never feel bad for insurance companies. They will take every dollar from you they can and deny any claim they can.
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