The issue of salvage cars leaving the United States market is not a new issue for automotive recyclers. The impact of this increasingly complicated and prevalent issue has surely impacted the bottom line of every auto recycler in some way such as in higher overall salvage costs or a decrease in their salvage parts stock. American auto recyclers are frustrated by the lack of solutions to the problem and are left to navigate the new horizon of salvage as best as they can.
In prior days, buying salvage cars was more easily controlled. A salvage dealer had to be physically present at the vehicle auction with a bid card in hand and the bidding was against other licensed buyers in the region for the purpose of buying vehicles to stock their salvage yards. Since bidders were only able to bid on the vehicles being auctioned at that single location, this tended to make it most economical for bidders to be either local or regional competitors. Today with the Internet, a salvage dealer can attend auctions anywhere, anytime, which is a great convenience, but so can virtually everyone else in the world. Competing buyers of all types, regulated and non-regulated, buy the salvage vehicles for many different purposes. The largest salvage auction pools have also set up departments to solicit and accommodate international bidders by providing brokerage and export services for those bidders.
Adding insult to injury, with new car production decreasing, and car owners keeping their vehicles longer, the amount of cars available at auction is also declining. Bottom line: more buyers and fewer cars equal increased vehicle prices and less stock for salvage yards.
Further complicating the issue, only a handful of countries have the high repair standards that the United States has adopted, which provides buyers from less regulated countries other opportunities for revenue on salvaged cars than just parts. Once a salvage vehicle enters another country, the U.S. title branding is not relevant and the repair of such vehicles is rarely subject to inspection.
Let’s look at what is driving this increased international market.
According to estimated calculations based on public records provided by the larger auction companies, about 1 million of the 3.5 million cars salvaged each year are exported out of the United States. Why the rise? What is so appealing about the American salvaged vehicle?
The fact that a vehicle’s salvage title branding does not stay with a car that is exported out of the United States is appealing to international buyers. This branding helps protect the American consumer from many forms of vehicle fraud, along with the National Motor Vehicle Title Information System and the various private car history report services such as CARFAX, but it does nothing for an unsuspecting buyer in another country.
Another is regulation or lack thereof. State laws and insurance company standards are higher here than in most countries for a salvage or “total loss” vehicle. Typically, a salvage-branded vehicle is where the cost of repairing exceeds approximately 75% of its pre-damage value (varying state to state). In some countries, this standard doesn’t exist. It is legal to repair such vehicles, and inexpensive to do so due to low labor costs, then sell it a profit – even with the export fees and the inflated cost to purchase the salvage.
Another appeal is that American salvage vehicles are often between six and ten years old. In many countries this is considered a new car and newer model, rebuilt salvaged vehicles can fetch quite a sum, especially those considered luxury models.
In fact, salvage vehicle marketing directed at international buyers is prevalent on the World Wide Web. As noted in some of the public documents by the major salvage auction chains, these international buyers represent an important and lucrative part of their profitable business model. Results from a Google search on “salvage cars exported from the U.S. to other countries” came back with offering after offering on easy ways to buy salvage titled vehicles. One website says, “you will never have to worry about being ‘eligible’ to bid on a vehicle or be properly ‘licensed’ to participate in an auction,” while another offers users “No License Required Vehicles.”
Excerpts from one direct-to-seller website markets the dream of owning a salvage-titled luxury vehicle, by stating, “The direct purchase of salvage vehicles with titles is totally reliable and is available to everyone. Acquiring luxury cars, family cars, or collectibles, whatever car you have always wanted, is today a reality and not just a possibility. All vehicles purchased through our website are for export to any country. You will find vehicles recovered by theft, loss, flood, used without any history of damage, new with zero mileage.” They also assist with transport, documentation, titles, cleaning, shipping insurance, and more.
Another salvage finder service says, “America is a big place to search for that auto salvage deal. Thank God we have the Internet and ‘this service’ to bring those fantastic auto salvage auctions into your home for vehicles both here in the USA and other places around the world. With a bit of research you could be buying that ideal motor either to drive or make a profit from, where you can keep more of those precious dollars in your pocket. Many of these auto salvage auctions may be closed to the public, so we bid on your behalf to your instructions. Sometimes vehicles here in the United States cannot be titled again, however these autos could be bought to be exported out of the USA or used for parts with the correct license to do so.”
To the international buyer, all this can be very attractive.
Of course, there are unscrupulous reasons for buyers from other countries to tap the U.S. salvage markets. Without providing specifics, international auto theft, insurance fraud, and title fraud are crimes facilitated through salvage vehicles acquired by some international buyers through domestic salvage auctions.
The international market is big business. Profit is a strong motivator for companies that facilitate the sale of salvage-branded vehicles, whether or not the auto auctions or private companies buy directly from insurance companies, banks, and dealers specifically for exporting.
What is one to do? First, changing and effecting laws and regulations is a process that starts with education. We can educate lawmakers on Capitol Hill and on the state level about the parts of this problem that can be regulated in the United States. Joining Automotive Recyclers Association and your state association is a first step. But change only comes with active participation by the memberships of these associations.
Another proactive tip is to vote for increased financing for law enforcement. The law in your area is probably aware of vehicle fraud happening in your locality, but simply does not have the manpower to combat it.
Remember, there is no such thing as a local auction anymore – be on the watch for loophole-legislation in your state that governs Internet commerce. It only takes one state to create a law that is anti-productive for the industry.
Lastly, auto recyclers who are on the offensive are joining together in creative ways to access salvage such as through co-ops and relationships with insurers. In this economy, those who stay effective and proactive will find ways to rise above the salvage challenge.
Caryn Smith is the editor of Automotive Recycling magazine.
Click to download the full
March/April issue in PDF format