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ARA Home > Automotive Recycling Magazine > March-April 2011 >Special Report on Salvage: Stakeholder Perspective
 
Special Report on Salvage: Stakeholder Perspective
Views From Experts of the Salvage Industry Marketplace
Automotive Recycling magazine, in an effort to fully understand the issues surrounding the current marketplace of salvage and allow for varying opinions on the topic, sent questions to seven varying industry stakeholders, all who are members of the Collision Industry Electronic Commerce Association’s (CEICA) Salvage Committee. Here are three responses with their perspective on our questions. We appreciate their participation.

Copart, Inc.

Automotive Recycling (AR): What are the challenges of selling and buying salvage vehicles electronically?

Copart: Our belief, backed by over 7 million vehicle sales, is that the majority of buyers prefer the ease and convenience of buying online rather than the drudgery of attending old-fashion physical auctions. The vast selection of vehicles available online combined with superior search technologies appeals to the broad range of salvage buyers. This diversification of the buyer base is what also attracts sellers to the platform to realize maximum vehicle potential.

That said, while online auctions provide ease and convenience to the overall process, it doesn’t offer the buyer the ability to “touch and feel” a vehicle, a purchase, which some buyers prefer.

For sellers, all the major challenges have been resolved over time as the Internet has matured and new technologies have been put in place to replicate the positive aspects of a physical auction while gaining the inherent advantage of online sales.  One such tool is counterbidding, where the seller can, in real-time, counter an offer on a vehicle during the auction process just as if they are at a physical sale with the bidder. However, because the sale is online the bidder and seller can be hundreds or thousands of miles apart.

AR: Do you plan to create a “standard condition report” (insurance damage information) beyond the current information provided (photos/VIN number) to assist all customers in their buying decisions? 

Copart: Copart currently provides detailed vehicle information for buyers, including AutoCheck vehicle histories on clean titled vehicles. In addition, Copart has independent inspectors available to potential buyers who inspect and report on the condition of any vehicle. We will also be piloting standard conditions reports in some markets to gauge buyer interest.     

AR: What is the current percentage of salvage units sold and transported outside of North America (a 2008 reference article sites the number at 25%, has that increased)?

Copart: The percentage of vehicle purchased by non-USA based buyers has remained relatively constant. These buyers tend to buy late model rebuildable vehicles and use the arbitrage of the labor markets to repair the vehicle at attractive price points.

AR: How has the purchase of salvage moved toward a paperless model? What challenges or advantages has that created?

Copart: The move to paperless title processing is more of a topic of conversation rather than a project achieving serious attention at the state level. Many states are financially strapped and currently not investing in new systems regardless of the long-term benefits, therefore the move to paperless titles processing has really stalled. The only movement we see is that since states are struggling, some are allowing or considering allowing outside agencies, such as title agencies or salvage pools, to process and print titles on their own without state involvement. This speeds up the sale process and provides the state with a clear audit trail.

AR: What standards does your company see as important in the sale of salvage? Is a universal protocol for the sale of salvage across networks a goal?

Copart: Copart believes in fair and accurate disclosures to potential bidders of a vehicle’s damage, its history and its current title status. Copart also believes any bidder who wants to inspect a vehicle should be able to, which is why we are open for vehicle preview every day of the week. All bidders should be treated equally when it comes to information disclos-
ed, access to the vehicle, open bidding platform, and integrity throughout the auction process. Lastly, we believe an important aspect in the sale of salvage is providing an easy, hassle-free experience when buying and selling through our auction platform.

AR: How has NMVTIS impacted the sale of salvage?

Copart: The goals of NMVTIS are really what Copart has always envisioned for salvage. Honesty, full disclosure, and transparency in the products we sell. NMVTIS sets a precedent for ALL salvage sales and will only help in tying authenticity to the salvage industry.   

AR: How has salvage processing changed in recent years?

Copart: Salvage processing has become a more integrated process with our insurance clients. Insurers have realized that by partnering with a supplier, efficiencies can be maximized. We work much more closely with our vehicle supplier today throughout the total loss process than ever before. I think the level of importance in these partnerships will only increase in the future.

AR: How did the Cash for Clunkers program impact the salvage markets?         

Copart: Cash for Clunkers produced a small and short-lived influx of vehicles into the salvage market, during which these vehicles were processed quickly within the capacity of the industry. While the salvage industry saw the immediate effects of the Cash for Clunkers program, there was very little, if any, long-term impact on the markets.          

AR: How has the growth of donation car programs changed or impacted the salvage markets?

Copart: Our buyers report that donation vehicles are a valuable alternative to insurance salvage. Though many of the vehicles are older or have higher mileage, many buyers are attracted to undamaged vehicles either for the resale potential or to harvest additional parts. Overall vehicle donations have slowed in recent years, ever since the change in the tax law regarding deductibility. But as a whole, donations have been – and continue to be – a valuable part of the salvage industry.

AR: Any additional thoughts or insight?

Copart: The salvage auction industry has come a long way. Gone are the days of the dog and pony show; welcome are the days where vehicles come and go on the auction block in a mere matter of minutes, which can be attributed to the introduction of the Internet. For vehicle auction companies, the Internet opened a new avenue for accessing customers and markets that couldn’t before be reached. This idea has revolutionized the industry, creating speed of sale and ROI that is unrivaled by the physical auction. The online salvage auction now allows global buyers to window shop through their computers and gives sellers a more competitive edge in terms of sale price. As for the future of salvage auction, Copart believes strongly that online auctions will eventually become the only kind of auction.

Copart, Inc. is a provider of online auctions and vehicle remarketing services in the United States, Canada, and the United Kingdom. It provides vehicle sellers with a range of services to process and sell vehicles over the Internet through its Virtual Bidding Second Generation Internet auction-style sales technology, which it refers to as VB2. Sellers are primarily insurance companies but also include banks and financial institutions, charities, car dealerships, fleet operators, vehicle rental companies, and the general public.


State Farm / Don Porter

Automotive Recycling (AR):
What are the challenges of selling and buying salvage vehicles electronically?

Don Porter: At State Farm® our focus is on the ability to provide accurate and reliable information about our salvage vehicles during the sale process. We believe the ability to provide potential buyers with accurate vehicle information and quality photos will help improve the return on our salvage vehicles.

AR: Do you plan to create a “standard condition report” (insurance damage information) beyond the current information provided (photos/VIN number) to assist all customers in their buying decisions?

Porter:
We are constantly evaluating the effectiveness of auction facilities in the disposition of our vehicle salvage. Our goal is to constantly seek out innovative tools and processes to enhance the quality and quantity of information provided to salvage buyers. Information such as VIN Decoding for options along with a standard condition report that includes after factory items added to the vehicle are two examples that are being pursued within the salvage industry.

AR: What is the current percentage of salvage units sold and transported outside of North America (a 2008 reference article sites the number at 25%, has that increased)?

Porter: At State Farm, we do not have information about the percentage of salvage that is being exported outside of North America. We believe that while the sale of salvage to buyers who export outside of the U.S. is beneficial there is also a balance needed to help ensure that the supply of recycled parts in the U.S. is not adversely affected.

AR: How has the purchase of salvage moved toward a paperless model? What challenges or advantages has that created?

Porter: We believe that as the salvage industry integrates technology and automation into their processes, there are benefits associated with moving to a paperless process. The ability to secure and transfer vehicle titles electronically will also help with a paperless process. Also, the achievements made through the application of CIECA data exchange standards are helping to improve electronic commerce abilities within the salvage industry.

AR: What standards does your company see as important in the sale of salvage? Is a universal protocol for the sale of salvage across networks a goal?

Porter: As we indicated earlier, our focus is on the ability to provide accurate and reliable information about our salvage vehicles during the sale process to help improve the return on the disposition of our salvage vehicles. We know that buyers in each market have unique needs, and our approach will continue to be to understand the needs of the buyer in each market. Additionally we believe a focus of the auction facility should be on ensuring that salvage vehicles are secured and protected from additional damage from the point of pickup by the auctions through the delivery of the vehicle to the buyer.

AR: How has NMVTIS impacted the sale of salvage?

Porter: While the reporting requirements are beneficial for consumers, we believe the requirement does not fundamentally change the disposition process for salvage.

AR: How has salvage processing changed in recent years?

Porter: Our observation is that the processing of salvage is a dynamic process that has changed over time. We are aware that salvage auctions are continually looking for new and innovative processes to attract new buyers and increase revenues. One change that we have observed is that specialty vehicle auctions are being introduced throughout the U.S. in an effort to more appropriately match the buyers to certain types of salvage.

AR: How did the Cash for Clunkers program impact the salvage markets?

Porter: Our experience during this program was that the number buyers and the quality of the buyer base attending auctions appeared to be adversely impacted due to the influx of direct purchases of the “Cash for Clunkers” vehicles by some recyclers.

AR: How has the growth of donation car programs changed or impacted the salvage markets?

Porter: While the growth of donation car program may not have a significant impact on the salvage market, our focus remains on the ability to provide potential buyers with accurate vehicle information and quality photos to help improve the return on our salvage vehicles.

Donald C. Porter is a property and casualty claim consultant in State Farm Insurance Company’s corporate office in Bloomington, Illinois. He is a graduate of Texas Tech University in Lubbock, Texas. Don holds the following designations: Chartered Property and Casualty Consultant; Chartered Life Underwriter; Chartered Financial Consultant; Fellow; Life Management Institute; and Fellow, Financial Services Institute.  Don has in excess of 33 years in the insurance industry. Don has served as a Property Consultant, a Catastrophe Consultant, and an Auto Estimatics Consultant for State Farm during his tenure at State Farms Corporate Headquarters. His current responsibilities include automobile estimatics, salvage processing, and auto recycling. He is involved in a number of collision and salvage industry associations and is an active participant on various industry committees. He proudly serves on a number of CIECA committees.


QRP Midwest / Mel Hunke

Automotive Recycling (AR): What are the challenges of selling and buying salvage vehicles electronically?

Mel Hunke: Viewing quality pictures that show as much of any damage as possible is important. Pictures will never replace on-sight inspection by a buyer who has specific parts needs on a specific piece of salvage and will need to look closely and pass judgment on those parts. This most important element is what dictates the buyers bid range.

AR: Do you plan to create a “standard condition report” (insurance damage information) beyond the current information provided (photos/VIN number) to assist all customers in their buying decisions?

Hunke: ARA, CIECA, Collision Industry Conference, and ARA University are the bodies currently working in ongoing committees to standardize how damage is described. They need to coordinate their efforts to avoid redundancy and conflicting standards.

AR:
What is the current percentage of salvage units sold and transported outside of North America (a 2008 reference article sites the number at 25%, has that increased)?

Hunke: Who would know for sure? Several industry analysts suggest a higher percentage, up to 40%.

AR: How has the purchase of salvage moved toward a paperless model? What challenges or advantages has that created?

Hunke: The Internet-based challenges include response to question #1. In addition, the development of relationships with other stakeholders is basically eliminated.

AR: What standards does your company see as important in the sale of salvage? Is a universal protocol for the sale of salvage across networks a goal?

Hunke: Insurance companies control the disposal of their salvage; they also locate and price most of the late model used parts for the repair of vehicles they insure. Therefore they establish the financials on both ends of the salvage process, disposal at the pools, and part value at the sales counter. There is some movement by insurance companies to return to contracts with networks and individual recyclers.

AR:
How has NMVTIS impacted the sale of salvage?

Hunke: There doesn’t seem to be any negative impact other than the additional time required to manage the paperwork. The impact for recyclers is good in the end because it will accomplish minimizing the movement of illegal parts in the marketplace.

AR: How did the Cash for Clunkers program impact the salvage markets?

Hunke: It was generally good for those who participated. It increased the salability of some part types. It also seems to increase the cost of current salvage in the pools.

AR: How has the growth of donation car programs changed or impacted the salvage markets?

Hunke: Donation units are so minimal in our trading network that we don’t feel the effects.

Mel Hunke is the QRP Midwest general manager. He has fifty years in the auto body repair industry, eleven of which were teaching the trade in a Technical College, and ten years spent training insurance adjusters and adjusting storm damage claims. For six years, he has been working with the QRP Midwest trading network of auto recyclers. The members of the QRP networks are looking for salvage cars and trucks to purchase direct. QRP networks offer a simple way to present parts vehicles to the member’s area QRP partners in order to solicit independent confidential bids for salvage.

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