SALVAGE DILEMMA

THE LIFEBLOOD THAT SUSTAINS US IS DRYING UP

The collision repair business and the auto recycling business start from the damaged vehicle. These damaged vehicles have become so sought after as salvage pieces by so many other groups aside from auto recyclers that the result has been to diminish the value of all legitimate stakeholders.

The downward spin off effect has contributed to the current situation in the collision repair business and salvage procurement for auto recyclers.

As Ken Gold states in a letter to the ARA (Automotive Recycling Association) April 26, 2004 “For various reasons the existing situation favors the thief, money launderers, the underground economy and now exporters of salvage overseas.”

Let’s start from the beginning. A vehicle is damaged in an accident. The claims adjuster then does the analysis of the damage and the cost to repair, etc. Then the claims adjuster has another function to perform. The anticipated return of the salvage vehicle through an auction house.

The technology that the auction houses have developed are so advanced that they can predict the average selling price for any particular vehicle. Copart Auto Auctions is a large Auction Corporation with facilities in 45 states and has now expanded into Canada. Copart is the creme of the crop in terms of technology and they are breaking new ground for their primary customers (Insurance companies) with their Pro-Quote Program. This program allows adjusters to type in the year, make, model, acv and repair cost estimate. Their program will query itself and give out an average selling price for a specific car, damaged a specific way in a designated regional area.

Companies like Copart have simplified the way insurance companies can obtain estimated salvage returns and have thereby paved the way to help maximize returns. Will high salvage returns promote write-offs? In my opinion, yes.

Here is the downside:

Auto Auctions don’t care who purchases their vehicles. Why should they? It’s not their problem. They are following the law and conducting business in a legal fashion. The problem is some insurance companies, not all of them, close a blind eye to whom is purchasing their salvage because of the high returns they realize on their salvage.

Why is this happening?

As I stated earlier, thieves, money launderers and the underground economy have a detrimental effect on our economy (the community) in that parts are bought and sold for cash. And therefore no taxes are ever collected. Legitimate auto recyclers do not compete in an even playing field with these other participants.

Also, the auction buying public is not licensed. There is no license to purchase salvage and no regulatory body watching over this area. As a result cars are bought for illegal purposes including VIN switching schemes.

To add insult to injury North Americans and specifically Canadians have a disadvantage in purchasing salvage in our own back yard. Branded Irreparable vehicles are being gobbled up and shipped overseas. Legitimate homegrown business’s can only shake their heads at the current situation because we are unable to compete especially with those competitors who ship their vehicles to countries where government regulations and impediments are non-existent.

The results of this means loss of available parts for the insurance companies to purchase for repairs and loss of revenue for all stakeholders in our industry. Not to mention the loss of hundreds of millions of dollars in taxes the government foregoes due to all above-mentioned scenarios.

So called backyard mechanics that are in both the Collision Repair and the Auto Dismantling business tarnish not only our reputations but also impede our advancement as they continue to get away with sub par and unacceptable business practices. The above-mentioned operations function with substantially less overhead to run their operation. They are therefore ill equipped to comply with necessary regulations that are routine for the professional auto recycler such as fluid evacuation, mercury switches and tire controls to name a few. For collision repairers the aforementioned will operate with lower hourly rates that make it not only impossible to properly function and run the business but also for legitimate collision repairers to compete.

The solution to this dilemma as Ken Gold states in his letter to the ARA lies in education. “We need to educate the government at all levels on what is occurring today in our industry and how it prospers the underground economy.” “They not only need to know this, they want to know. So let’s tell them.”

Ken Gold has always argued for the need for tighter government controls in this area. “The government is not really aware to the extent of what is actually taking place.” This is evident by the lack of policies and regulatory bodies involved.

I believe it is our duty to unify as a group and get involved and send this message to governments on a local and provincial level in order to stem the tide of what is taking place.

I welcome all comments.

David Gold