The Expert Podcast

So, have you been buying vehicles at Copart or IAA with salvage titles, or maybe buying through a broker like Bidmas Auto Bid Buy with salvage titles? Well, those days might be over if the insurance companies have anything to say about it.

A salvage title is a document that indicates that an insurance company has paid a total loss claim on a vehicle. What it means is that if somebody's car is stolen, wrecked, or flooded, the insurance company pays a claim to the owner for the full amount of the car. When that happens, the insurance company becomes the owner of the car. They take possession of the car. It's not like an insurance claim where they pay to have your car fixed. If your car gets crashed and needs a new fender or repairs, you keep the car. They pay you the amount to have the body shop fix it, but you keep the car. A salvage title is when the insurance company takes ownership of the vehicle. Usually, it's when there's a very high dollar amount claim, a total loss, or if the car is stolen and they have to buy another car for you.

Now, what happens is that when these cars are owned by the insurance company, the insurance company doesn't want cars. They're not in the business of collecting vehicles, so they sell them through an auction like Copart or IAA. Now, what's happening is that many of these vehicles can be repaired, fixed, and put back on the road, but the insurance companies more often don't want these cars on the road. So, what do they do? Instead of giving you a salvage title, they give you what's called a junk title or a parts-only title. Some states call it different things, like a Certificate of Destruction (that's Florida); what they call it in Texas is a non-reparable title. Every state has a different phrase, but some states don't call it anything. They just don't give you a title; they just give you the car and a receipt.

What does that mean? Well, when that happens, that serial number, that VIN number, the Vehicle Identification Number, is entered into a federal record system called the National Motor Vehicle Title Information System. Once that's done, that VIN number is no longer eligible for a title in any state. It's a permanent designation. Cannot be undone, cannot be withdrawn, and cannot be revoked. That VIN number can't be used to title or register a vehicle ever again in all 50 states plus Guam, Puerto Rico, and Washington, DC. It's a nationwide ban.

Why would the insurance company do that? Well, because when those salvage titles are fixed up and put back on the road, it creates a liability for the insurance company. Hear me out. Let's say that you buy a car at Copart; it's a salvage title. You fix it, and you put it back on the road. Maybe you sell it to somebody. Maybe they drive it for a few years, and then they sell it to somebody else. It could be 5 or 10 years later. Suppose that car gets into a collision and gets into an accident. If somebody gets hurt in that accident, the legal representative, the attorney, and the lawyer for that injured party are going to look back through that car's history and find out, "Hey, this car was owned by an insurance company 10 years ago. They paid a claim on it, and instead of junking it, they resold it to get money, and now it went back on the road. We're going to say that that car was dangerous to be put back on the road, and we're going to sue that insurance company.".

So, the insurance companies are more often seeing that they don't want that liability. So, they just slap a big stamp on it, "Junk Parts only," don't title it, and ban it from being titled ever again. So, that's different from salvage. A salvage title vehicle can be fixed up, inspected, and put back on the road. A junk title, parts-only title, or non-reparable title cannot be put back on the road.

So, how is this going to affect the future market? Well, the insurance companies are finding out they get about the same amount of money at Copart, IAA, or these other auctions for a junk title versus a salvage title. They don't get that much less in return. So, they're starting to put this on more and more vehicles. In fact, we estimate that within a year or two, all vehicles will be parts-only and get sold at these junk salvage auctions. There will be no more salvage titles. And in furtherance of that, we're even seeing many states DMV, Department of Motor Vehicle, inspection policies already starting to reject salvage title inspections. Even if you fix it up 100%, you fix everything on the list, and you have all your receipts, they're starting to reject almost every application for a salvage title because they don't want the cars on the road either. They consider them ineligible for road use once it's been totaled.

Now, what about cars with minimal damage? You may find cars at Copart or IAA that seem like they don't have a lot of damage on them and they're salvage or junk. What's up with that? Well, here's what usually happens. Usually, it was a recovered theft. The car was stolen, and after 30 days or 45 days, the owner says, "Hey, I want my car. Stolen, they didn't find it. Give me my money." So, their insurance company, think about Geico, Progressive, or any of the insurance companies, says, "Okay, your car's stolen. Here's your money for your car." They give you your money. But then, at some point later, the car turns up. It's recovered. Maybe it gets pulled over, and then the police see it. Or maybe they find it in a parking lot. Well, now what does the insurance company do? Well, now they have the car. They have already paid the claim. They can't give the car back to the owner. So, now they sell it at Copart.

Well, why not sell that as a clean title or a salvage title? Here's why. They don't know what was done to the car. They don't know if the airbags were stolen. Look, you can take out the airbags in a car and sometimes get $10,000 for all the airbags in the car. So maybe the car thief stole all the airbags. Maybe it was driven really fast over railroad tracks, and the frame got bent right there. There could be unseen, unknown damage. So, the insurance company doesn't want to mess with it. They don't want to do the inspection. They just sell it as parts-only because they don't want the headache, and they don't want the liability. It may seem like a waste of money, but the insurance company doesn't care because most of the cars at Copart or IAA get bought by people who take them apart for the parts anyway. The only people really making a lot of money on cars at Copart are parts dismantlers. They take that car, they take it out into the major component parts—the engine, transmission, body panels, computers, and airbags—and they dismantle it. They put all those parts in a warehouse, and they make millions of dollars selling those parts. So, the insurance company doesn't care who buys it, and the parts companies are buying them for more money than a typical buyer trying to fix it up. So, that's an example where the car might have no damage.

What about a flood car? A car could be flooded with no physical damage. It gets dried out and sits in a parking lot. Yeah, it might smell a little musty, and it might seem like there's some surface rust on the brake rotors, but if it's not physically damaged, that's parts-only.

So, the takeaway of it is that if you are looking at cars at Copart or IAA, expect that over the next couple of years there will be no more salvage titles, all parts-only. And if you have purchased a parts-only vehicle, that's a federal law that no state in the country is allowed to issue a title for it, period. And even if somehow a state accidentally issues one, it'll get revoked once they find it in the system. It'll get revoked. Stay away from the cars unless you want to take them apart and sell the parts. You know, we get dozens of calls every day from people who have accidentally purchased one of these parts-only vehicles, and now they don't know what to do, and now they're stuck, and they're panicking that they lost all their money. So, if you don't see a clearly salvaged title on the auction, don't buy it because you may be out of money and not be able to get a title for that vehicle.