The Expert Podcast

Here we go again with more flood cars. You know, four or five months ago we had Hurricane Ian and another storm hit Florida. A lot of the cars were flooded, and within three or four weeks, we started seeing these cars show up at Copart or IAA. These insurance cars were sold many times with parts-only titles, certificates of destruction titles, or other types of branded titles. Even if it's salvage, that creates a title problem, and we'll talk about that in the video. But here we go again. California had some floods that maybe didn't get the same level of notoriety that Florida did, but these cars are going to be coming out in the marketplace and at these salvage auctions. Sometimes they don't appear to have the same kind of damage as a collision.

Look, if a car is in a front-end collision or hit hard, you're going to see the damage—the fender will be crumpled, sheet metal is damaged, and glass is broken. That's obvious to see. These flood-damaged cars, once they're drained and dried out, have no physical damage that is observable. A lot of times, they'll hose out the inside so you get the mud off. You might have a musty smell and you might get some warning lights on the dash because sensors and computers are corroded, but the car looks like a regular car. Right? So when buyers look at these cars at the auction, especially since many of these auctions are online now, you're just looking at it on a screen. You're not physically seeing the car on a sale lot. Sometimes buyers will pay way too much for these cars. You have to look at the title record. If it's a salvage, even if it's a salvage title, you still have to get the car inspected before you can title it.

Right, and you might think, "Well, it doesn't need any repairs." Well, it doesn't need any physical repairs, but that car still has to pass the safety inspection. An inspection for a salvage is different than an inspection for just emissions or a safety inspection. They're going to go through and check everything to make sure the airbag sensors are working, to make sure there's no corrosion on critical items like the anti-lock brake tabs or the collision tabs. Look, in the front bumper of every car, there are little sensors that trigger airbags. If those sensors are corroded, the car is not safe for the road, and the inspector is not going to approve that car for the road. That means you can't get a title, even if in theory you can say, "I fixed the car." The computers on these cars, which are usually under the seats in low areas, are often flooded. They could cost three or four thousand dollars a piece. Airbags can cost two or three grand a piece.

Just because the fenders aren't smashed doesn't mean it's easy to fix. Many times, the more expensive things are things that are not physically viewable. Right? A wiring harness—look up the cost of a wiring harness for a car. The car in this video, you can't tell, but it looks like about a 2008 or 9 Honda Civic two-door, probably an EX based on the molding and the sunroof. Go look up a wiring harness for that car. It's probably a $1,500 to $2,000 wiring harness, plus the labor to replace a wiring harness, which is probably at least as much. Is it worth five grand to fix that car to get it on the road? Probably not.

The worst problem is many of these cars that are sold won't even have a salvage title. It'll just say "parts-only" or "junk" with a certificate of destruction. And you might look at it and say, "Hey, there's nothing wrong with this car! Why does it have a junk title? I can fix it." Well, whether you can fix it or not, the insurance company might not care if you can fix it. They might just say, "We don't want you to fix it. We don't want it back on the road because, even though you kind of fix it up enough to get it through inspection, the frame is corroded, the connectors maybe have rust on them. At some point down the road, it could be two years, three years, five years, this car is going to rust apart, and it's going to fall apart on the road. And if somebody gets hurt, they're going to come back and sue us, the insurance company, for letting this car go back on the road. So you know what? We're going to say it's a junk car, even if it doesn't look like junk today. We know at some point in the future it'll be junk, and that protects us from liability. We wash our hands of it. We have no liability or consequence down the road."

So you have to be aware, as a buyer, that many of these cars at the auctions, Copart and IAA, are impossible to put back on the road. Because first, the paperwork might just say so. But even if it's a salvage title and the record says salvage, practically, you might not be able to ever get it on the road because the repairs that are required might be excessive. The repairs that are required are not your decision; it's the decision of the inspector. Because that inspector, when you bring it to them, is going to look at the original damage history and say, "This is a flood," and they're going to look at all the things that they know a flood car is going to need—sensors, computers, airbags, anti-lock brakes, corrosion on critical parts. And they put their car on the lift, they go through with a fine-tooth comb. If they think that car is going to be a potential for risk, they're going to do the same thing the insurance company could have done: it doesn't go on the road. End of story.

So even though it seems like a good deal, fixing it is not going to be practical. And even if you do fix it, the market value of the car with a salvage brand on it, which stays on it forever, is maybe 30 or 40 percent less than the book value. So by the time you take the 40% off the value, the repairs you put into it, what you paid, it's a loser deal. The only people that are making money on these cars are parts companies. A company that buys this Honda Civic that's a submarine right now for 800 bucks or a thousand bucks, whatever it sells for, they have maybe five grand worth of parts. You have six pieces of glass that are all good, you have a sunroof, you have all the body panels you can sell, you probably have an engine that you can sell, transmission, driveline. So by the time they take the car apart, they might have seven thousand dollars worth of parts, maybe two thousand in labor to take it apart, dismantle it, and ship the parts to where they go. And now you can make a profit.

If you try to go the other way and make it into a car, you're going to lose money. But if you spend pennies on the dollar to buy it and then take it apart and sell the parts, you can make money. But that's only going to work if you have the facilities and the network to make that car into parts. The car behind it looks like a Dodge Durango—might be a Jeep, but it looks like a Dodge Durango. You can't really tell the grill because it's underwater. Same thing. That car, as a vehicle, as a 10-year-old vehicle, you know, may only be worth three or four grand wholesale. And even if you can get it for 500 bucks, you're never going to be able to spend enough to get it on the road to make money. But as a parts car, you have four doors, a tailgate, a front clip that's in perfectly good shape, you have axles, you have wheels, you have an engine. Now, you're having money.

So don't try to fight against the parts companies to put a car on the road when that vehicle really has no business being on the road, especially in a profitable manner.