This is the first of a three-part article. Watch
for the following parts in the next two months of American Recycler
for the remaining portions.
We get lots of inquiries about the pros and cons of an insurance
contract for obtaining inventory. Also, due to the high cost
of selling through pools, many insurers are considering contracts
again. Likewise, recyclers are looking at their high costs and
An insurance contract refers to a contract between a recycler
and an insurance company for the purchase of wrecked vehicles.
Most contracts require the recycler pay the insurance company
a set percentage of the vehicles’ actual cash value (ACV).
Be careful, this method of purchasing vehicles is foreign to
most recyclers but most insurance companies are very familiar
with it. The best way for a recycler to get a feel for this
method of purchasing is to start recording the ACV of vehicles
they purchase at auction and what the cost was. Many times,
the ACV is shown on the website or paperwork, or you can calculate
it closely by using the highest retail value in an NADA guidebook.
Divide the ACV into the bid price you paid for the vehicle and
determine the percent of ACV the vehicle cost you. Over a period
of time you will be able to determine the average percentage
ACV you are paying for vehicles.
For certain, the insurance company knows what their gross and
net percentage of ACV are for the average vehicles they are
sending to auction. This number is just an indicator, and in
many cases will be higher than the insurance company is proposing
to charge you. But remember, what you pay at auction is for
cars that you select, just the “best” purchases
for you, with the parts you have high demand for.
Next month we will begin the discussion of the pros and cons
of having a contract.
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tips, register at www.autosalvageconsultant.com.
Remember, only you can make BUSINESS
Ron Sturgeon is past owner of AAA Small Car
World. In 1999, he sold his six Texas locations, with 140 employees,
to Greenleaf. In 2001, he founded North Texas Insurance Auction,
which he sold to Copart in 2002. In 2002, his book “Salvaging
Millions” was published to help small business owners achieve
significant success, and was recently reprinted. In June 2003,
he joined the new ownership and management team of GreenLeaf.
He also manages his real estate holdings and investments. You
can learn more about him at WWW.autosalvageconsultant.com He can
be reached at 5940 Eden, Haltom City, TX 76117, email@example.com
or 817-834-3625 ext 6#.