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 considering alternatives.
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.