February 2005


Insurance Contract for Obtaining Your Inventory - Blessing or Curse? Part 2 of 3

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. An insurance contract refers to a contract between a recycler and an insurance company for the purchase of wrecked vehicles. Last month, we started the discussion of contracts, which we continue this month.

Some things you should consider if you are thinking about a contract are: Will you be purchasing all of the insurance company vehicles or just some of them? The insurance company is going to want an all or nothing contract, generally speaking. They will be concerned that you will pick the very best vehicles and leave them with vehicles that will no longer bring the average percentage of ACV they were obtaining before the contract. If you are purchasing all of the vehicles will there be any allowances for burns or flood vehicles, or will you pay the full rate for all vehicles? How will you know if you are getting all of the vehicles?

Most insurance vehicles are located at a storage facility or towing company when they are assigned to you. Who will pay the advance charges for towing and storage? Some of these vehicles have substantial charges against them. When the insurance company assigns a vehicle to you how long will they continue to pay storage? Will they allow you three days to pickup the vehicles? Can you pick the vehicles up in a timely manner and avoid additional storage fees? It wouldn’t be unusual to pay out, say, $400 per car in advance charges. Most insurers will reimburse you, but some won’t. If you get just 20 cars per month, and it takes 2 months for the titles to show up, you will have $16,000 in advance charges (by the way, the bookkeeping can be complex for such issues also).

When will the invoice be due to the insurance company for vehicles? Will it be from the date of assignment or from the date the title is received? Often it is 30 to 60 days before the insurance company sends the title to you. This brings up another interesting question: Where will you store these vehicles until you receive the title? In most states you cannot sell the vehicles or parts from them until you have the title. Many states will not even allow you to have them on your facility without a title. Will you rent a separate site to store vehicles on? What if you never get the title for a vehicle? What will you do with it then? You must keep them safe, as sometimes owners will claim them.

Don’t forget to subscribe to Ron's free monthly auto recycling e-newsletter, with news and tips, register at www.autosalvageconsultant.com.

Remember, only you can make BUSINESS GREAT!

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, rons@rdsinvestments.com or 817-834-3625 ext 6#.

 


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