We’re Seeing A Record Number Of Total Losses; Why Are Salvage Prices Increasing?
The pandemic has had several effects on the collision repair and insurance industries.
First, we are still coping with parts shortages from OEM and aftermarket parts suppliers. Also, we’re seeing evidence of vehicles being totaled by insurance companies below the traditional thresholds. So, this should be good for the salvage parts companies that supply harvested salvage parts to the repairers, right?
In a word: No. With carriers totaling out cars below the traditional or state-required thresholds, this means that these vehicles are very attractive to vehicle rebuilders, both domestic and overseas. Carriers are getting record high values, but those vehicles are not bought by traditional parts-harvesting salvage companies, but by the rebuilders, who in turn purchase harvested parts that would normally be sold to body shops performing repairs for insurance claims.
When the incoming supply is reduced from normal amounts, and the parts already in the parts harvester’s inventory are being purchased for rebuilding rather than insurance repair, we see reduced supplies leading to increased prices.
When will the situation improve for salvage parts used for insurance repair? As new OEM production ramps back up and as the microchip shortage and assembly lines start humming again, the demand for rebuilt salvage vehicles will decrease. With lower demand for rebuilt vehicles comes lower prices for those vehicles. Lower prices mean less profit for rebuilders, and they will be less likely to bid up salvage parts, providing more opportunities for parts harvesters to buy those total loss vehicles. Predictions for when this will happen vary, but most agree it will be in the later half of this year.
Greg Horn is PartsTrader’s
Chief Innovation Officer.