U.S. auto parts recyclers say online auctions have broadened competition for salvaged vehicles to their detriment.
Insurance companies used to have contracts directly with local automotive recyclers for vehicles that were declared total losses following crashes. Now, insurers primarily work with online auction companies, such as Copart and Insurance Auto Auctions, and recyclers must bid on the vehicles, competing against other automotive recyclers—whether local competitors or those in other states—as well as with auto rebuilders in other countries.
While recyclers have benefitted in some ways from the growth of online auctions, some say they also have had negative effects on the automotive recycling industry.
Sandy Blalock, executive director of the Automotive Recyclers Association, Manassas, Virginia, says online auctions have expanded automotive recyclers’ pool of vehicles because they can buy from outside their own markets.
But that advantage has an associated disadvantage.
“The biggest problem you have is you can’t get up close and personal and actually verify that what that picture looks like is actually what you’re getting,” she says.
Blalock says it’s not uncommon for people to purchase wrecked vehicles, make some cosmetic upgrades often using aftermarket parts, and rerun the vehicles back through the auctions.
Norman Wright, owner, and CEO of Stadium Auto Parts, Henderson, Colorado, also mentions incidences of what he calls fraud on the auction sites.
He says Stadium bought a 2021 Mercedes van with 24,000 miles from an auction site and found it wasn’t what he and his team expected. “Since you can’t really go down and look at these vehicles, you’re doing it from pictures online,” Wright adds. “We assumed we had a good product. When it came back, the transmission was missing … and they put in an old engine.”
Because vehicles are sold as is in the salvage pools, Wright says he “had no recourse for fraud.”
Auctions also have increased the number of bidders on salvage vehicles and their geographical reach.
“We’ve got people from all over the world buying local automotive recycler’s salvage in the United States,” Blalock says. “And some of them can afford to pay a whole lot more money for those cars because they have a larger value in the marketplace they’re taking it to and that’s including shipping it there.”
She adds that her biggest concern for the automotive recycling industry is that companies are forced into competing for savage at artificially high pricing because they are bidding against people who aren’t in the same business, “so, they can afford to pay more money.”
Wright says insurance companies are seeing a greater return on their salvage vehicles because the online auctions have opened up the salvage pools “to anybody who wants to buy.”
“Now, we’re competing against not only each other but we’re also competing against what we call rebuilders who buy these cars to rebuild them and then resell them,” he says.
In the last eight to 10 years, Wright says, the number of rebuilders who export cars from the U.S. to other markets, such as Mexico and the Middle East, has grown. He estimates from 30 percent to 40 percent of the salvage vehicles sold on auction sites are exported from the U.S.
Blalock says she suspects the auctions would confirm 30 percent of the salvaged vehicles they sell are purchased by international buyers. “A good 30 percent or more is purchased by people who are not auto recyclers but rebuilders, and then 30 percent are auto recyclers,” she says. “Basically, we’re one-third of their customer base.”
The wider competition for local automotive recyclers’ salvage vehicles has raised the prices auto recyclers have to bid to secure inventory. But that’s not the only escalation that has occurred, Wright and Blalock say. The fees the auction companies charge buyers also have increased.
“At the end of the day, all the auctions are in the business and making money,” Blalock says. “And it’s a very competitive market because they’re competing against each other … for those cars. And, of course, the way that you maintain that position is by it costing the insurance companies less. And so they have to make that money up somewhere.”
She says buyers are paying a growing array of fees, including a pull-out fee to remove the vehicle from the auction and a fee to pay via check.
“The thing I get the most complaints about from our members is the fees that they’re paying at the auctions or that a new fee has all of a sudden appeared,” she says. “That is a very big, big concern for our industry.”
Wright says when the fees and higher prices of the vehicles are combined, his cost of goods as a percentage of his overall expenses has grown from 25 percent to 30 percent to nearly 50 percent to 55 percent. “It’s so much pressure on the recycler to continue operations as our margins continue to shrink,” he says.
“And the other dilemma is there are only two realistic salvage pools left,” Wright adds, citing Copart and IAA. “And those two companies probably control 90 percent of the insured local automotive recycler’s salvage, so there are no other alternatives for us.”
Blalock says Copart and IAA are supportive of the automotive recycling industry and are associate members of the ARA. “I don’t know how we have any influence over that business model other than maybe sit down and talk with them and see if there isn’t something we could work out,” she says, adding that the ARA intends to sit down with leaders from the auction companies. “We need to sit down and see if there isn’t some consideration they could be giving with the true licensed professional auto recyclers that are buying cars from them.”
Blalock says smaller family-run auto recyclers, which at one time were the heart of the industry, are the companies most affected by the growth of the local automotive recyclers’ salvage auctions. “They’re having to pay those buyers’ fees, and it takes away from their buying power for the salvage they need to be profitable in their businesses,” she says. “It’s very sad to think that we might lose an entire segment of our industry just because they can’t afford to compete and pay not only the prices but all the other associated costs of getting cars.”This article initially appeared on Recycling Today