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Salvage Auctions - are they a fair deal?

Auction at dismantler's site
The auction market has quickly moved from the yard to the computer but has it been good for the industry?
Many of us rely on a supply of good quality breakers to keep our businesses ticking over but there has been disquiet lately about the volume of salvage suitable for breaking and the price it fetches. Many want to know why prices often do not seem to justify the vehicles on offer.

There’s no question about it, the salvage auction has made buying and selling vehicles very easy. The fears in the early days that if you couldn’t see the actual vehicle then you couldn’t be sure of what you were buying have long gone. Now, the vast majority of us are very comfortable buying over the net from reputable auction sites, particularly if we are after a particular make or model. The on-line auction has now become the accepted method for buying and selling salvage and the change is here to stay. As Richard Martin of Motorhog.co.uk told me, “Over 90% of our salvage is now sold through the on-line auction”.

The very fact that good salvage is now accessible to a much greater market inevitably pushes prices up. Throw in regional variations, the higher price that a specialist can pay and the tougher trading conditions felt in body shops and garages, and it is obvious that good salvage will make good money. On the flip side, you would expect poor salvage (suitable for breaking) to make poor money and that’s where the concerns seem to lie.

Many have expressed worries about issues such as Cat B vehicles being bought by foreigners and taken abroad. Don’t forget, Cat B is an ABI insurance category that only applies to the UK. If a Cat B is exported then the status no longer applies. Admittedly, one would expect the insurers to make sure that the companies they deal with have checks in place. There should be an audit trail to ensure that when Cat Bs are sold it is to a licensed ATF and that it has been destroyed. Perhaps some are not being as vigilant as the might be! I know Bluecycle are very strict about this. They make sure that anyone wishing to buy Cat Bs are fully licensed and comply with all the relevant legislation. They must be UK based and they have one month from the sale date to complete the on-line proof of destruction. They go even further than that, visiting yards and carry out audits to make sure that buyers are complying with the ABI code of conduct. We really must remember though, the insurance industry’s code of conduct is no more than that. There is no law that states that Cat Bs can’t be put back on the road. The vast majority of companies with salvage contracts are under no doubt that a Cat B means the vehicle is a breaker and it is their responsibly under their agreements with the insurance industry to make sure they are destroyed. This is the insurance industry's code so it is really up to the insurance industry to clamp down hard where they find outlets only paying lip service to the code, otherwise all the hard work that has been done to improve the image of our industry will end in tatters when horror stories start to appear in the tabloids. Jason Stinson at raw2k.co.uk also feels strongly about the problem. “We won't sell Cat Bs until we have checked to make sure the buyer is fully licenced and is a bona fide ATF. Then, once sold we want to see proof of destruction. Anyone selling Cat B's has a responsibility to make sure that the car is destroyed.” he said.

Buying is now in front of a screen
Buying salvage now takes place, like so many aspects of our business, in front of a screen.
Although there are glaring examples such as burn outs going for very high prices, generally the auction market has made buying far more competitive. As one dismantler told me, if he were repairing a high value vehicle he could, and has paid well over the odds in the past to get a vehicle that has many of the parts he’s after, even though someone buying it as a breaker could not justify the price being paid. It is sometimes hard to appreciate how the same vehicle can be worth a different value under different circumstances. If that circumstance was that a Cat B was going to be repaired rather than broken, then the difference in value could be immense. Mark Schoffield of car-transplants.co.uk also feels this is an area where the ABI should be taking more interest. He is also concerned that too many classification errors are getting through the system allowing Cat Bs to be sold as Cs for example.

The move to salvage auctions has been driven by the insurance industry wanting greater returns for the vehicles they have written off. Many large dismantlers have also moved to the on-line environment as it has proved itself a very successful way to put their products in front of a large audience. Many of us now sell parts (and salvage) on ebay for the same reason. You can reach a much larger audience which increases the chance of finding that customer who wants it more than the next man, and is prepared to pay for it. You only have to look at the art world to realise that any item is worth what someone is prepared to pay.

Looking back to the question of salvage volumes, there are reasons why the volume of good quality breakers seems to be down. For starters the price of fuel has modified driving habits. People aren’t driving as far and they have slowed down to conserve fuel. This has led to less accidents, less damage and hence less salvage. The economic downturn has also led to more competitive quoting by body shops which has also increased the number of vehicles being repaired rather than being written - off.

So what can the dismantler do? Well you have to keep vehicles coming through the yard, that’s for sure. In the short term, to combat higher prices you have to maximise the price you get for the parts so make sure you know the dealer new price and price accordingly. You need to get as much value out of each vehicle as possible and that means looking at the parts you don’t make money out of at the moment. For example, products such as Autodrain’s GlassPopper makes glass and trim removal easy and could lead to product lines which are currently not being exploited. Don’t forget the returns available from un-saleable parts for reconditioning. Companies such as Premier Core make this very easy now with their online system. Finally, make sure you maximise your returns on the recyclable content, whether its the shells, the waste oil or the engines and gearboxes, get the best deal you can find.

In the longer term, there is a much bigger goal for the industry but it involves us all working much closer together. The goal is green parts for insurance repairs. You must be aware that the sales of used parts is just a scratch on the surface of the new vehicle parts market. There is no reason why like quality parts shouldn’t be used to repair older vehicles (over 3-5 years old) and the potential sales in this sector for our industry are huge. If you think it’s impossible, think again. It happens in the States where trade sales account for 95% of the dismantlers’ business and in this country trials with insurance companies are ongoing. Imagine that - a 95% increase in business!

On-line auctions have changed our industry and it is the same technology that also gives us the opportunity to work together, pooling our parts, giving the volumes that would allow body shops to have reliable supplies. Things are moving, in the last issue, Actual Systems explained how their Pinnacle software allows individual dismantler’s inventories to be pooled together. The potential for our industry is huge but we do have to work as one. The only way we can achieve this is to have strong trade bodies such as the Motor Vehicle Dismantlers’ Association which can supply the central services we would need. This is essential if we are going move forward as we can only negotiate the best deals from a position of strength. Membership is key if we are going to operate as a unit and capitalise on these opportunities. More on this potential in the next issue.

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