Detailed listings of insurance auctions can increase salvage proceeds – NU PropertyCasualty360 | CarTailz

Thanks to a combination of stratospheric vehicle repair costs, increasing acceptance of online auctions, and a growing number of bargain hunters looking to bid on expensive or hard-to-find parts, the salvage market is thriving. But it could be a lot better. (Photo courtesy)

One of the most shared viral images from Hurricane Ian was a photo of an ultra-rare McLaren P1 submerged up to the windshield in flood water after swimming out of its owner’s garage. The highly collectible car only had 300 miles on the odometer and was valued at more than $1 million, but it’s now likely on its insurer’s books as a total loss.

But the term “total loss” is a bit of a misnomer given the potential revenue the car — and thousands of other mainstream vehicles damaged during Ian — is generating in the burgeoning salvage auction market. These marketplaces, which list and sell the vehicles that insurers deem too old to repair, generate huge revenues for insurers. For example, Copart, one of the largest players in vehicle recycling and marketing, had sales of $2.2 billion in 2020.

Thanks to a combination of stratospheric vehicle repair costs, increasing acceptance of online auctions, and a growing number of bargain hunters looking to bid on expensive or hard-to-find parts, the salvage market is thriving. But it could be a lot better.

In its current form, the typical insurance bailout is a naked affair. Many still appear offline in huge lots filled with crashed cars and vehicle wholesalers. Those that have leaked online often only contain basic information and a photo or two of the vehicle, without much detail about the features and options it may contain or the extent of damage sustained.

Contrast this approach to the growing trend in the consumer market towards online car auctions, which contain an obsessive amount of detail about each vehicle. Online car auction site Bring a Trailer, for example, which sold $828.7 million worth of cars in 2021, dwarfing the combined sales of older collector car auction houses like Mecum Auctions or RM Sotheby’s, typically offers more listed as 200 to 300 photos of each vehicle along with full-featured descriptions of every inch of the car. Similarly, the tried and tested formula on every eBay Motors, Craigslist and Facebook Marketplace vehicle sales page is: more, more, more. More details plus more photos and videos means more money.

This shouldn’t come as a surprise. The 2020 Nobel Prize in Economics was awarded to Stanford economists Robert Wilson and Paul Milgrom for their improvements in auction theory. Among their key findings, auctions that link descriptions of the value of items at an auction generate more and better bids, resulting in higher overall auction transactions.

JD Power recently tested the theory in a pilot study involving real salvage auction bidders, and the results were consistent with Nobel Prize-winning research. As bidders had more detail on the vehicle’s exact specifications, including VIN-level details on specific features and options and the configuration of that individual vehicle, the total number of bids and average selling price consistently increased.

Which brings us back to our Florida McLaren. The car is likely to show up in a salvage auction soon, and the difference between recovering the lion’s share of its $1 million+ insured value or claiming a “total loss” will go into the details. Is its active rear spoiler, which provides additional downforce under hard braking, still functional? Are the 24k gold heat shields intact? Or in the case of the thousands of more mundane but no less profitable Toyota Camrys and Nissan Altimas that sustained flood damage during Ian, what specific configurations of options and features do they have?

The rescue game is an exercise in detail. In order to maximize profits, both buyer and seller must scour every nut, bolt and component to find the money makers and make that information available to the widest possible list. Detailed, actionable, and instantly identifiable vehicle data is key to unlocking this potential.

Marty Ellingsworth is Executive Managing Director of Global Insurance Intelligence at JD Power.

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