What is the value of a salvage title vehicle?
CrashCalculator has completed a comprehensive analysis on the impact of salvage title brands on repaired and damaged vehicles. In this study, over 5 million wholesale vehicle transactions were used to identify trends in value diminution associated with salvage (rebuilt) title brands.
- Rebuilding salvage branded vehicles (even to factory specs) has a negative return on investment
- Luxury Car & Pickup Segments suffer the most from salvage title branding
- SUV and Mid-sized Segments are least impacted by salvage brands
Title Brand Classification
There are different terms associated with salvage branding. These are controlled at the state level and are unique similar to the administration of titles which come in many shapes, sizes and colors and of course prices! For the purposes of this study, only Salvage/Rebuilt/Rebuildable branded vehicles were included and non-rebuildable/parts only title vehicles have been excluded.
Not all states have salvage title thresholds, but those that do range from 60-100% of the Fair Market Value (FMV) of the vehicle which insurance carriers refer to as Actual Cash Value (ACV).
Salvage thresholds are in place to discourage the public from repairing vehicles if the extent of the collision damage is beyond what that state department of insurance deems as safe. In certain states, where collision damage is severe a Certificate of Destruction (COD) is mandated. This requires that the vehicle identification number (VIN) is decommissioned and the vehicle be sold for parts. Insurance carriers favor the term ACV in place of FMV to avoid disputes with their claimants who seek maximum reimbursement (retail) for their total loss. Certain guidebooks are notorious for inflating retail prices through editorial opinion to benefit subscribers. Insurance carriers rely on estimatics data providers to provide total loss valuations that utilize data from various sources to create a published “take price” or actual cash value (ACV). Insurance carriers expend a great deal of energy managing the claims process to reduce their cost to settle each claim. This is most commonly referred to as severity (to make less severe).
Note: in states without a total loss threshold 70% of ACV is generally used as a benchmark.
Scope of data
Vehicles from 1997 to 2013 were evaluated in clean and damaged condition. Salvage title discounts were established by model year. We found that the sample size used was large enough to establish firm trends without granularity of criteria typically used (make/model) for predictive pricing. Transactions were arranged by JD Powers Segment to evaluate how specific vehicle types performed comparatively.
The average discount a salvage title vehicle will experience when compared to clean title is 66%, meaning that the vehicle will only fetch 34% of average wholesale in repaired form. In the chart below, the discount will range from 60-80% depending on the model year data that is weighted by transactional volume. Keep in mind that a 2013 model vehicle with a salvage title is only worth 40% of its wholesale value. Over 5 Million transactions spanning a 10 model years were used to establish the trend.
|Average Selling Price||Discount to Clean|
|Model Year||Clean title, Undamaged Vehicle||Clean title, Damaged Vehicle||Salvage Title||Clean Title, Damaged||Salvage Title|
Damaged vehicles with a salvage title
If you are taking the time to read this article, you are probably in the automobile business or you work for a financial institution. Conventional wisdom tells us that a damaged vehicle should always be worth less than a similar whole car that has been repaired. This is not always true – a repaired vehicle with a salvage title is often worth less than an unrepaired vehicle with a clean title. Parts buyers (recyclers) typically look to buy salvage title vehicles because they do not want to compete with wholesalers and retail dealers that intend to repair and resell to an end user. This audience also includes exporters that have no interest in what the title brand is because the title is simply an instrument needed for the export process.
Assessments & outside factors
This analysis, while not perfect is directionally sound as the data used was significant to establish concrete trends. These trends can & should be used by sellers, buyers and those desiring to appraise a salvage title vehicle. Will there be exceptions? Always, but those have to be managed carefully to avoid financial chaos. First, we have to consider what drives the decision to rebuild the vehicle? It may be an emotional attachment to a particular vehicle, need for that vehicle for work purposes or the perception that there is value in restoring it to roadworthiness. This analysis demonstrates that there is no value in restoring salvage title vehicles and the perception of “getting a deal” is nothing more than illusion! Our perspective is from that of the buyer needing to appraise a salvage title vehicle. There is no guidebook that accounts for this type of stigma.
JD Power Segment Trends
Mid-sized vehicles and SUVs fared the best, seeing the lowest devaluation for salvage titles comparably while Luxury brands & Pickups took the hardest hits due to the cost of repair.
|Discount to Clean|
|JD Powers Segment||Clean Title, Damaged||Salvage Title|
The Salvage Title Factory
Auto Insurers are responsible for the majority of the salvage titles seen on the road today. Most top tier insurance carriers brand 100% of their total losses, regardless of the threshold in the state where the vehicle is resold. This is purely for the purpose of risk mitigation and to avoid class action suits. While the lowest published total loss threshold is 60% of ACV (actual cash value), most carriers will total a vehicle if repairs approach 50-55%. As a result, in states with total loss thresholds on the higher end, many vehicles are totaled for financial rather than legal purposes and are unnecessarily branded salvage.
Conclusions & Recommendations
- Salvage title vehicles should not be rebuilt. Financially, it is not a good investment and there is rarely an exception. States with salvage title thresholds have created them to protect the residents of their home state and the brand effectively carries a significant financial deterrent – value diminution. To ignore it and invest an inordinate amount of money trying to rebuild and restore a passenger vehicle to be roadworthy is not wise.
- Titles should only be branded if warranted. Many insurance carriers over-brand their total losses when the damage is clearly below statutory thresholds. Some states like Pennsylvania require that recovered theft vehicles be branded with a salvage title if a total loss settlement is issued by an insurance carrier. The physical condition of the vehicle does not matter and is not considered? We believe that this is extreme, but the law is controlled by the state and the state wants that vehicle brand to follow that vehicle for the remainder of its life.
- Wrecked vehicles with structural damage (greater than $3,500 as a guide) typically yield better returns if sold unrepaired
- Stigma history, title brands and poorly performed previous repairs are value-killers