From Auction to Flip, This Is How a Salvage Car Makes It to Craigslist

Posted on Jun 18, 2015 in Editorials | 2 comments

 

Salvage and rebuilt vehicle listings on Craigslist (and other classified sites) are ubiquitous. They often manifest themselves as late-model metal with low prices and even lower standards of ad copy.

But have you ever wondered how those vehicles end up on Craigslist in the first place? What happens to a salvage or rebuilt vehicle between the time it’s sold at auction and its first appearance on your local classified site?

Before the auction

The perception of a rebuilt salvage car leads many to believe that an unscrupulous someone found a wrecked car, sprayed it with a fresh coat of paint of dubious quality, then listed it on Craigslist. The reality, however, is very different — at least for sellers who are reputable.

After a vehicle is involved in a collision, an insurance company assesses the damage and decides whether or not the vehicle can be repaired within certain financial constraints. If that insurance company deems the damage too extensive (and too expensive), the vehicle’s owner is paid out and the vehicle is sent off to a salvage auction — most times.

In some cases, once a car is deemed a total loss, the original owner may opt to buy back the vehicle before it’s sent to a salvage auction. In the case of modified vehicles, the owner may know full well that parting the vehicle out will net more cash than the cost of the buyback. However, if the owner passes on the buyback option, the vehicle goes off to the auction where it can be picked up by dealers, junkyards, exporters, and even the general public in some cases.

Getting access

My first foray into car sales was in flipping salvage cars. I learned about the insurance auctions from a friend and quickly paid the $200 fee to join Insurance Auto Auctions (IAA) as a public buyer. This type of membership has one main restriction: Public buyers can only bid at locations marked as public auctions. We were lucky in that all six North Carolina locations were designated as public. The majority of the auctions located in neighboring South Carolina and Virginia did not allow public bidders.

Once you’ve found a location that allows public bidding, you can then only select vehicles marked for public sale at that auction. The few clear-title vehicles that come through are usually marked non-public unless they have a current emissions inspection. Public bidders are usually restricted to wrecked or theft recovery vehicles.

The other large salvage auction house is Copart. It has a similar public/non-public setup, but offers a free registration option allowing you to bid up to $1,000 on a qualifying vehicle as long as it’s marked for public sale. If you wish to bid on more expensive metal, you will either need to deposit 10 percent of your maximum bid or upgrade to their “Premier” membership. This membership option costs $200 to start and requires a $400 refundable deposit, but allows you to bid on all qualifying public vehicles.

A few days after I paid my fee to IAA, the registration was processed and I had a login for a national network of auction houses. My father and brother joined in my pursuit and we started the hunt for our first flip.

Kicking tires because that’s all you can do

The run list for each auction site is posted a few weeks in advance allowing you to check out basic information and a few pictures online. Once you’ve selected potential vehicles, you can drive over to the auction site and check out the vehicle in person if it’s close enough. Most of the auction sites only allow a cosmetic inspection and do not allow starting or driving the car even if it is marked as a run-and-drive vehicle.

Each vehicle is different, but they all follow a similar pattern for small-time flippers. Our first vehicle was a 2001 Ford Explorer. It had run into another car and received damage to its hood, grille, right fender, right headlight and front bumper. The body damage seemed fairly light, but the key factor in its low starting price was it being listed as a non-starter. Those vehicles, since mechanical issues are much harder to diagnose during a walkaround, typically garner less interest from bidders, which results in fewer bids and lower prices. We figured it might be a good place to begin our journey since the financial risk was low; the Explorer would likely sell for just a few hundred dollars.

While on site at the auction preview, you should take better pictures and record parts that might need to be replaced. In the case of our Explorer, I started the list with the body parts I had initially recorded and added a few trim pieces we noticed in person. I also inspected the engine and starter for any apparent damage since it was a non-starter, but everything seemed in order from the visual inspection.

This information is used to calculate the parts costs to repair the vehicle and formulate a maximum bid. My starting budget for a salvage vehicle usually started by calculating potential sale value by looking up sale prices for non-salvage examples of the same vehicle and then setting my sale price at 60 percent of that price. In the case of our Explorer, which was going for around $6,000 at the time, we aimed for a post-repair sale price in the $3,600 range. I took out the cost of the body parts, which I calculated to be around $800, along with the cost of a replacement engine if needed, which was approximately $1,100. I accounted for $400 in transportation fees along with $200 for registration. This gave me a $1,100 total bid ceiling if we wanted to break even. We decided to bid up to $500 so as to earn a $500-600 profit.

Putting your money where your mouth (or finger) is

Once you’ve selected the vehicle you wish to bid on, you can show up at the auction in person or bid online from home.

Visiting the live auction gives you a chance to hear and see the vehicle drive through the lane and also allows for a few seconds to make a decision on bidding. Bidding online is a little riskier as you do not get to hear the car, but instead only the voice of the auctioneer. We bid on the Explorer through the online interface since we all needed to work on the day of the auction. Logging in for the first time is confusing and listening to the auctioneer is just about useless if you don’t understand the lingo. However, we were able to secure the winning bid on the Explorer at $400.

We went in blind and now had to pay for the Explorer. The auctioneer could have announced other damage or restrictions, but we had no idea what he was saying through the web stream. During the next few auctions, we decided to go in person to learn a bit more about the process. I highly recommend that anyone starting out should attend in person as much as possible as it will better prepare you for bidding later on.

If you are lucky (or unlucky) enough to have the highest bid, be prepared for the fees.

Our $400 bid on the Explorer came with an additional $100 auction fee, $55 internet fee and $20 pull out fee, which brought the total to $555 — or $55 above our budget. We asked about the pull out fee and were told it was for the forklift to transport the vehicle from inside the yard and place it on our trailer. This seemed unfair since the auction house restricts public access to the yard, but we paid the fee since there was no other way to get the vehicle.

Once the vehicle is paid for in cash or wire transfer, you can send a tow truck to the site or drive your own trailer there and pick it up.

Getting your hands dirty

I researched the Explorer online and found out it had a fuel pump inertia switch configured to pop when in an accident. We got excited when the car arrived and we noticed that the switch was popped. We reset it and hooked up a jumper box. The Explorer started right up.

Each state has different laws on registering a salvage vehicle, but many follow a similar model to my state. In order to register a salvage vehicle in North Carolina, it needs to be inspected by the DMV before and after repairs. A common misconception is that this inspection checks if the car is roadworthy. In reality, it’s only to ensure that stolen parts are not used in repairing the vehicle.

Since this inspection has to be performed at a DMV location, the car needs to be towed there before repairs commence. It also gets towed back to the DMV in order to get its final inspection once repairs are complete. The inspector examines the parts, checks the VIN plates and signs off so the car can be registered. The final inspection is fairly cursory and usually done in about 15 or 20 minutes as long as all VIN plates are intact and your stack of receipts matches the repairs.

With the Explorer finally in my garage, I examined what could be repaired and what needed to be replaced. Since we were able to get the Explorer started, our potential profit automatically increased by $1,100 as we no longer needed to replace the engine. Our original parts list was almost spot on and the only unforeseen item we ended up purchasing was a radiator support.

The next week or two is spent sourcing parts from local junkyards, parts websites and Craigslist. I use Car-Part.com heavily as it allows me to search most of the local junkyards simultaniously. We were able to find another Explorer in the same color nearby and made a deal to purchase most of the front end parts for $500. I also found a local body part supplier that sold new aftermarket parts. We purchased a radiator support and headlight from them for another $200. Even with the added radiator support, we were still under budget. Our total investment at this point was around $1,300, much lower than our original $2,500 estimate.

In the beginning, I tried to find used parts from junkyards in a matching colors in order to save on paint and time. However, I’ve developed a relationship with a local body shop over time and it paints some of our cars. Sending a vehicle in for paint allows me to buy new, cheap aftermarket body parts and fix other smaller imperfections, but doing so usually adds another week or two to a vehicle’s repair time.

The cost of paint varies depending on the quality of the work. I had a local MAACO-type shop that would paint any car for me for $280, but I would have to prep work ahead of time. Those paint jobs are single stage and did not have the luster of a paint job with true clear coat — which is totally fine for sub-$2,000 vehicles. I also have a very experienced painter who will match OE colors and repaint some of our more expensive vehicles. These jobs can run anywhere from $200-300 for repainting and blending a small body panel to thousands of dollars for bigger jobs. Carefully selecting the type of paint job is critical in making sure we can actually make money on some cars.

Insuring against what’s already happened once

The next step is to call your insurance company, add the car to your policy and head off to an inspection station to get an emissions inspection. Insuring a salvage vehicle can be limiting in certain circumstances as some insurance companies will not insure the vehicle for anything more than liability. Costs are usually similar to insuring a similar clear title car for the same coverage, but liability insurance only protects other parties and helps you meet the minimums of the law. With all of this paperwork in hand, I would head back to the DMV and pay the registration fee and finally get a tag for the car.

Now that the car is legal to drive, I usually drive it around for a week or so to make sure it’s free of mechanical issues. Luckily, our Explorer did not exhibit any issues and, other than an oil change, no mechanical intervention was required. I then cleaned up the Explorer and took some pictures of it to post online.

Since the price listed is usually 30-percent lower than comparable non-salvage examples, calls usually come in quickly. Most of the first round of calls is spent repeating that the car is a rebuilt salvage vehicle as listed in the ad and telling people that they need to check if their bank will finance a salvage vehicle since many don’t.

I usually kept pictures from the auction as it helped to ensure the potential buyer that damage wasn’t major before the repair. The sale of the vehicle would usually happen within two to three weeks of the original listing, which would be anywhere from four to eight weeks after bidding on the vehicle.

I took the approach of fixing the vehicles like I would if I were to keep them, but many of these sellers take shortcuts. I’ve personally seen vehicles with hundreds of pounds of body filler and drywall screws holding up body panels, so be careful. These cars can coast through with the sub-par repairs since state inspections don’t check the quality of the work. Although I sold salvage rebuilt cars for a while, I do not recommend purchasing salvage vehicles second hand as it’s hard to nail down a good set of variables to check on the condition of the car. If you insist on buying a repaired vehicle, ask for pictures of the car before the repair and make sure to check all of the repaired areas. I also recommend checking any underlying components as many times re-builders will repair only the most visible portions of damage.

Flipping these cars is a lot of work and seems like it might not be profitable. In the end, we decided to list the Explorer for $3,900 and ended up selling it for around $3,500, giving us a tidy profit of $2,000. This number does not account for the hours of labor we put into it and I was foolish not to account for it at the time. The experience pushed us to buy more salvage cars and repair them. We flipped six cars in that first year and only lost money on one — a Dodge Stratus we bought online, which looked good initially but showed extreme sludge in its 2.7-liter engine once we picked it up. Instead of fixing it, we turned it right back around and listed it for sale at the auction.

Getting to know people at your local junkyards and body suppliers is helpful, along with knowing what parts interchange and how to change them out. Car-Part.com is a great source for seeing parts interchange along with RockAuto, which lists interchange on specific parts across all the models and brands that it fits.

Ultimately, we decided that our enterprise could get a big boost if we got licensed to open a dealership and proceeded down that route. Getting a license and an actual lot gave us the benefit of a floorplan so that we did not have to lay out cash and, most of all, it allowed us to start buying cars at standard, clear-title auctions and reduce some of the work.

Next time you see a salvage car on Craigslist, you’ll now have a better idea of how it got there and how it may have been repaired.