Today we are looking at the salvage vehicle business, as in the business as to what happens after a vehicle has been in an accident.
A car salvage and repair business buys cars that have been accident damaged, water damaged (flooded), stolen and recovered (lots of that in SA) and either repairs it and resells it or breaks it up and resells the spares.
When a car is damaged, whether if it’s been insured or not, either the insurer or the owner will make a call as to whether it is worth it to fix a car or not. Now what is not worth to repair to an insurer or a person might to worth it if to an entrepreneur if they are going to take the time and effort to repair or break up for spares.
Repairing accident damaged vehicles
In this business, the accident damaged vehicle is repaired and resold. The problem with this business is that when a car is written off by an insurer it is “coded” or “code 3” so the papers will say “built up” or along that lines, “which, according to the insurer, is so badly damaged that it is not worth repairing. To the insurance company the cost of fixing the damage would amount to more than the car’s value at that particular time“, these types of vehicles usually sell at a discount. Now not all cars that end up in the salvage stream are code three, many are not that badly damaged and can be repaired and the investment recouped with profit.
In recent years there has been an increase in companies that buy accident damaged vehicles from insurers to resell again. This is not the best place to buy a vehicle as they are middlemen and usually put a large markup when the only value they add to the buyer is essentially store it (they add value to the insurer as well by taking it quickly off their hands).
Breaking up a car and selling the parts
In this business the car is stripped and parts are sold off, any car has about 30 000 parts, counting every part down to the smallest screws – and even the screws can be sold as many cars use proprietary parts for even the smallest stuff. So a car is bought and it is sold part for part, the money is not recouped immediately but gradually as buyers come looking for parts.
Anybody that has owned a car, especially a European car will know, once that car is out of motorplan and you need to go to the “agents” for a big component then it can cost as much as a cheap car. This has created the car stripping industry, for affordable or more affordable that agents parts. This business has faced some competition in recent years from cheap aftermarket parts.
Now many years ago South Africa used to have a lot of salvage yards (sometimes called “scrap yards”) but unlike a scrap yard where scrap is collected and sold further downstream this business was in the business of stripping cars for spares. This large-format (large yard) has become less prevalent in recent years due to the influx of affordable aftermarket parts. It is quite expensive to manage a large yard and buy in damaged cars and the parts are selling in dribs and drabs, there are still people doing it that way, I mean there are will always be a demand. What we have seen in recent years are smaller, more focussed operators in this industry, even people doing one car at a time in their backyards. The smaller operators usually focus on a particular brand and might offer auxiliary products or services. So they might have a workshop, a retail area and a small yard where the break up happens in the same building. There are others that have focused on only certain parts like gearboxes or engines. If you have ever gone to an agent for an engine, it is basically a deposit on a house. Some also focus on parts that are hard to find.
Big opportunity looming
When electric cars eventually become widespread on South African roads, a massive opportunity will open up around the battery of that vehicle. The battery can be reclaimed to use in “second life” applications, solar battery storage for the home, etc, it is something I will look at in-depth again in future
This is not a glamorous business, it is not a quick buck business but many people make a good living from it, if you are technically inclined it might be something to look into.