Insurance Contract for Obtaining Your Inventory – Blessing or Curse?
Part 3 of 3
January 2005
This is a three part article, check the last two month’s issues for part one and two, or visit our web site. We get lots of inquiries about the pros and cons of an insurance contract for obtaining inventory. Also, due to the high cost of selling through pools, many insurers are considering contracts again. An insurance contract refers to a contract between a recycler and an insurance company for the purchase of wrecked vehicles. In the first articles, we started the discussion of contracts, which we continue this month.
Some things you should consider if you are thinking about a contract are:
- What will you do with the vehicles that are not profitable for you to process? Will you send them to auction, sell them to other recyclers, or sell them as builders? Most auctions will pickup vehicles for an insurance company without titles and store them for up to 90 days without storage charges. However, most auctions will not do this for a dealer. This brings up another interesting question. If you have found an auction that will pick up the vehicles and store them for you without a title who will pay for storage fees there? Most auctions begin to charge storage fees by the day after 60 or 90 days if they have not received a title.
- Often the administration to track these vehicles is greatly under estimated. A database will be required to track the movement of the vehicles and the related documents. Things like which vehicles have been picked up and which ones have not. Which ones did you pay out storage for and does the storage fees belong to you or the insurance company? Which vehicles have you been reimbursed for advance charges on? You will also have to track which vehicles have been dispatched to a wrecker service and which ones have not. Which vehicles have been picked up and which ones have not? Which vehicles are still at auction, have you send the titles for these vehicles to the auction? Which vehicles have sold at auction and have you been paid for them or not? Which vehicles have you paid the insurance company for? Which vehicles have you paid the wrecker service for? And the list of items to track goes on and on. This can be a major distraction to you core business and require a full time employee to track even for a small contract, say 40 to 60 vehicles a month.
- You will need a dealer’s license to sell some cars and of course a display area, not to mention the sales help to deal with customers.
- Contracts can be VERY good, if you are prepared to deal with them, and could lower your costs significantly. But they can also be a drain on precious cash and resources. They may not be the silver bullet many think.
This three part article was written by Mike Gibson, a staff consultant at autosalvageconsultant.com.
Remember, only you can make BUSINESS GREAT!
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