Millions of autos across the U.S. wind up in salvage (or "junk") condition, meaning the vehicles are damaged, often to the point of no repair, according to CarFax.com.
Just as often, unscrupulous auto sellers and dealers resell cars, trucks and SUVs that have been recorded as salvage vehicles, but don't report the vehicles as salvage-titled vehicles.
That's not to say all vehicles in salvage status are unsellable or unreliable. It is to say, however, that vehicle buyers ought to know the auto they are purchasing has been damaged to some extent. Knowing that going into an auto purchase deal, a buyer can make a more informed decision, and likely won't be stuck with a lemon driving off the lot.
So, what are salvage titles and how can they impact auto buyers?
It's an issue well worth a look. Once you're educated on salvage titles you can better protect yourself against buying a damaged vehicle from deceptive sellers.
What Is a Salvage Title?
Salvage titles are an insurance company's and government regulator's way of informing potential buyers that a vehicle has been damaged and that its value has been diminished.
That damage may have occurred in a variety of ways - accidents, flooding, fire, or excessive wear and tear are the most common ways a vehicle earns salvage status. Some states even slap a salvage title on a vehicle that may have once been stolen.
For an auto buyer's purposes, the term salvage is largely defined by the state where he or she resides. That's because all 50 U.S. states have their own unique vehicle salvage title laws (this website offers a state-by-state vehicle salvage law breakdown.)
If there is a universal rule of thumb on state-by-state salvage title laws, it is this - a vehicle that has suffered so much damage, for whatever reason, that the cost to repair it and replace needed parts would be above 75% of the car, truck or SUV's pre-damage value.
When that car, truck or SUV reaches a given state's definition of salvage status, or if an insurance company slaps a "total loss" ruling on the vehicle, a salvage title can then be issued on the vehicle. Once that occurs, a state's motor vehicle bureau will issue a salvage certificate to the vehicle, rendering it legally undriveable - and unable to be registered - in its current condition.
Usually, the owner or insured company that takes ownership of the damaged vehicle and places a damage title on the vehicle may sell it to an auto garage, repair center or even an individual buyer, who will rebuild the vehicle and try to resell it themselves, still with the salvage title on it.
The profit margin may be narrow in this scenario - Kelly Blue Book estimates that a salvage title can reduce a car, truck or SUV's resale value by up to 40%.
Pros of Buying a Salvaged Vehicle
There are some upsides in purchasing a car, truck or SUV with a salvage title attached:
- You'll likely get it at a deal. Having a salvage title is a clear path to getting a discount when buying a vehicle. If you know what you want, know what's wrong with the vehicle, and know what you're doing under the hood (or know someone who knows what they're doing under the hood), a salvage titled-vehicle can usually be bought at a significant discount.
- The vehicle may not be in that bad of a condition. Insurance companies place a salvage title on a vehicle for multiple reasons, including accident, flooding or fire. One overlooked, but very real reason an insurer pops a salvage tag on an auto, is that the previous owner asked them to do so. This happens after negotiations on a claim come to a point where the owner doesn't want the vehicle anymore, and has the insurer take it away as a salvage model. Insurers, by and large, will gladly do so to avoid paying out a big claim that the insured owner might make. In that case, the vehicle may be in better shape than a buyer may think. That's why it's so important to know why a salvage title has been placed on a car.
- To settle quickly, you'll get even a better deal. Once an insurer has a salvaged car or truck in its possession, it will likely want to get rid of it quickly. In any sales scenario, the urge for a quick sale means a big decline in the vehicle's price, and that's leverage a buyer can take advantage of.
Cons of Buying a Salvaged Vehicle
There is more downside than upside to purchasing a salvage vehicle.
- The damage to a salvaged car is just too expensive. Some salvage cars are more damaged than others. That's the case with a vehicle with extensive disrepair troubles, like a damaged frame or cracked engine block. Even a skilled vehicle machinist may find it difficult to turn a profit given the work that needs to be put into so many excessively-damaged salvaged vehicles.
- The salvage label doesn't go away. Like a bad reputation, a salvage title is forever. Once an insurance company has put a salvage title on a vehicle, it's there for the long haul. That means, even if you put 100 hours into repairing the vehicle and getting it in great driving and performance order, it will still be recorded by the insurance company and the state as a salvage vehicle.
- Its resale value is low. Just as you purchased a salvage title car at a discount, it will likely need to be sold at a discount if you ever want to get rid of the vehicle. Worse, when you buy a salvaged vehicle, you may have a tough time getting the auto insured by a reputable insurance firm. You may get partial coverage, but don't expect to get 100% insurance coverage on a vehicle an insurer likely deems as junk.
- You'll have difficulty getting an auto loan. Banks and auto lenders are reluctant to finance a vehicle with a salvage title attached. After all, a damaged vehicle is a damaged vehicle, and you don't want to pour financing money into a car or truck that may not make it another hundred miles before it collapses completely. Longevity is everything to an auto lender and, unfortunately, salvage title cars don't do well in that category.
The Takeaway on Salvage Title Vehicles
If you do buy a salvaged vehicle with the intent to rebuild, repair and resell it, don't try to hide the fact that it actually is a vehicle with a salvage title on it.
From a law enforcement view, shielding a salvage title away from an auto-for-sale is illegal. Besides, the buyer is bound to find out anyway when he or she tries to get the vehicle insured, inspects the title, or by accessing a vehicle history report.
Be upfront about a salvaged vehicle and you'll likely have a cleaner, more honest auto sales experience.