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Letter to the Editor
This article originally appeared in the September 2000 Issue of INSIGHT
Under the Microscope
The Salvage Auction Arena - A Thorough Look
This month we take a close look at the two key players in the salvage auto auction arena, Copart and Insurance Auto Auctions. We have been tracking both companies in our Collision Repair Industry-related stock chart, and they have been far outperforming the majority of other Collision Industry-related stocks we watch.
Copart and Insurance Auto Auctions both provide insurance companies and self-insured fleets with a full range of services to process and sell total-loss and salvaged vehicles through auctions, principally to salvage yards and rebuilders. Salvage vehicles are either damaged vehicles that are deemed a total loss for insurance or business purposes, or can be recovered stolen vehicles for which an insurance settlement has already been made. Both companies offer insurers a full range of services that in their words both minimize administrative and processing costs and enhance the value of the vehicle.
Copart’s Percentage Incentive Program (PIP), for example, provides a sharing of a higher auction price between Copart and the insurer based on Copart’s ability to "market" the vehicle through appearance improvement, advertising, operations, etc.
Insurance Auto Auction’s program for improving Gross Profit and return to insurers includes elements such as Run and Drive, where IAA will undertake minor repairs to get the vehicle operational.
Programs such as these have resulted in improved margins for both companies, but it would appear that, at least to date, Copart has outperformed Insurance Auto Auctions to a significant level.
Both companies provide digital images of the vehicle in most cases four: one interior and the others exterior. Here again Copart has imaging of a significantly higher percentage of vehicles up for auction, based on our examination of both websites.
Revenues are primarily generated from auction fees paid by vehicle suppliers and buyers as well as from related fees for services such as towing and storage, preparation for sales, etc.
Salvage vehicles are almost always processed under one of these three methods: purchase agreement, fixed fee consignment, or percentage of sale consignment. Vehicles are generally sold at live or closed-bid auctions on a competitive-bid basis at one of their facilities, and today both companies are moving toward Internet availability of bidding. Both companies have websites and online auction capabilities, with Copart’s site, where photos are offered of available vehicles, much more user-friendly. Its CoPartfinder offers a free Internet part locator.
Both companies are the key national consolidators in the salvage auction industry; IAA currently has 56 locations nationwide and Copart operates 76 facilities in 36 states.
Copart has been showing steady growth and profitability. For the nine months ending April 30, revenues rose 36 percent to $138.7 million, and net income rose 39 percent to $21.3 million, reflecting increased proceeds from auctioned salvage vehicles. IAA’s net revenues increased five percent to $171.2 million.
Insurance Auto Auctions is conducting a nationwide search for a new CEO to succeed Christopher Knowles, whose contract with the company ends in December, 2000. 1999 was IAA’s best year ever, increasing earnings by 91 percent over 1998. Current earnings are the highest since the company became publicly traded in 1991. IAA plans to complete the roll out of towing to selected markets during 2000, and is optimistic about its FastTrack appraisal service.
Copart’s profit margin of 15.7 percent compared to IAA’s 4.9 percent indicates a company with management determined to keep an eye on its bottom line while mapping continued growth and future acquisitions.
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