The ink on the “total loss” insurance paperwork, like the 2007 Range Rover itself, was still wet when Morgan Moran began trying to buy his vehicle back after Hurricane Matthew last year.
The insurance adjuster had declared the vehicle ruined in a matter of seconds after noticing water in the spare-tire wheel well. After all, he had a busy schedule and contemporary cars are about as waterproof as a laptop computer.
But Moran, a managing partner at Florida underwriter Moran Insurance, is a savvy dealmaker and was confident that his vehicle’s electronic nerve center had stayed dry. In the end, he got a $22,000 check—a $25,000 payout minus his $3,000 repurchase price—and a perfectly good car. “Water is so unpredictable,” Moran said. “But I ended up coming out way ahead.”
The brutal 2017 storm season has already sidelined more vehicles than any event since the federal Cash For Clunkers program. Damage claims have been filed for about 360,000 cars and trucks in the aftermath of hurricanes Harvey and Irma. That equates to about one-quarter of all the new vehicles sold in the U.S. in August. The tide of damaged vehicles is sure to rise as insurance adjusters swarm Puerto Rico, which has about 3.5 million (PDF) registered vehicles. (For context, Cash For Clunkers removed about 709,000 vehicles from the roads during the Great Recession.)
Consumers, insurance companies and a wide spectrum of monkey-wrenching middlemen are looking at all these swamped vehicles and wondering: Just how bad is it? It turns out, it takes more than a little saltwater to kill hopes and dreams, especially in Texas.
Many of the damaged vehicles end up at Insurance Auto Auctions, a unit of KAR Auction Services Inc., which handles unrepairable machines for underwriters. Scott Geunther, vice president at the company’s Texas regional unit, said demand has been brisk.
“We just started selling cars last week, and buyers have already figured out there’s a good portion of opportunities here,” he explained.
The majority of those machines will be deemed a “total loss” by insurance companies, a greater share than ever before. After 2012’s Hurricane Sandy, only 160,000 of the 250,000 damaged vehicles were deemed beyond repair. Today, however, the U.S. fleet increasingly relies on computers to calibrate, shift and even steer. Seemingly dumb parts of a vehicle—such as a bumper—aren’t so static or inexpensive these days, with newer models employing a perimeter of cameras and sensors for automated driving and active-safety systems.
“There’s definitely a high threshold of total loss ratio,” said Guenther at Insurance Auto Auctions. “I’ve been doing this for 22 years, and that threshold keeps creeping higher.”
Complicating the bureaucratic future of these cars is that each state has its own standards for what’s considered salvageable. What’s cleared in one state may pose issues in another. After Katrina, there were reports of flooded vehicles being cleaned up, transported and resold in the upper Midwest.
The closest thing to a fix so far, for both the salvaged auto industry and consumers, is a relatively new national database called National Motor Vehicle Title Information System, which shows whether a car or truck has been written off by an insurer. The National Insurance Crime Bureau has a similar database called VINcheck, though it relies on reporting from participating underwriters. The databases aren’t perfect. Six states and the District of Columbia still don’t feed data into the NMVTIS, for example.
A “total loss,” however, is not exactly what it sounds like. It typically means a car will wind up on one or several of the required databases. In many cases, a vehicle is refurbished and resold on the assumption would-be buyers are able to see its checkered past. And that’s just in the legitimate market. Vehicles that were uninsured during the storm won’t be caught up in the web of consumer protections. Others will be routed to states with lax regulations about tracking a car’s history.
“You have to be a sophisticated buyer,” to find a vehicle in decent shape after a storm, said Michael Wilson, chief executive officer of Automotive Recyclers Association. “There could be great deals but also lots of risks.”
There are certainly plenty of people in the market for a vehicle, particularly in hurricane ravaged areas. And while hefty insurance payouts have been a boon for dealerships full of new cars, many of those who bore the brunt of the storm will go back to the used market and focus their finances on rebuilding other parts of their lives. In both Houston and Miami, searches for used vehicles have spiked since the storms rolled through.
Despite the shoring up of consumer protections after Hurricane Katrina, there are still enough shadows in the market that both the Federal Trade Commission and the National Auto Dealers Association offer tips on spotting a flood-damaged car. Even if a vehicle is not listed in one of the databases, potential buyers should look for warped door panels and dried mud under the dashboard, among other things.
There soon be will be plenty of once-soggy cars back on U.S. roads and driving just fine, according to Geunther. After all, a skilled refurbishing shop can easily swap out dead electronics.
“Some of these guys are really good,” he said. “And you have to remember, floods happen every day, all over the globe.”
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Copyright 2017 Bloomberg.