Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

To begin with, could you explain the current salvage processing model in Copart, in terms of cost? How do people with claims and insurance companies view this model? Are there any challenges or issues that they face in the existing structure?

Thank you for the introduction. When discussing the process, we need to differentiate between the own damage part and the third-party liability part, as they are slightly different. I'm happy to explain both, or is there one you are more interested in than the other?

You can explain both, please.

In the case of own damage, a total loss occurs when the cost of repairing the car is higher than its market value at the time of the accident. The insurance company will cover the market value minus the salvage value. Typically, either an expert or a garage estimates the salvage value, and the customer sells their salvage. The insurance company aims to get offers for the highest salvage value within 24 to 48 hours, so the amount they have to pay - the difference between the market value and the salvage value - is reduced.

Online platforms like AUTOonline and CARTV are the most established ones in the German market for posting salvage advertisements. The insurance company sends the salvage offer to the customer or claimant, who then has to contact the salvage buyer. The insurance company will then pay the market value minus the salvage value. But what can happen is that the customer has, in the meantime, already sold their salvage for a lower price. That is one of the key issues in this process.

Speed and convenience for the customer are very important. When the insurance company sends you the salvage offer, you still have to call the salvage buyer. This process is not very convenient for the customer. In third-party liability (TPL) claims, the claimant has more rights to repair the car, but the insurance company will still try to total the car if the repair costs exceed the market value by more than 30%.

Auto Online and CARTV are the most commonly used platforms for this process in the German market. The insurance company gets an offer and sends it to the claimant, who may have already sold the salvage for a lower value. This is where the concept of Market Value Regulation or Market Value Claim Handling comes in, offering the customer a complete service regarding their salvage.

Companies like Copart provide this service, where the insurance company offers to sell the customer's car on their behalf. The customer benefits from the value, and the company - Copart, CARTV, or others - tries to sell the car as quickly as possible. The crucial question is whether the customer will agree to this service, which requires speed and efficiency. This is what Copart and other companies in the market offer.

Just a question; if the customer sees a higher salvage value for the car through, let's say, Copart and CARTV, why would they try to sell it on their own at a lower value?

It's because the customer doesn't care. They get the same amount of money whether they sell the salvage at a lower or higher value. The insurance company will pay up to the market value, and it's only a saving for the insurance company if the salvage value is higher.

So, it's immaterial for the claimant, and only the insurance company benefits from a higher salvage value?


One of the things Copart has mentioned when they talk to people is that the highest bid an insurance company gets for a salvaged car isn't necessarily the best because it's not a binding offer. People don't bid aggressively, and hence the net salvage value that people attribute to the salvaged car isn't high enough. Is that correct?

That could be part of the issue Copart has.

It's also the reason why insurance companies usually use more than one selling platform. There can be clear differences, I would say up to 30%, or even 50% in extreme cases, in the bids on a salvaged car.

It's very specific; the bidders that use the salvages may have very specific needs for different car parts, etc. So that might be a reason, but it can be solved the more players you have on your platform.

And the process of transferring the title and transporting, towing the damaged vehicle, is all that responsibility taken by the insurance companies, or is it outsourced to other places? Who does that?

The salvage companies, like Copart or CARTV, would handle that. They generally provide the platform service, try to put it out on the market, and then the salvage buyer picks up the car at the customer's location and takes care of the rest.

So, prior to Copart or CARTV entering into this space, who would have the responsibility of transporting the vehicle? Let's say the car got in an accident on a highway and it needs to be transported from there to a holding facility.

What I just explained refers to situations where the car is already at the claimant's or customer's home. A car can be a total loss but still drivable. However, if there are significant damages on the highway and the car cannot drive anymore, it needs to be picked up. This is usually organized by the German insurers convention, which runs emergency phones on the highways. If you have an accident and need your car picked up, you can call the police, your insurance company, or use one of these emergency call phones. The closest tow truck would then come to get you.

If you call your insurance company, they will have a network or a network provider, such as an assistance provider. ROLAND Assistance, for example, is one of the big ones in the German market. They run a network of tow truck agencies, or ADAC, the automotive club in Germany, which also runs a network of independent garages. The tow truck would either tow the car where the insurer tells them to or where the customer tells them to.

The cost of this transportation would typically be borne by the insurance company, correct?

Usually, yes.

Moving on to the next set of questions. If insurance companies see value in Copart's model through higher salvage value, why is there reluctance to give them national contracts? Copart has been running pilots for many insurance companies, and they were optimistic about showing higher salvage value data to convince them to give more volumes. However, after around four years, they have not been able to secure a single national contract. What is stopping insurance companies from going ahead with Copart?

From my perspective, there are three things. First, many companies might not see a clear differentiator between Copart and other companies, like CARTV. Are there really higher salvage values with Copart? Maybe sometimes, but not every time. So they continue with a two or three provider strategy, with Copart being one of them but as a new player and maybe they don't have a USP. Second, the whole process is very dependent on the decision of the customer and the claimant. Insurance companies need the customer or claimant to agree to work with salvage or sell the salvage themselves to the bidder the insurance company is proposing. This is an important part of the process and is out of the hands of the insurance company and platform providers like Copart.

Is there a regulatory angle that hinders giving business to Copart?

I wouldn't see any. There are differences between geographies in Europe. For example, in the UK, the insurance company owns the salvage, which is not the case in Germany. So there are clearly differences.

Is there a case of Copart, being an American company, coming from a foreign country and trying to bring their own model? Is there a lack of trust in their model? Is that an angle to explore?

I haven't heard of that. There are many international suppliers, like Solera, a US company that is huge in the German and European markets. I don't see a lack of trust. Copart is very present in the market, attending trade fairs and actively marketing. It might take a while for them to prove their value to insurance companies and for word of mouth to spread, but I haven't heard of any trust issues.

In your bio, it was mentioned that you use Copart at VHV. Do you give all of your business to Copart, or is it only a portion? Is it also a pilot for you? I'm trying to understand what would convince you to give all of your salvage vehicles to Copart.

I cannot answer specifics about VHV. Generally speaking, if Copart proves in different pilots that they make the process convenient, fast, and have more customers agreeing to the salvage process with them, that would be an advantage. If the salvage values are higher with them than with anyone else, I can imagine that more insurers would extend their business with Copart.

Copart says that when they run these pilots, they provide higher salvage value to insurance companies, but they don't quantify it. Can you help us understand, in percentage terms, how much higher salvage value they get for a car? Let's say the value of a car is $10,000 and the car got totaled and it's listed on a website. The highest bid they get is $2,000. If Copart takes that car and places it on its own platform, how much more value do they get?

The spread is quite large, so building an average isn't easy because it depends on the car. Generally, I think there's an advantage between 10% and 20%. However, it can also be the case that higher values are achievable with other platforms, like CARTV, which might get the highest bid on a specific salvage. So you can't say it's Copart specifically getting you the highest value. The advantage of running the platform with different partners could be the overall savings generator from an insurance perspective.

Is CARTV also running pilots with insurance companies?

Yes, they offer the exact same service to insurance companies.

In your experience, when you have interacted with Copart and CARTV, which one have you found better in terms of execution, responsiveness to customers, and providing better value?

As I mentioned, Copart is very active and they actually try to build their services from a customer's perspective, particularly from an insurer's point of view. However, I can't say that the others are necessarily bad at doing that.

Are there other large players besides CARTV and Copart who are trying to offer these kinds of services?

You may have heard of AUTOonline.


Yes, that's one of the frequently used ones.

Copart says they have a commission-based model where they are trying to convince insurance companies not to purchase and then sell, but rather take a commission out of the final value. Do AUTOonline and CARTV also work on a commission-based model or do they use a purchase-based model?

They would offer both, depending on the customer.

From the insurance company's perspective, which model are they more comfortable with? I understand historically it has been a purchase-based model, and one of Copart's objectives is to convince insurance companies to switch to a commission-based model. Is there growing acceptability towards a commission-based model among insurance companies?

Insurance companies need to learn about the advantages of both models. I don't see a reluctance to a commission-based model, and it can clearly be an advantage. The purchase-based model may seem easier for insurers initially, but with a commission-based model, they still must be interested in Copart doing the sales properly. I don't know which is more convenient or brings higher savings, but the combination of both makes the decision easier. So, it can work, yes.

We know that Copart works with AXA in the UK, but does an insurance company working with Copart in the UK influence the management decision of AXA in Germany to work with Copart? Or are these two completely different parts of an organization without cross-communication or cross-pollination of ideas regarding service providers?

I cannot answer questions regarding the internals of my former employers. However, knowing multinational insurance companies, such as AXA, Generali, and Allianz, local entities are usually very independent in their decision-making. So, if the UK works with Copart, it's not necessary that Germany does as well, or vice versa. This is due to different regulations. For example, the insurance company owns salvage in the UK, but in Germany, the regulation is different, so other companies might work better. There have been many examples with regards to spare parts or salvages, where regulations differ from country to country, and so the decisions of local insurance companies are different.

It's interesting because Copart sees Germany as a gateway to Europe. They believe that if they can convince German insurance companies to do business with them, they can replicate their model in other European countries like Switzerland and France.

Germany is indeed an important market for most insurers within Europe. But it depends with which insurance company they intend to work. Generali is an Italian company; AXA is a French company; Allianz is a German company. The entry point of Germany may not be the best one, but with 50 to 60 million cars on the road, it's a big market.

If Copart can prove their model here, it can impact decisions in other entities as multinational insurance companies usually have communities where heads of claims discuss best practices from each market.

However, it's not binding; if the German entity finds it a good idea, it doesn't mean France or Spain has to do the same.

To enter a customer like a big insurance company, you can start with a local entity and prove your service successful, or try to convince global procurement units. If they see successful models, they might recommend it to local entities.

Hypothetically, if a large insurance company in Germany decides to go with Copart and other players see that the company is getting higher salvage value for its cars, making them more profitable, would that drive the remaining players to adopt this model?

Yes, if Copart can name important customers in the market and provide references, insurance companies would likely follow suit. If it proves successful at a large player, they will try to get the same value out of it.

You mentioned that CARTV and AUTOonline are Copart's competitors in the German market. Copart owns salvage yards and takes over many responsibilities of insurance companies, such as taking pictures, cleaning, and putting cars on their website. Do these competitors provide the same ancillary support services? I'm trying to understand if there's a difference in the service offering provided by Copart compared to its competitors.

In my experience, CARTV can offer nearly the same services as Copart, which is perceived as quite holistic. That's why many insurance companies are piloting with Copart. However, the service provided to insurance companies is only part of the success. It's crucial to help insurance companies convince their customers to use the service to achieve the highest salvage value.

So, who has the responsibility of convincing the customer? Is it Copart that has to take the initiative, or is it the insurance company that has to convince the customer to go with Copart?

In my opinion, it's the insurance companies. They need to convince either the claimant or the customer to use the salvage platform service, which they are offering. They should encourage customers not to sell the salvage by themselves.

The insurance company could suggest using Copart or CARTV, but the salvage car owner could still decide to sell it to, let's say, a local garage nearby, even at a lower price.

Yes, they can. However, it might get difficult for them, and there might be litigation if the claimant or the customer receives a binding offer from a salvage buyer and then sells at a lower price. The insurance companies may try to deny payment, arguing that the customer could have achieved a higher value. But if the claimant sells the car before the insurance company's offer, then it's done.

So, once the insurance company has a bid from any listing services, if the vehicle owner tries to sell after that, it might be an issue for them. But if they sell prior to getting that bid, they will get the full remaining value of the car.


In terms of the overall German salvage car market, what would be your estimate of the market size?

That's an interesting question. I haven't thought about it. The overall automotive aftermarket is huge, a multi-billion-dollar business. However, I can't provide specific figures for the salvage market.

Not in terms of value, but in terms of the volume of salvaged cars per year in Germany.

Let me think. If the market has around 40 to 50 million motor accidents per year, with total loss accounting for maybe a third, then my rough estimate would be around 15 to 20 million salvaged cars per year. This might still be too low, but that would be my lowest estimation.

I wanted to explore Copart's efforts in Germany to establish their salvage yard network. When working with other players like CARTV and AUTOonline, do they also have an extensive Pan-German network like Copart, or are they only conducting pilots in specific cities or regions in Germany?

To my knowledge, no, they don't have an extensive network like Copart. Copart's unique service is interesting. I've seen in other geographies, like the Gulf region or Africa, that local garages are building up salvage yards not only to sell the cars and salvages but also to sell different spare parts. This can be a differentiator, especially with the spare part crisis in Europe due to global supply chain interruptions. The downtime of cars in garages is getting longer, so insurance companies have to pay for rental cars. If Copart could leverage this, it would be very interesting.

Copart in Germany does sell to dismantlers who take out parts from salvaged cars and resell them in the market. That's a potential market for them. In the US market, Copart is strong, with around 65% market share. Is there a risk assessment from insurance companies in Germany that if they give all their business to Copart or CARTV, they would be over-dependent on one single player, potentially killing the competition?

In my experience, it's common to have at least a two-supplier strategy for risk mitigation. If one supplier has an issue, you need a backup. This is especially true for selling salvages, as there are still differences in prices from platform to platform for the same salvage. That makes a multi-supplier strategy even more necessary.

Have you personally interacted with Copart executives?

Yes, I have met some of them.

What is their pitch to insurance companies, and what kind of pushback do they get from insurance players?

I met them at a trade fair, in Leipzig, which is the largest one for the industry. Their pitch is that they have the best service for insurers, can generate the highest salvage values from selling or dismantling, and can make it very convenient for customers. The pitch is well-received, and they are gaining a lot of interest. They are very present and investing a lot in marketing, so there's no way to avoid recognizing Copart at these public events.

Essentially, it seems that it would only be a matter of time for Copart to secure larger contracts from insurance companies, moving from pilots to national contracts. It appears that insurance companies do see value in partnering with Copart.

They are at a stage where they still need to prove their value. If they are successful and deliver on their promises, they could be very successful in the German market. Germans are very fact-driven, so even the best marketing won't matter if the results aren't there after six or 12 months.

Just a point on that. You mentioned looking at numbers for six months or 12 months. However, Copart has been running these pilots for more than three years. They must have shown the results of these auctions during this substantial period, proving the effectiveness of their model.

Yes, I agree with that.

What additional convincing do insurance companies need from Copart?

If you consider the past three and a half years, you have to account for the Covid effect on the numbers. During the crisis, there were fewer accidents, so there isn't a good data basis for comparison. Additionally, the inflation price shock in Europe, and specifically Germany, affected the market value of used cars and salvage values. At one point, the used cars were even more expensive than a new car, because the new cars simply weren't available. The salvage values also increased, but not at the same rate as the market values. The difference between the market value and the salvage value increased so it was a bad deal for the insurance companies. You cannot compare salvage values driven by inflation, to salvage values before inflation. This makes it difficult to evaluate the pilots.

But insurance companies would also be looking at like-for-like comparisons, such as a similar model and age of a car salvaged through Copart versus the existing model, even during the post-Covid period when prices were higher. That would be another data point to compare.

Exactly, it would be a data point to compare, and it would be interesting to see if there is a clear winner or loser in this situation.

Understood. Are there any other angles we might not have covered regarding Copart in Germany? Is there anything else I should have asked or any additional comments?

The salvage market in Europe is important, especially during the current spare part crisis. Salvage dismantling will become increasingly significant. However, for Germany, it depends on getting customers on board. There might be a need to combine this service with a human service outbound or something similar to convince customers. Companies like ControlExpert, which checks repair invoices, also make outbound calls to convince garages to accept the invoice check. This full service allows insurance companies to avoid handling it themselves, which can be inefficient and expensive.

Companies like Copart have a market, but they need to scale the bidders on their platform so that insurance companies can work with one or two suppliers. Currently, they need more than one because prices vary between suppliers, and they need to prove they can get the highest values and the most customers.

As a final question, if you were the decision maker, what kind of data would you need to see before making a decision?

I would look at a multivariate analysis of salvage values, taking out regional, time, and car effects. For example, higher salvage values can be generated in Munich than in Berlin. Also, consider the impact of Covid on price shocks. If Copart had more Mercedes than CARTV, they could claim higher average salvage values. That would be the first piece of the salvage value. Second, I would look at internal insurance data to determine how many more customers we can steer into the process with Copart and whether it proves successful. Do they stay in the process or drop off at some point? Third, can we increase our savings with salvages? Is the commission model successful in the long run? Those would be the three pieces of data I would consider.

Regarding autonomous cars, what is the opinion within the insurance company in terms of totaling those cars? What are the assumptions about accident frequency and the proportion of cars that would get totaled? There are varying opinions on whether accident rates would decrease or loss ratios would increase due to higher repair costs. What is the underlying thought process in an insurance company regarding autonomous vehicles?

That's a great question. The market is discussing this extensively. From public insurance data, we can see that the average age of a car in the German market is seven years.

We still have some learnings with assistance systems and autonomous driving. However, we can already see that accident frequency is decreasing, and this is not just a Covid effect. We have seen this trend across Europe before Covid. The average cost and, especially the severity of accidents, are increasing, partly due to inflation and heavier accidents. In the future, we might see fewer minor accidents like damaged bumpers, windscreens, and headlights, but more extreme cases with bodily injuries, strong impact, and total losses.

Another trend is the rise of micro-mobility in Europe, especially after Covid. There are more pedestrians, bicyclists, and scooter drivers, which could lead to more accidents involving one car and one weaker participant, like a bicycle. Those are the trends that you hear about in the market and, in my opinion, are correct.

So you're assuming a lower number of accidents but higher severity with autonomous vehicles. Regarding electric vehicles, when they get totaled, are you seeing people bidding for them? Are you getting good salvage value for those cars? Since they are new in the market, what uses do dismantlers have? It's not entirely clear because they have fewer parts, and most of it is the battery. What is the trend you're seeing with electric vehicles in terms of salvage value?

Allianz published an interesting study recently. They found that repair costs for electric vehicles are higher than for the rest of the market, mainly because the car values are higher. The primary electric cars on the roads are, for example, electric SUVs, so there's a clear correlation. When it comes to salvage, it's an interesting process because not every body shop network has understood the niche of electric high voltage batteries. You need a special certificate to work with them. This area is still a bit opaque, and we haven't had the chance to get much more information. An electric vehicle, if damaged, is more prone to be a total loss due to the high voltage battery. We need to learn more about this, as do the garage network of insurers and motor experts or surveyors.

I think that's all the questions I had. Thanks a lot for your time. It was a very helpful call.