Flood-related catastrophic (CAT) events such as what happened in the Carolinas in September create significant challenges for managing the disposition of vehicles damaged by flood waters. For the manager of an auto dealership, fleet managers, insurance claims adjusters or nearly anyone involved with managing appraisal and salvage vendors, this can be a stressful process, full of unknows and unpredictable variables.
Fortunately, Hurricane Florence, despite all of its initial bluster, left a much smaller volume of vehicles in its wake compared to Hurricane Harvey, which hit a more densely populated area and behaved more unpredictably. Still, Cox Automotive is estimating that some 20,000 to 40,000 vehicles were seriously damaged or destroyed.
Although some dealers or rental fleets may escape a CAT like Florence with relatively minor losses, most are typically less fortunate. This means operations managers must figure how to manage the disposition of water-damaged vehicles as efficiently and smoothly as possible, while simultaneously getting all the various departments of the dealership up and running.
In over three decades of advising clients, facilitating the process, and managing flood inventory following major hurricanes, we’ve seen first-hand that dealers’ financial outcomes and workloads can vary dramatically depending on how they approach the CAT.
Time is money
While you don’t want to rush into bad decisions or leave money on the table by jumping at the first vendor opportunity that comes your way, there are a number of reasons why speed is important in addressing flooded vehicles.
Most consumers assume that flooded vehicles are a total loss and many times they are correct. However, that doesn’t mean that all is lost, especially when it comes to more valuable later model vehicles. For potentially salvageable vehicles, the clock is ticking, and buyers simply will not pay top dollar as time goes by. Mold worsens and fabrics and various other vehicle components degrade the longer they’re wet, especially along the coast where there is likely to be salt content and other pollutants in the flood water. Therefore, it’s critical that whoever is managing your inventory of flood vehicles begins water damage remediation as soon as possible.
In any large CAT, thousands of vehicles are affected in a very short period of time. This volume of vehicles quickly saturates the salvage buyer market. It follows that dealers should work to get their flood-damaged vehicles to market as soon as possible before buyer budgets are spent. Moving quickly is almost certain to deliver the highest returns. In our experience, salvage vehicles sold in the first 10-20 days after a CAT bring significantly higher returns. However, this is impossible to achieve using traditional methods alone.
Without question, CATs are a traumatic and emotional time for your customers, many of who will have lost vehicles themselves. This means that you’ll want to clear your lots of flood vehicles and free up your repair operation as quickly as possible to accommodate the surge in customer demand post CAT. One proven approach is to work with your vendor to set up a ground zero control center and line up storage away from your day-to-day operation. This ensures that vehicles can be evaluated and processed quickly while your retail locations can more easily resume normal operations.
Manage scale
Another reason that CATs are so challenging has to do with the scale of logistics and quantity of affected vehicles. Often dealers and fleet managers will attempt to address vehicle disposition individually or through traditional methods. However, arranging a package deal and working with vendors that can process vehicles in large batches usually ends up being the most efficient approach and typically works out better financially. There are many hidden costs with flood vehicles the dealers tend to underestimate.
In most cases, dealers are well-served by bringing in CAT recovery experts with experience in structuring flood vehicle packages and who can access networks of vetted buyers willing to buy large quantities of flood-damaged vehicles. This practice of “bulk selling” is usually done in segments by year and/or level of water within the vehicle. Direct purchases can also significantly reduce fees and expenses associated with salvage vehicle disposition when handled on a case by case basis.
Avoid price gouging
Many dealers have national or regional contracts with salvage auction, towing, and other vendors. Unfortunately, many of these contracts exclude CATs in their pricing and service level agreements. Once demand shoots up and the market of vendor services is overwhelmed, fees and prices always rise quickly. Be sure to check your contracts for qualifiers and exceptions related to CATs. Then do your research carefully and thoroughly to ensure you’re getting access to the best vendor services at fair prices.
Catastrophic flood events such as Hurricane Florence create major challenges and headaches. That’s why it’s critical to tap as many seasoned CAT veterans as possible, who can bring the CAT management experience, process understanding, technology tools, and industry relationships required to come through the event successfully.
Another factor to consider is the possibility that your vendors may become overwhelmed by the scale of challenges and volume of business involved. If you start seeing warning signs that your vendor may be unable to keep up, don’t hesitate to tap additional resources sooner rather than later.
About the Author
Doug Mellette is the Chairman and Chief Executive Officer of Vemark (https://www.vemark.com). Since founding Vemark in 1998, Mellette has led the company to its leadership position providing vehicle loss recovery management solutions to major fleet rental carriers and insurance companies across the country.
