As Hurricane Harvey and Hurricane Irma wreaked havoc throughout the Texas and Florida regions, they left a tremendous amount of destruction and debris in their wake—including nearly 1 million damaged or submerged cars, with Hurricane Harvey destroying between 300,000 to 500,000 vehicles and Hurricane Irma destroying another 200,000 to 400,000 vehicles.
According to Cox Automotive, the parent company of Kelly Blue Book and AutoTrader.com, the cost of licensed cars lost due to Hurricane Harvey alone (excluding vehicles flooded while sitting in dealership parking lots) falls between $2.7 and $4.9 billion.
Industry experts are warning that many previously flooded vehicles are being recycled into the economy and resold.
While the economic impact to hurricane victims is monumental, what to do with the flood-damaged vehicles is also problematic to the regions and the recycling industry as a whole. For example, recovering, repairing or junking thousands of cars in a short period of time stresses a system that is designed to avoid the release of toxic chemicals into the environment.
There is not a specific process for handling these thousands of vehicles that temporarily sat in the Gulf of Mexico. The insurance companies try to expedite the claims process after a major disaster. Auction companies call in tow companies from across the country, rent large tracks of land to store the vehicles and hold daily auctions to increase the disposal process.
“Often, in this expedited claims process, vehicles that suffer very minor water damage are totaled out with those that are completely submerged,” says Scott Robertson Jr., a director of the Automotive Recyclers of Massachusetts and executive committee member of the Automotive Recyclers Association.
As a result, scrap metal yards are seeing an uptick in business, with flooded cars, refrigerators, stoves and metal pieces finding their last home in scrap yards across the Houston and Florida regions. As expected, the per-tonnage price of scrap metal has dipped since Hurricane Harvey because of the surge in supply.
For the next month, thousands of flooded cars are being stashed at Royal Purple Raceways in the Houston suburb of Baytown because auction sites and scrap yards simply don’t have the storage space. The raceway has offered up its 400-acre facility to serve as a temporary holding, storage and processing facility for tens of thousands of vehicles damaged in Hurricane Harvey.
Areas of Concern
While Robertson is not aware of any modifications to state regulations for the handling of flooded vehicles, the federal government is holding meetings on what guidelines need to be established to handle this large loss of vehicles.
“The Automobile Recyclers Association has been invited to offer opinions on these disasters,” Robertson said.
The biggest area of concern with flood-related vehicles for auto recyclers is that they could be sold to an unlicensed facility that would not report to the National Motor Vehicle Title Information System (NMVTIS) and could subject an excessively flooded vehicle to an unassuming customer. NMVTIS is a system that allows the titling agency to reliably verify the information on the paper title with the electronic data from the state that issued the title. NMVTIS is designed to protect consumers from fraud and unsafe vehicles and to keep stolen vehicles from being resold.
As we saw after Katrina, thousands of flood vehicles made it back on the market … We are more concerned with the unsavory types out there who see an opportunity to scam some innocent party by acquiring a flood vehicle and reselling it without informing the buyer that they are buying a rolling threat to their financial and physical security.
“These same unlicensed facilities are not regulated and often do not follow the proper end of life procedures prior to scrapping the vehicle, causing environmental damage,” Robertson said.
Industry experts are warning that many previously flooded vehicles are being recycled into the economy and resold. Often, flood-damaged cars are reported to insurance agencies and, through an assessment process, the buyer receives compensation to cover their loss. While many flooded vehicles are then sent to the auto recycler for dismantling, other vehicles are labeled by state agencies as flood-damaged and a salvage title is assigned. Once identified, flood-damaged cars can re-enter the sales market via dealer lots with “for sale” signs prominently displayed.
According to Frank G. Scafidi, director of public affairs, National Insurance Crime Bureau (NICB), from NICB’s perspective, flood vehicles represent a huge potential for fraud.
“As we saw after Katrina, thousands of flood vehicles made it back on the market. Mostly, when the parties are aware of the vehicle’s flood condition, there is nothing improper about buying and selling them,” Scafidi said. “We are more concerned with the unsavory types out there who see an opportunity to scam some innocent party by acquiring a flood vehicle and reselling it without informing the buyer that they are buying a rolling threat to their financial and physical security.”
Complicating the future of these cars is that each state has its own standards for what’s considered salvageable. What’s considered salvageable in one state may pose issues in another. So insured vehicles are going to be processed and disposed based on the prevailing law within the state where the vehicle is registered. Typically, insurance companies contract with salvage operators to collect and store those vehicles until the titles are all updated. Most of them are parted out, and many others are just crushed. Many, still, are sold at auctions where someone with skill might be able to rebuild a flood car and enjoy years of trouble-free operation. That’s all quite legitimate.
“NICB just wants the public to beware that they can get scammed if they are blinded by a very attractive price for a used vehicle that they have seen priced much higher,” Scafidi said. “And these deals are usually made over the Internet or through some word-of-mouth notice.”
And it was out of that concern that in 2005 NICB created the “flood vehicle database,” now called VINCheck. It’s a free service to anyone and will advise if a VIN that a consumer queries was ever deemed a total loss, salvage, or is an unrecovered stolen. It does not cover 100 percent of insured vehicles because it is up to the insurance companies to decide whether or not they wish to participate with VINCheck. Most do and of those, they write around 88 percent of the auto policies in force.
“Not perfect, but the best VIN search out there—for the price,” Scafidi said. “Plus, the data is available in real time—as soon as a company uploads a salvage or total loss record, it is available to a VINCheck query.”
As with any large purging of vehicles from an area, there are near-term and lasting effects to the automotive recycling industry. As Robertson explained, near-term, it offers access to a great number of vehicles that the industry can add to its inventory to either sell or part out.
“Long-term, it removes a huge number of vehicles that might be repaired with used auto parts,” Robertson said. “And it replaces them with new vehicles that are under warranty and might not be repaired with a used auto part. We experienced this with the Cash for Clunker program.”
Formerly known as the Car Allowance Rebate System, this $3 billion federal program was a direct competitor to salvage yards that wanted the scrapped cars for parts. The program, which ended in 2009, intended to provide economic incentives to U.S. residents to purchase new, more fuel-efficient vehicles when trading in their older, less efficient vehicles. The “clunkers” had to be destroyed under the federal program, so salvage yards couldn’t keep any parts.