Frequently Asked Questions
Why doesn't the high bid at auction represent a "fair market value" for a piece of salvage?
"Fair market value" can be defined as an agreed upon value that a buyer is willing to pay and a seller is willing to accept. Within the economics of an auction, however, buyers are frequently looking for bargains, hoping to spend less than they feel an item is worth. In reality it takes multiple interested parties bidding on a single item for the high bid amount to be driven up to what might be considered a "fair market value." Unfortunately a variety of obstacles can prevent a piece of salvage from reaching a "fair market value" in a single auction. Through research and our observation of historical returns, any single auction typically has an opportunity for additional earnings on roughly 18-20% of the vehicles sold. It'sMAST's job to identify these at the time of auction.
What is a "re-run" and how does it make me more money?
MAST representatives assess salvage market value for every salvage vehicle, and assure each vehicle achieves its full market value potential at auction by setting minimum acceptable bids and monitoring auctions. When a minimum bid is not reached at auction, an immediate decision is made to accept or reject the bid, and possibly set the vehicle up to "rerun" at a subsequent auction. If rejected, at the following auction when the bid attained is higher than the originally rejected bid, a rerun gain is realized. The higher the rerun gain, ultimately, the higher your realized returns. MAST is compensated from a percentage of the rerun gain. Essentially MAST does not make money unless your company makes moremoney.
What is a rerun net gain or net loss?
A rerun net gain or net loss is the difference between the amount of the initially rejected high bid, and the amount of the accepted bid for which the salvage piece is ultimately sold.
What is a negotiated sale?
Negotiated sales occur when the high bid at auction does not reach the set minimum bid, and the auctioneer closes bidding on the vehicle at the high bid. If, through subsequent negotiation with the auctioneer and/or MAST representative, the high bidder agrees to purchase the vehicle at an amount above the previously closed high bid, the difference between the closed auction bid and the agreed sale amount is considered a rerun gain on a negotiated bid.
How are rerun gains, sale amounts, and negotiated amounts verified?
All high bids at the close of sale for each vehicle are independently recorded at auction, both hard copy and digitally. Live sales are videotaped as well. Upon bid rejection, if there is a negotiation between the high bidder and MAST which results in a vehicle being sold, it will be reported to the auctioneer to record the new high bid agreement, and he’ll announce it into the auction record. Any sale amounts can be verified via the auction vendors’ information, and if any questions remain, the auction vendor can access recordings for verification. All detailed data on the insurance providers’ vehicles in inventory is accessible through the salvage vendor’s website.
Why can't my auction service provider do these things? And would they even be willing to work with MAST?
MAST works on behalf of the insurance provider for the sole purpose of improving salvage results. We work with the auction vendor to make sure that happens. The auction vendor wants the insurance provider to be satisfied with their returns, but in addition to insurance providers, the auction company must be sure the needs of the salvage buyers are addressed as well. The auction vendor’s main purpose is to provide a service to move the inventory. MAST reps focus without distraction on our clients’ vehicles to make sure they produce the greatest returns possible. The auction vendor appreciates the efforts MAST puts forth to satisfy their mutual insurance provider customers, because when the insurance provider is happy with the results, it is unlikely they will move their business.
Why aren't major insurance carriers using this process?
They are. Several of the larger insurers employ full time salvage personnel, because they have recently recognized the untapped potential that exists in salvage. This was not always the case. When MAST founder, Jim Hissong, was working for one of the three largest auto insurers in the nation, he persuaded Texas management to not only move their business exclusively to auction, he proposed, organized, and managed their salvage unit for the state of Texas. He independently developed the concept of insurance personnel managing inventory at auction, and employed field specialists to review inventory, confirm title types on sale vehicles, set minimum bids, attend auctions, and negotiate with buyers. MAST gives insurance providers, who may not have inventory levels sufficient to warrant a full time salvage staff, the advantage of expert salvage auction management.
How exactly is MAST compensated?
MAST is compensated by a percentage of the rerun gain. This creates an added incentive to maximize results, because if the selling company does not make additional revenue on the sale of a rerun vehicle, by this compensation method, MAST does not make any money. MAST will also work under a flat fee arrangement, if this method is preferred by the customer.
How do we know we’re not being taken advantage of by allowing MAST to set minimum bids?
The intent is to set the minimum bid as close to the fair market value as possible. In assessing fair market value, all auction variables must be considered, including specifics of the individual vehicle, and the auction dynamics at work on sale day. If minimum bids are set too low, all vehicles will sell without question, many at less than fair market value, and MAST will make no money (under the rerun % compensation method discussed above). If minimums are set unrealistically high, and the bids are rejected when the minimums aren’t reached, subsequent bids will likely not reach the original amount, and MAST will make no money. The key is to set a realistic minimum acceptable bid on each vehicle, and reject those that are unacceptable.
We’ve been setting minimum bids on high ACV vehicles and seem to be doing okay. Why employ MAST?
1) Expertise – This process was developed and implemented over 15 years ago as a part of an overall system of salvage management while our CEO was employed by one of the highest volume auto insurance providers in Texas. In doing so, studies were conducted to ascertain the best method of managing salvage auctions. The best auction results were consistently produced by the attended sales method, where seasoned adjusters, expert in property damage analysis, previewed the salvage vehicles to set minimum bid expectations on all salvage vehicles. They then attended the high volume sales to observe the auction dynamics and accept/reject bids. Previewing the vehicles on site is the most accurate method of estimating minimum bids. Auction attendance allows for interaction and negotiation with the buyers to produce the best possible results, and is the only way to develop true expertise in the field of auction management.
2) Sole focus - Auction management to produce maximum returns is the sole focus of MAST auction experts. Asking claims adjusters, claims managers, or auction personnel to review auction performance is not the most efficient method. Though their intentions and work ethic may be very good, the insurance company employees will invariably be required to perform other claim handling functions which will pull them off target. Likewise, the auction personnel serve multiple functions and customers. Their focus cannot always be on maximizing your company’s salvage returns. MAST expert representatives are provided incentive to identify potential rerun gain vehicles and work for an increased return in a way that a salaried employee of the insurance provider and/or auction vendor is not.
3) Volume – Studies indicate the average rerun net gain on each rerun vehicle sold is approximately $300, and the optimum rerun volume is approximately 20% of all vehicles sold. In other words, indications are 1 in 5 vehicles sell for less than fair market value. The key is to focus on the sales to identify the vehicles bringing less than fair market value. Doing so will increase rerun volume which will produce gross return figures above the norm. MAST experts will work hard to identify the bids which are below fair market value.
How much of an increase in returns can MAST guarantee?
Historically, our customers have experienced increases from 1.0% to over 1.5% in gross salvage return in a quarter by tracking the added revenue from rerun gain alone. In addition to the measurable increase of reruns, there are the gains that can be indirectly attributed to efforts put forth by MAST as we manage inventory on a daily basis. We review all vehicles prior to sale and place minimum bids as appropriate. This sets an expectation for the auctioneer and gives him a target to shoot for at auction. As we research, we’re reviewing the auction vendor’s preparation of the vehicles. We make sure vehicles in inventory are protected and wrapped. We check for potential enhancements to increase their value at auction, including: keys obtained or made when necessary, vehicles cleaned out and washed, flats changed out for spares, missing equipment accounted for, obstructions cleared from wheels when possible to run and drive. These efforts contribute to immeasurable improvement of overall gross return.
Can MAST guarantee that using its services will produce higher returns in comparison to industry performance?
There are many variables at work that influence salvage return. For example, an insurance provider’s total loss parameters affect overall return comparisons. A provider who chooses to total any vehicle which requires a frame replacement despite the cost of repair, will see higher average salvage returns than a provider who would elect to repair the same vehicle. In effect, the company with the frame totals would see higher salvage return averages because they are totaling arguably financially repairable vehicles. In addition, a provider’s book of business will affect the numbers. A company providing coverage on a disproportionate number of high or low end vehicles will see returns which mirror their mix of business. Another example is the titling philosophy of the salvage provider. Titling laws vary by state. Some states allow resale of an insurance total loss vehicle on original title document, if the damages meet the legal criteria. Some insurance companies will legally sell their salvage vehicles on original title. Other companies are more conservative and may choose to sell all of their total losses on salvage title, regardless of the extent of damage. Obviously the type of title affects the return value of the vehicle. These examples outline some of the internal variables that affect industry return comparisons.
What can MAST do to help with my aged inventory?
The salvage laws in some states allow for the resolution of “problem files” by providing an alternative means to dispose of some salvage. At the insurance providers request, MAST account specialists will review aging inventory (usually problem files) and make suggestions as appropriate based on the individual vehicle and jurisdiction to dispose of the vehicle in the most cost effective manner.
Can I try MAST on a temporary basis?
Absolutely. We can discuss location and inventory levels to develop a pilot program specifically tailored to suit your business need. At the end of the pilot period, we’ll evaluate results and plan accordingly.