By on January 24, 2013

 

Hi Steve. In honor of the recent SAAB coverage, my 2000 9-5 recently decided to become a parts donor.

This whole experience has made me sick to my stomach. No thanks to the insurance company.

The SAAB got wrecked by yours truly. I was driving down a one lane road and somewhere between daydreaming and a sudden stop by the car in front of me, the front of my car got all smashed up.

At first I thought it was nothing. A headlight, turn signal lens, front bumper, a crack on the windshield and a bend on the hood. I would have no problem with just taking a smaller check and keep on driving it. The car only has 125k, and between a brand new turbo and a small oil leak, I’m perfectly happy with this car as my commuter.

The insurance company is offering $2700 if I keep it, and $3350 if I total it out. However I do have a lien on it and the check they are willing to give me if it’s totaled won’t cover my balance.

So what should I do?

Steve Says:

First off, that $3300 won’t be going to you if the car is totaled out. It will be going directly to the lienholder.  I seriously doubt the lienholder will take that smaller check instead, perform the needed repairs, get it inspected and let you keep driving that SAAB with a salvage title. The potential liability involved with financing salvage vehicles these days is simply too great.

Believe it or not, totaling the SAAB can be a good thing for your bottom line in the end. Insurance companies have several forms that need to be filled out and transacted back and forth in the event that the totaled price of a car doesn’t cover the remaining finance balance.

Finance companies and dealerships hate the glacial like pace of this process, and many will consent to just zeroing it out if the deficiency is minor.  If you financed with a large bank, you will likely have a deficiency balance unless you purchased GAP insurance. However if you did it with a Mom & Pop, or another company that doesn’t sell their notes, you may be able to get that balance zeroed out in the end.

When a lienholder agrees to zero out the balance the payout process is simple and straightforward. The insurance company gets the car. The lienholder gets a check. You get to move on with your life.

Consider the real world side of it. A lot of dealerships that self-finance prefer to get the money right away because they know you’re likely not going to pay the deficiency balance anyhow. So I would stay on friendly terms with that lienholder and see if it’s possible.

The second issue you have is valuation. Some insurance companies are incredibly fair to their customers while others are hellbent towards the proverbial screw job.

A $3350 valuation for a 2000 SAAB 9-5 with 125,000 miles may be fair depending on the model and the condition. You need to book it out.

To weigh it all in, I always tell folks to visit three sites to determine their vehicle’s value: Kelly Blue Book, Edmunds.com, and NADAGuides. Kelly has improved their pricing models… but sometimes underprices older vehicles. Edmunds tends to have the strongest pulse on older vehicles. NADA covers the world of auto financing, and they tend to have the highest valuations of all.

Figure out those valuations, and be honest. Not sentimental. Take the high road. A car with a multitude of dents and dings is in fair condition, not average. A good car with some interior wear and a smidgen of paint fade is in average to good condition, not excellent.

Apply all three valuations and get an average. If the insurance valuation comes within 10% or $500 of your average, they are likely a fair broker. Anything more than that, and I would send them a letter highlighting the three valuations and your concerns.

One other thing. You can make special additions for some things that have been recently installed on your vehicle such as tires, a turbocharger (in your case), or certain modifications. Make sure you have those receipts! A detail, recent maintenance, or a minor repair isn’t worth a flip to the insurance company. But some hardware components can be monetized to your advantage. Add that turbo!

Notify the lienholder about your concerns, and talk with them before sending the letter. They may be doing the same exact thing as you. If the insurance company still doesn’t want to move then you can get a letter written up by a lawyer or even a consumer advocate. I have done a few of them (less than a dozen in over ten years). To be blunt though, I believe that persistence and a good presentation makes this step unnecessary except in extreme or high stakes cases.

Be friendly, be honest, and don’t be afraid to be persistent. It’s the squeaky wheel that gets the grease when it comes to insurance claims. Good luck!

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62 Comments on “Problem Solver: How To Value A Totaled Car...”


  • avatar
    npbheights

    There is a negotiation strategies book called Getting To Yes that has an example of how to negotiate an insurance payout for a totaled car. It’s worth a read in your case.

  • avatar
    pick-a-partier

    I am an adjuster for an auto insurance company, and it breaks my heart when Saab claims cross my desk, because they ALWAYS total out. I hate taking them off the road. The problem is, there are just no parts. Even used parts are hard to find, and even harder to find in insurance-quality condition. Unless you have a friendly relationship with an independent bodyshop, I would not recommend buying this vehicle back, as it will get out of hand quickly, and you will not have any help from your Ins company.

    Remember during your negotiation NOTHING is off the table. How much gas do you have in the tank? Did you recently renew your registration or state inspection/emissions? Have you bought new tires lately? All of these things can be valued. (The gas is a stretch- but I have seen it happen several times).

    Another strategy you may consider is to find some comparable sales in your area. I have know some customers who have had luck compiling local sales data for similar models/year (think Autotrader) and presenting this data to the total loss adjuster.

    Good luck with your claim, and sorry to hear about your car!

  • avatar
    RangerM

    If the lender agreed to “zero out” the balance, I’d think this would show up as a debt settlement and negatively affect his credit score.

    Not something you want, if you ever want a house.

    • 0 avatar
      Dr. Kenneth Noisewater

      Additionally, is there any income tax liability incurred?

      • 0 avatar
        ClutchCarGo

        I know that people going thru short sales on homes (mortgage holder agrees to let the house sell for less than the mortgage amount and waives the difference) can wind up on the hook for taxes due on the short difference. That amount may not be much in the case of this Saab but it is a consideration.

      • 0 avatar
        28-Cars-Later

        Funny how money made on the home would be taxed as a capital gain at its rate and yet losses are not? Curious.

        You must report any taxable amount of a cancelled debt for which you are personally liable, as ordinary income from the cancellation of debt, on Form 1040 (PDF) or Form 1040NR (PDF) and associated schedules, as advised in Publication 4681 (PDF), Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). You must report the taxable amount of a taxable debt whether or not you receive a Form 1099-C.

        http://www.irs DOT gov/taxtopics/tc431.html

    • 0 avatar
      Detroit-Iron

      Excellent point. See challenger2012′s story below.

      • 0 avatar
        Steven Lang

        Let me offer a Cliff Notes version…

        Large finance companies typically do not offer any type of settlement for a deficiency balance. They just take the money and run. Also, they routinely report the outcomes to the credit bureaus.

        Mom & Pop firms, and companies that don’t sell their papers (such as title pawns), usually don’t report to those institutions.

        I’ll give you two examples.

        A customer goes into a title pawn, which is a lending institution that usually doesn’t even do a credit check, and gets a $3000 loan. The vehicle is wrecked and the insurance gives out a $1500 payment to the lienholder.

        In this case the bad debt will simply be a charge off.

        A customer finances with a small buy-here pay-here dealership which doesn’t perform credit checks. The vehicle gets wrecked and the insurance company, once again, cuts a check to the dealership.

        In this case, the dealership has the option to have a simple form filled out which effectively forgives the loan for the deficiency balance. They also have the option of not reporting the deficiency to a credit bureau.

        A settlement, which is what you mentioned earlier, is an event where a person agrees to pay off a certain portion of the deficiency balance in exchange for a forgiveness of the remainder unpaid balance. That’s not the case here.

        Hope this helps…

      • 0 avatar
        DenverMike

        @Steven Lang – It sounds like when a BHPH financed vehicle gets totaled, the BHPH customer is under zero legal (or moral) obligation to pay off a deficient loan balance after the insurance co cuts its owner, the dealership a check for its KBB value.

  • avatar
    redav

    Love the insightful articles, Steve.

  • avatar
    rpol35

    I just went through this with my son who had a 2006 Impala that was totaled by a girl that decided to use his car as a backstop while traveling at 35 MPH. I guess it is hard to use the brakes when you are busy texting………….

    Anyway, the insurance company low-balled me on a settlement so I went to Autotrader and found many examples of the exact same car, with more mileage and fewer features, that were for sale at considerably higher prices than what the insurance company offered.

    That strategy worked and I got them up about $1,400. Now granted, it was an Impala and not a 13 year old Saab, and there are many of those for sale and still in circulation so it made my task a bit easier but I would try a similar approach. You are not obligated to take the first thing that they offer and it is a negotiation; you want the maximum and they want to pay the minimum. They’ll give you some song and dance about how they’ll “lose big time” if they give you anymore, just remind your agent or representative how much you have paid them in premiums over the years (as long as you haven’t had a lot of lossess/claims); that shut my representative up in a hurry.

    Good Luck!

    • 0 avatar
      challenger2012

      @rpol35 I think how you are treated depends upon if it is your insurance company or the other guy’s. Ex: I was driving my girlfriend’s (now wife) car, when a women crossed the double line and took about 6 inches off the left side of the car. We were both doing 65 MPH. The impact knocked us in a ditch and the car flipped 3-4 times. It was totaled, and the women driving the other car received a ticket and admitted fault. (She was reaching down to pick up her dog and swerved into my lane.) To value the car, I looked at NADA, KBB and another source. The woman’s insurance company, the good hands company, offer was about 1500 below the other three estimates. I called AS and asked why. I was told AS uses its own evaluation. If I did not like the offer, I could go to court. While I could sue, we still owed payments on a totaled car, and no one will give you a new loan while you are on the hook for a totaled car. The car was financed through Ford. Ford took the check from AS, then left a surprise on my girlfriend’s credit report due to the check from AS not covering the amount of the loan. Ford took the money and ran, left a ding on her credit score, and didn’t tell us. I will give you an example of how personal property coverage works. At $15 CD is worth $3. A $300 aftermarket radio is worth $100. Do you see a trend?

    • 0 avatar
      Gardiner Westbound

      “They’ll give you some song and dance about how they’ll “lose big time” if they give you any more…”

      Ya sure. That’s why insurance companies own all those A-class office buildings in prime downtown locations.

  • avatar
    PrincipalDan

    I have been both fortunate and unfortunate in that I’ve only had to deal with one totaled vehicle. I was unfortunate in the fact that it already had a salvage title (my father had orginally purchased it from a body shop and knew that). Combine the salvage title with a high deductable and I got a check for $1000. Luckily the car was paid for and I used the $1000 as a down payment on a nice used car.

  • avatar
    DC Bruce

    Not an attractive set of choices here. if the lienholder compromises on the amount of the debt, the forgiven amount is taxable income to you; and you get a major hit on your credit score, which will sit there for 3-5 years.
    Perhaps you can bargain with them about how this is reported to credit bureaus . . . but may not have much luck, since they’re already eating an unpaid loan balance.

    A couple of other strategies, but their advisability depends greatly on two facts not included in the article: (1) the amount of the loan deficiency and (2) the cost of actually repairing the car.

    If you have access to another source of credit . . . even your credit card, you might consider:

    A. Taking the lower amount of money, fixing the car and paying off the car loan with the proceeds from another credit source + whatever is left of the insurance payment after you fix the car. This avoids your having to replace the car (I assume you need transportation). Since a 13-year old Saab can’t be worth much, a 13-year old Saab that’s been patched up and has a salvage title can’t be worth much less. The point is — to you — the value of the car is what it will cost to replace it, which may be a lot more than $3,000.

    or

    B. Total the car, use the larger insurance payment to pay down the car loan and either find some other source of cash to pay off the rest, or see about working a deal with the lender to convert the unpaid balance of the car loan into an unsecured loan (since the car is gone)for the balance, perhaps at a little higher interest rate to compensate them for the additional risk of no collateral. Obviously, the smaller the deficiency between the insurance check and the loan payoff amount, the easier this will be. The benefit of this solution is that the amount of cash you have to come up with is much less than solution A. The negative of this solution is that you still need to buy a car. Also, if you itemize deductions on your income tax, the part of the loan not covered by the insurance payment may be deductible as a loss.

    You are lucky that you even have a choice between keeping the car and declaring it a total (since I’m assuming that the lower figure is the insurance company’s estimate of the cost of repairs). In a lot of states, state law requires the insurance company to declare the car a total and take possession of the wreck if the cost of repairs is more than X percent of the value of the car, and the “X” is a lot less than 80%. I believe California is one of those states.

  • avatar
    Land Ark

    This happens all the time with newer cars. If you owe more than the value of the totalled car and don’t keep the car, the lein holder gets the check and you pay the difference to the lein holder. It’s up to you to work it out with them. Just because the value is less than the amount owed, it doesn’t mean the insurance company is doing anything wrong. When you take out a loan on an older low-value car, you are likely paying a large amount of interest, which puts you in this position right off the bat.

    When I was an adjuster and had to deal with the value of totalled cars, unless it was collectible it was rarely a negociation. We had to look up the value through a program that NADA has for insurance companies and that was what we based it on. That way it was fair to everyone. And to be honest the values were pretty good. In the times it was off, people could submit comps, but that’s difficult because everyone knows you don’t pay asking price, so if you are arguing your car is worth $200 more, you won’t get it.

    If you didn’t cooperate and weren’t actively attempting to resolve the differences, you’d wind up with your car in your driveway and a check in the mail.

    Keep in mind, when you are at fault going through your own policy every dollar goes to the total cost of the claim and can affect the premium you pay. So if it’s worth fighting for that extra couple hundred bucks, make sure you are prepared for that amount to be made up over the next couple years in your rates.

    My advice would be different if you owned the car outright (keep it, paste it together, and keep driving). My advice now is to take the larger amount and get it paid off and move on something else. Hopefully something more affordable that you don’t need to take a loan out to get.

    • 0 avatar
      dude500

      Land Ark,

      Are there any disadvantages to presenting comps that are higher value? It seems like it is at least worth a shot, if there are no downsides. Thanks.

      • 0 avatar
        Land Ark

        Sure, as I said, sometimes the valuation was off. So if you can show that the car is worth a few grand more than what comes up it’s worth pointing out. I rarely let it get to that point though since I can spot a low value a mile away and I’d try to get a decent number before talking to the customer.
        As far as disadvantages other than raising your rates if you are right, it can slow the process down. I had totals in and out with a check in a matter of hours. But if you want to look at the numbers it might wind up taking days or even weeks to resolve. If it’s not your primary car, that probably doesn’t matter.
        Don’t forget, I also have the ability to look up comps to counter the ones you provide. We’ll both be cherry picking and more than likely we’ll end up in the middle where the original value was to begin with.
        If you are NOT at fault complain, scream, and throw a fit. Always try to go through the other person’s company until it becomes hopeless. You have a lot more room to negociate since you never signed policy documents with them.

    • 0 avatar
      28-Cars-Later

      “If you owe more than the value of the totaled car and don’t keep the car, the lien holder gets the check and you pay the difference to the lien holder”

      I would say the lesson is if you can’t buy the used car for cash, buy/lease the new one and buy the extra insurance which covers new car replacement, I don’t imagine its much more.

      • 0 avatar
        Land Ark

        I should ammend that, either way the lein holder gets the check if it gets totalled.
        But yes, gap insurance (which is what you’re referring to) can be a good thing for folks without great credit. If you are paying more than 8% or 9% interest on an auto loan you should think about gap coverage until you pay off enough to get to the current principle value.
        It’s a little more expensive than you’d probably think, but way less than the alternative should it happen.

      • 0 avatar
        28-Cars-Later

        Now I’m actually curious for a quote on this Gap insurance Land Ark. I own both of my cars but it would be helpful to know in the future.

        UPDATE: I just called my agent for the hell of it, she explained they (State Farm) don’t actually offer it on their policies. The way it works evidently, is its something you sign up for when initially setting up the car’s loan. She wasn’t sure how it was structured in terms of fees. I would assume a percent of the loan balance, unless its flat fee which I doubt.

      • 0 avatar
        mnm4ever

        Gap insurance is available as a separate product, you can buy it from any number of sources. All 3 credit unions I have financed with offer it as an add-on to the loans too, and luckily my insurance company offers it as an option too. Shop wisely though, prices vary dramatically, but I would always recommend it on any car loan.

      • 0 avatar
        DC Bruce

        Better yet (if you can), don’t finance 100% of the price of the car, new or used. Put in enough cash as a down payment to take care of the first year’s depreciation. In today’s low-interest rate environment, the opportunity cost (i.e. forgone interest) of doing that may very well be less than the cost of buying “gap insurance.” And also don’t always bite at the longest-term loan you can get in order to give you the ability to buy a more expensive car and handle the payment. It takes longer for the payments on those loans to start reducing the principal balance to any significant degree.

      • 0 avatar
        krhodes1

        Re Gap Insurance – as an example, BMW Financial offers it for $500. I did not partake as I put enough down on the car to ensure I would never be upside down on the note.

        One thought for the OP – perhaps it would be possible to find a cheap enough body shop estimate to fix the car that it would not be “totaled”? But otherwise, I agree, scrounge the money to pay it off without a credit ding and call it a lesson learned.

    • 0 avatar
      Land Ark

      @28 Cars Later – Maybe you already figured this out. But yeah, you only get gap coverage when you are making payments and the amount owed is higher than what the car is worth. Namely the interest amount. Once you pay off enough the cost of the coverage will outweigh the benefit having it.

      • 0 avatar
        28-Cars-Later

        Thanks for the info, honestly I’ve never been in that sort of position with a car. I’ve always bought used and been very meticulous about its value when I purchased vs what I paid.

    • 0 avatar
      Land Ark

      @ DC Bruce: This is the best bet. By putting enough down to get yourself under the car’s value you are essentially getting free gap insurance.
      The way I do it, I try to finance no more than 75% of the car and get the shortest loan I feel comfotable with. And because I hate being in debt so much I usually double up the payments to get out from under it.
      As far as insurance goes, having been an adjuster I have ridiculously high limits. I’ve seen what can happen after one mistake. It’s not pretty.
      My biggest peice of advice is to shop around for insurance as often as possible. I do it every 6 months. There is no benefit to being loyal to a company if some other one can give you the same coverage for less.

  • avatar

    I got rear-ended in my still in great shape ’95 Explorer, bent the rear bumper up pretty good, but no other damage that required any sheetmetal repairs.

    I took it to the body shop, the body shop calls me after a couple days and tell me they are going to total it out, because there was a wrinkle behind the taillight from 10 years prior. I explained that to them, and they still were on the fence about it.

    Insurance calls me up to talk to me about it, and explained again that they were going to total out a perfectly fine SUV with a $500 bumper replacement, they claimed it has $2400 worth of damage, and yet I can’t tell that the body is in anyway damaged despite owning it for 8 years at that point and knowing every inch, and dent of that car. Insurance tries to total it again, and I told them that if it had frame damage, or was caved in on a side, then they’d get no argument from me, but to total it over a $500 bumper, someone’s getting screwed and it won’t be me. So they relent esp. after seeing pictures of the overall shape of it (like new considering the age) and send me a check to repair it how I see fit ($1,900!), and not total it out or salvage it. I put a nice reconditioned bumper on it, and it looked like it had never been hit.

    Fast forward 18 months, I get clobbered again by a hit-and-run in the rear. Insurance (Same as before) pays out the the $500 bumper so I paid $250 for another reconditioned bumper and a frame check.

    It still looks like its never been hit, even though its been rear-ended 4 times in its life. Twice with me, twice with PO.

  • avatar
    kvndoom

    When my stepdaughter totaled her piece of shit BHPH Grand Am, the BHPH dealer made out like a bandit!

    Between her down payment, the $220 a month she was paying him, and a $4800 check (!) from her insurance company, he got over $7000 for a raggedy 2002 Pontiac with almost 200,000 miles on it.

    The good that came out of it- she wasn’t hurt, and her dad ultimately found her a 1996 Acura TL in mechanically excellent condition that she was able to buy with cash.

    The bad – she will be paying over $100 a month for just liability on a 1996 car until she turns 25. Full coverage on *anything* will cost her upwards of 250 monthly, so she can’t finance jack shit. But then again the wreck was totally from her stupidity, so it’s an expensive lesson learned.

    • 0 avatar
      28-Cars-Later

      That’s a shame, but fortunately she was not hurt. The episode also goes to demonstrate:

      -A 2002 Pontiac Grand Am can actually run for almost 200K.
      -Said Pontiac had a decent safety system enough where this girl escaped unscathed.
      -Some BHPH dealers should be charged as criminals.
      -And finally, insurance companies *are* criminals.

      • 0 avatar
        Land Ark

        I have had my buddy’s 1998 Grand Am on DeathWatch for the last 6 years. He has over 225k and counting. I keep telling him that every time he gets the oil changed he is exceeding the value of the car by maintaining it. But that stupid thing keeps chugging along.

      • 0 avatar
        28-Cars-Later

        I’m guessing the V6 (should be 3100)? Although I suppose the 4-cyl could last as long, I do know of an 03 GA 4-cyl (2.2 OHV) with 170K and kicking.

      • 0 avatar
        davefromcalgary

        GM 4 pots can actually be very long lived if a) they’re well maintained and not hooned and b) they weren’t a lemon from the start.

        -My friends 95 sunfire (2.2L OHV, 5 speed) went to just under 400,000 kms before it minor systems started failing everywhere
        -my 98 Grand Am (2.4L Twin Cam, 5 speed) also made it well into the mid 300,000 kms before I sold it to my friend, and he stopped driving it. Once it was not being driven dailiy it went south fast but when daily driven, it was rock solid.
        -my 2002 Alero (2.2 ECOTEC, 5 speed) has 263,000 kms currently and still starts every time in the dead of winter, and gets 9.5 city,7 highway (25mpg city, 33 mpg highway)

        Granted, alot of people have had opposite experiences. Perhaps I have been lucky.

      • 0 avatar
        28-Cars-Later

        @davefromcalgary

        I have 164K on my ’98 Saturn SL1 (1.9 dohc) although the auto transmission is starting to act up.

        The 2.2 OHV at this point is proven to me because as you point out the lemons would have all gone to the yard by now. I’m wary of the first gen Ecotec just because of GM’s track record of rolling out new technology, but it sounds like it works.

      • 0 avatar
        davefromcalgary

        @ 28

        First off, totally agree, the 2.2 OHV is bulletproof.

        With respect to GM’s OHC engines, my experience is as follows. A close family member had a 92 Grand Am with the Quad 4. It was impressive power for the time, but hell on earth to work on. The Twin Cam evolved from the Quad 4, and I found it pretty solid in my 98 GA. It was much easier to work on and seemed to require less babying. That being said, I also purchased a 2000 Sunfire GT with the same powertrain, very low miles, and wow, what a POS. Hense my comment on sifting through lemons.

        The basic ECOTEC 2.2 seems solid, and I think it is because its nothing special. It incorporates the balance shafts, cam driven PS Pump, ignition plate system as the Twin Cam, but was engineered for smoother running. I think the basic ECOTEC 2.2 is a pretty solid runner, because its pretty much evolutionary on some designs that were already proven solid. I think the 2.4 ECOTEC is pretty solid as well, but I am prety wary of the forced induction ECOTEC’s. Great power and driving charecteristics but very flaky. A buddy of mine who works in a shop pretty much rents a bay full time from his boss for his Cobalt SS turbo.

      • 0 avatar
        28-Cars-Later

        Good feedback, thanks for the details. I’m kinda hankering for an Grand Am/Alero 4-cyl beater now.

      • 0 avatar
        PrincipalDan

        @28-cars-later – I’d still rather have a Sunfire GT 5-speed. Lighter weight with the grandbaby of the Quad Four family.

      • 0 avatar
        28-Cars-Later

        I’ve *always* heard things about Quad-4 (deserved or undeserved) so to even hear its name associated with a car I’m looking to purchase gives me shudders. Sounds like outside of the 2.2, you’re getting its descendants though :)

      • 0 avatar
        davefromcalgary

        A 4 cyl Alero that has been thoroughly shaken down is better than the Sunfire and 4 cyl Grand Am (in my opinion) because of the chassis. The Alero comes with 4 wheel independant suspension and 4 wheel discs. This was never available on the Sunfire/Cavalier/Cobalt, never on a 98 or older Grand Am, and only sometimes on a non-GT Grand Am (1999-2004).

        When I was looking for a small to midsized used GM in late 2008, the suspension setup of the Alero, available manual, combined with its comfortable seating for 4 and good sized trunk sold me. Paid cash and have no regrets.Have put on 120,000 kms in the 3+ ish years since I bought it.

        PS: I think they ironed out most of the nightmare issues with the quad 4 by the time the Twin Cam was a few years old, definitely by the time the basic ECOTEC came out.

      • 0 avatar
        28-Cars-Later

        Fun fact: The Quad-4 was the last production engine developed directly by Oldsmobile. The Aurora 4.0/Shortstar 3.5 were technically based on a Cadillac design.

      • 0 avatar
        DenverMike

        And so the plot gets thicker? A BHPH car buyer is simply a renter that drops a huge down payment (or the street value of the car itself)on a POS until the lot owner (and scammer) signs over title? Effectively paying for the car at least twice???

      • 0 avatar
        28-Cars-Later

        @denvermike

        That was the game as I saw it, although I’ve been out of the game for a number of years. Maybe some other dealers aren’t as cutthroat, I can’t say.

        So in the case of the girl in the 02 Grand Am, she prob bought it with say 150K-170K in 2010. Whats a nine year old domestic car (2001 prod year) north of 150K really worth? Give you some perspective my mechanic dabbles at the as-is auctions, he picked up a ’96 Geo Prism (aka NUMMI Corolla) with 180K on the clock for $800 before Thanksgiving. I see the Grand Am a bit more, $1200-$1500. So BHPH lot picks it up for say 15 bucks, Insurance payed out $4800 so blue book is around this price. They wouldn’t price it less than KBB, so they put at least 5K on it, prob 6 and came down to 5. Girl put down 20 to 25 bucks, payed for the car. She then pays a 3Kish note for $220/month for, I dunno, 18 months. She then wrecked it, so that $4800 payday goes to the lienholder -the dealer- and girl (I believe) still owes the balance of the note (even if she doesn’t, the deposit is not refundable). So shes out her deposit, the car, and the lot got a fat payday of 6-7K for a beat ride. The lesson is don’t BHPH.

      • 0 avatar
        davefromcalgary

        Regarding early 2000′s GM cars, I also wanted to mention that in many cases, the engine will easily outlast the body. This is the issue I am struggling with currently, its definitely common on Aleros.

    • 0 avatar
      DenverMike

      That’s bizarre. Her paying over $2000 for the POS Pontiac is one thing (God help her!), but how does it turn into a $7000 payday for the BHPH???

      Shouldn’t she get the balance of insurance payout? She’s be on the hook if she was upside down, right?

      • 0 avatar
        28-Cars-Later

        You don’t own the car in BHPH, its legally the property of the lienholder, the lot. The BHPH scam is something like this: you buy beat, usually junky, cars for sub 5K. You then double the price for retail. Buyer has no credit, thus no leverage, so you negotiate a price around the super inflated retail price, and take a hefty down payment plus a payment @ X percent – this down payment covers the actual cost of the car. So you sit back collecting payments at 18% and still legally own the car. One of about three things happens.

        -Buyer pays off the car plus interest and lives happily ever after.
        -Buyer fails to make payments, trashes it, and forces you to repo. Since the car was already payed for you’re not out any principle and made whatever you did on payments. You now have the car back and either recondition it or liquidate it at a slight profit. But you still have the note, which I believe in theory you could try and collect on.
        -Buyer fails to make payments and steals car. You report it stolen and possibly eat the loss unless you use your insurance. But again you’re not out principle because you covered yourself. If it ever turns up again, it would be returned to you.

        From what I was told the key to this strategy is to take their money, collect some payments, and then get the car repo’d over payment infractions. Why? Assuming you get it back, you then have a free car and have collected some payments on it. If its worth reconditioning the next time it sells its almost pure profit.

      • 0 avatar
        mnm4ever

        Yes that’s typically how it works at BHPH, I had a friend who used to do it, was a big laugh to him. Down payment covers the cost of the car, and the payments are the gravy. Then over half of the buyers quit paying, so we would go repo the cars, then he’d resell them. Some of his regular customers would go through that same cycle over and over, they would buy the same car 3 or 4 times, with the same terms, pay for it over and over.

        I am sure not ALL of them are bottom feeders (Steve does BHPH of a sort right?) but it sure seems to attract the worst of the buyers and the sellers. You can see by the down payments advertised right on the cars how bad the deals are. I never understood it either, if you have $1200-2000 to put down on an old crappy car at a dealership, why not just buy a cash beater from a private seller for the same price?

      • 0 avatar
        Sajeev Mehta and Steve Lang

        The days of that type of activity in the BHPH segment are long, long gone.

        Most deals break even at around the nine month to eighteen month level.

        The average down payment in the industry is right around $950. At the beginning of this year, I would have guesstimated an average inventory cost at about $3500 per vehicle. By the end of this year, it was likely in the $3800 to $4000 level on average. However the terms of the loans are getting longer as well, which is where the real profit is established for those who don’t sell their paper.

        It’s a completely different business today. Feel free to google automotive asset backed securities, J.D. Byrider, Drivetime, or just read up on a few of the industry publications like autoremarketing.com or usedcarnews.com .

        Hope this helps…

  • avatar
    mnm4ever

    Maybe it works differently with mom-and-pops, and it could vary by state, but in FL if you total a car that you have a lien on, you owe the difference regardless.

    You do not HAVE to surrender the vehicle though, you just owe the money. If the insurance company offered him $2700 if he keeps the car, and he owes, lets say $4k to the finance company, he can cut them a check for $1300 and keep the car and do as he pleases with it. Fix it cheap, keep it as a salvage title commuter, part it out, whatever. The lien holder doesn’t own the car, they just have a lien and they have to be paid first before releasing that lien. As further evidence, if the OP chooses to accept the $3300 and total the car, the insurance company takes possession, not the lien holder, and then they sell the car to a salvage place. The OP will still owe the balance on the loan, and will still have to come up with the extra $700 or whatever the balance is.

    Banks don’t want to own totalled salvage title cars. They might even let him just keep making payments on it.

  • avatar
    davefromcalgary

    This story only serves to reinforce the logic of paying cash for a used/cheaper new car rather than having payments on something new/newer/nicer/more expensive.

    • 0 avatar
      PrincipalDan

      Or simply make sure that you are borrowing at a rate that makes sense.

      I purchased a 2004 F150 Heritage in 2006. The cost of the vehicle was approximately $11,500. The payments were $230 per month for 5 years (through the credit union). The loan principal dropped faster than the value of the truck. I still have the truck and KBB says it is still worth roughly $6,000. It is long paid for and still working hard. Not bad for an 8 year old truck.

    • 0 avatar
      mnm4ever

      IIRC the GAP insurance added about $250 to my loan, spread out over 5 yrs unless I just wanted to pay for it up front. That is less than $1 per payment, and eliminates any concern of being upside down on my car ever. If you paid cash for a car and total it, you take 100% of the hit for any depreciation; if that is more than $250 then GAP insurance wins. I understand that your logic is to buy older cheaper cars so there is less risk, but $250 is hardly enough to worry about. With today’s interest rates I would rather hold onto my cash.

      • 0 avatar
        DenverMike

        I think GAP coverage just insures the difference between the loan and depreciated value, and not the depreciation itself.

        I understand you preferring to hold on to your cash, but paying cash does have its own rewards. It goes without saying if you’re a business owner, self-employed or generally lack a guaranteed paycheck.

      • 0 avatar
        mnm4ever

        @DenverMike – Excellent point of the difference, you are completely right. And I am by no means saying that paying cash is bad, I completely understand where it can make sense, especially in the situations you described. Hell, I was thrilled to not have a car payment at times we have paid off our cars, it is a nice feeling even when you have steady paychecks coming in.

        My only point was that the need for GAP insurance is a pretty small cost compared to all the other factors in buying a (typically) depreciating asset like a car. And depending on the timing, you could lose out on a lot of money in a cash situation compared to a finance or even a lease.

      • 0 avatar
        DenverMike

        I don’t recommend ‘always paying cash’ for a car, except that it should reflect your income level, cash or financed. A person paying cash for a $20K car should have another $20K in savings or whatever. Naturally, most will be eyeing $40K cars at that point. Just keep it realistic is all I’m saying, cash or financed.

        Also $250 spread over 60 mos is at least $4 a mo. A latte either way.

      • 0 avatar
        davefromcalgary

        @ DenverMike

        Another bang on point. Whether a cash or good loan purchase, people need to buy smart, not just with their heart.

        Seems like TTAC has some responsible people. Me likey.

      • 0 avatar
        mnm4ever

        @denverMike – once again, very strong point, I totally agree.

        And yes, you are right, it was about $4/mo, my math skills are showing lol. I was actually thinking $1 a week, but then my fingers typed faster than my brain.

    • 0 avatar
      davefromcalgary

      Thanks for your well thought out replies, and for hitting the nail on the head. While I personally have a totally debt free philosophy (though I am currently paying off crappy old debts from my less responsible days, I don’t and won’t go into any new debt), I understand that a properly negotiated loan is a valid way to do business in this world.

      mnm4ever sums it up perfectly, you just need to make sure that you wont be “upside down” on your car loan.

      PDan’s story brings up another aspect of this topic, I think. A lot of people are constantly trading in/trading up, which can turn a good loan into a scary one in a hurry. Either that or people are taking long term loans with small payments and as you guys said, the car loses value faster than the loan. Obviously this can lead to trouble and I guess people just have to really question things like how long they expect to keep the vehicle vs. the terms of the loan.

      PS: Not trying to preach on debt vs debt free, its just where I am in my life, so my comments tend to reflect it.

      • 0 avatar
        econobiker

        “A lot of people are constantly trading in/trading up, which can turn a good loan into a scary one in a hurry.”

        Actually, many of those people are no longer doing the trade and loan roll-up since the credit crash. They thought that they could do that with their homes also but it didn’t quite work out.

        I have some former relatives who were notorious for rolling loans into new vehicle payments. Somehow the couple finally did the math, realized how upside down they were, and to my knowledge, have been digging out of the big hole (Dodge Ram 3500 with flatbed for his welding business and a Lincoln Navigator for her /child transport) for about the last five to six years sticking with those last two overpriced vehicles even with fuel prices spiking upward.

      • 0 avatar
        davefromcalgary

        Good point about the credit crunch Mr. econobiker.

        It might be different here in Alberta. Everyone here thinks were “in a bubble” because of the oil sands. Because of this I am still seeing a lot of people locally on the constant upgrade train.

      • 0 avatar
        28-Cars-Later

        Honestly if I were that underwater on cars, I would find some dishonest way of getting out of it.

      • 0 avatar
        DenverMike

        I don’t recommend the dishonest way for obvious reasons, but so what if a person forgets where they parked? Is that a crime? It’s happened to me more than once, and so what? What if that place was Tijuana? Hey, it happens. What if I forget the keys hanging on the trunk lock? Been there, Done that… all of that, but just not all at the same time…

  • avatar
    markholli

    Claims adjusters can be absolutely ruthless and dishonest in their valuation of a vehicle.

    A few years back I had a ’98 ES300 that was totaled while parallel parked…75 year old man got distracted and smashed into it. The adjuster gave me a low-ball offer, and among the reasons for his low price he cited “tires worn/need replacement,” a $500 deduction. I quickly produced an invoice from Discount Tires showing that I had purchased tires only a few months previously.

    It’s surprising how often people fail to realize that they can negotiate, and in many cases thousands of dollars are on the line. Trade-in value is another area where people often get the screw job.


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