A salvage car auction is an auction in which cars that an insurer has written off after a crash are sold for parts or for rebuilding. A car is written off, also called a total loss, when repairing it would cost too much compared with what the car is worth.
The insurer needs a salvage auction because it has already paid for the car. In India, a motor insurance policy states the car's insured declared value, or IDV. When the insurer writes off a car, it pays the owner this value, minus a small fixed amount called the compulsory deductible. The owner usually hands the wrecked car over to the insurer, which then owns it. It sells the wreck, to get back some of the money.
An estimate decides whether the car is written off. Claims estimation software lists every damaged part and the cost of repair. If the total is higher than the insurer's limit, the car is written off. The insurer then lists the wreck at the auction, with photos of the damage.
The bidders are not ordinary car buyers. Some are workshops that remove undamaged parts, such as the engine or the doors, and sell them as used spares. Some buy wrecks to repair and sell. Some are scrap dealers who sell the metal. Each bidder judges what the wreck is worth in the bidder's own business.
For instance, a workshop owner in Aurangabad sees a wrecked sedan whose engine and gearbox are undamaged. He knows that a used engine and gearbox like these sell for about ₹60,000 together, and that the doors and the glass sell for another ₹20,000. So he can bid up to the amount he expects to earn from the parts, minus his cost of taking the car apart. A scrap dealer looking at the same car counts only the weight of its metal, and so bids less.
A rebuilt car may later be listed on a used car marketplace. In India, the owner of a written-off car must ask the regional transport office to cancel its registration, but this record is not always updated. So a later buyer should ask the insurer for the car's claim history, and can also check automotive market data.
A salvage auction is a kind of online car auction, but the cars are damaged. A foreclosure auction works in a similar way for homes: a lender sells a home that it has taken back, to recover what it lent. The largest salvage auction companies started in the United States and operate mainly in the United States. Indian insurers also sell their wrecks through online auctions, and part of the engineering for these auctions is done in India.