The research question at top of mind today is: how has Copart (CPRT), a “global leader in online vehicle auctions,” been able to grow revenues far faster than GDP growth over the last ten years? It has increased market share in its most mature market, the U.S. It has entered new markets: UAE, Brazil, Germany, and Spain in 2013; Bahrain and Oman in 2015; Ireland and India in 2016, and Finland in 2018.
Yesterday’s quarterly earnings conference call though revealed an additional factor–“less repairable cars.”
As they say:
“Repair costs, particularly for new cars, are trending now at a rate exceeding that of inflation. An increase in the number and the average cost of replacement parts, the growth in pre and post repair scans and the supplemental damages they’re identifying, the lack of capitalized repair capacity and the consolidation of the repair market by the three major MSOs are all leading to a rise in repair cost. We believe the industry is simply trending to less repairable cars.”
Higher repair costs push insurance companies to declare more vehicles as total losses.
“Organic growth in the salvage market is driven, we believe, by an increase in total loss frequency. Published statistics suggest a total loss frequency of 19.9% for the first quarter of calendar 2019, an increase of 2.6% over the same quarter last year. This metric measures the percentage of estimates written that result in total losses. What is not reflected in this metric is the increase in the instances in which insurance companies salvage cars without ever writing a repair estimate. Our conversations with insurance company executives as well as the current trends and assignments lead us to believe that the growth of total loss frequency is higher than that published.”
If this analysis is correct, one would expect to see a variety of secondary and tertiary effects show up in related industries over the next decade–at the very least, among auto insurers, automakers, and auto parts purveyors.
Wide Moat Investing 