How to Calculate the Salvage Value of an Automobile

by Timothea Xi

When your car gets into an accident and sustains damage, the car's salvage value is of interest to both you and your insurance company. Ultimately, the salvage value of your car is the amount of money your insurer would get for selling your damaged vehicle to a salvage yard.

You can reach a figure independently of your insurance company, but the latter determines the final percentage deducted from the retail cost -- up to 80 percent, according to online car buying service Cars Direct. Car type and age can also impact the final calculation.

Salvage Value: Questions to Ask

An asset's salvage value is not some magical figure or a forecast that can be derived from a formula, notes corporate software company MoneySoft. It is ultimately an estimate, and more than that, an estimate based on reasonable and rational procedure. To reach this estimate, an assessor needs to ask some basic questions, such as:

  1. What will happen to this vehicle at the end of its useful life? Will it be stored, repurposed, sold?
  2. What will be the anticipated condition of the vehicle at that point? 
  3. In the event of its final disposition, what will be the costs associated with the vehicle's disposition? 

Arriving at a Figure

To arrive at hard numbers, different assessors determine salvage value according to their own methodology. Cars Direct suggests one approach:

  • Obtain the retail value of your car.
  • Reduce the above value by half -- but this depends on the extent of the damage.
  • Get your insurance company's appraised value of your car.
  • Take the average of the retail value and the insurance company's appraised value to reach the current market value.
  • Multiply by the percentage quoted by your insurance company.

Getting Different Opinions

As auto insurance comparison website Auto Insurance Now notes, you can negotiate the salvage price of your vehicle. Check the figures your insurance company quotes with those of local salvage yards to see if they are in line with your and your insurer's estimates. Websites such as iJunkYards help you locate salvage yards near you.

Salvaging or Buying Back

The salvage price is just one factor to weigh among several when deciding to take the settlement, salvage the car or keep the car.

In the event you want to keep your car, the settlement check you receive from your insurance agency is the value of your car minus its salvage value, less any deductibles.

Tip

  • If you retain a salvage car with a view to driving it, you have to obtain car liability insurance. However, insurance companies often do not provide full coverage for salvaged vehicles. Ask your insurance company whether obtaining insurance is feasible with your particular vehicle. If not, Auto Insurance Now suggests using your car for parts or accepting the settlement and getting a new car.

About the Author

Timothea Xi has been writing business and finance articles since 2013. She has worked as an alternative investment adviser in Miami, specializing in managed futures. Xi has also worked as a stockbroker in New York City.