Abu Dhabi, UAEThursday 26 November 2020

Scrapheap no challenge for entrepreneur who made billions out of wrecked supercars

The founder of Copart has turned drivers' mistakes into a $1.9bn fortune

The business of selling damaged autos has never been better for Copart founder Willis Johnson. Getty Images
The business of selling damaged autos has never been better for Copart founder Willis Johnson. Getty Images

The 2019 Ferrari 812 Superfast is a beast by any measure. With 789 horsepower and a top speed of 340 kilometres per hour, it retails new for about $363,000 (Dh1.3 million).

It could be yours for a fraction of the price, if you act quickly and don’t mind a few dents and scrapes. Copart is selling a blue one online with a current top bid of $91,500. It’s one of almost 200,000 vehicles available in its scrapyards ranging from supercars to suburban people carriers, some slightly damaged, some total wrecks.

There was a lot of concern that safety technology would reduce accidents and so there’d be less cars for auction — good for society, bad for Copart.

Craig Kennison, Baird

The business of selling damaged autos has never been better for Copart founder Willis Johnson, a gold-chain wearing Oklahoma native who has turned drivers’ misfortunes into a $1.9 billion fortune, according to the Bloomberg Billionaires Index. The 72-year-old has amassed a network of scrapyards across the US, Brazil, the UK and the Middle East and just last week opened a 8.9 hectare site in Berlin. His son-in-law, Jay Adair, is the chief executive and owns a more than $800m stake.

Copart shares have surged 81 per cent this year, giving the Dallas-based company a market capitalisation of $20bn. Driving the growth are technology advancements that have made cars more expensive to fix and thus more likely to be written off by insurers, as well as international expansion, the company said on a September earnings call. Another factor: drivers distracted by their phones has led to a plentiful supply of cars for Copart to sell.

“There was a lot of concern that safety technology would reduce accidents and so there’d be less cars for auction — good for society, bad for Copart,” said Craig Kennison, a senior research analyst at Baird. But that didn’t account for the spread of smartphones, he added. “Cars may be safer, but drivers are more distracted.”

Mr Johnson and Mr Adair declined to comment through spokeswoman Fatima Ali.

Unlike those who made their fortunes in social media, biotech or hedge funds, Mr Johnson’s ascent was far more gritty.

Six months after graduating from high school in California, Mr Johnson was drafted into the Army. He served a year-long tour in Vietnam, where he earned a Purple Heart, then returned to work in his father’s wrecking yard.

Mr Johnson bought his own yard in 1972 for $75,000, selling his house to fund the purchase and moving his wife, Joyce, and two young children into a 30-foot trailer, he wrote in his self-published autobiography, Scrap to Gold. While Joyce was amenable to the move, she wasn’t a fan of listening to mice chewing on the walls at night, he wrote.

The trailer is a far cry from the Tennessee mansion he bought for $28m from country singer and fellow car enthusiast Alan Jackson in 2010. Mr Johnson keeps his extensive collection of classic cars at the estate near Nashville.

Copart dominates the salvage auction market, with a market value 250 per cent greater than its closest competitor, IAA. One of Copart’s strengths is its relationship with insurers, including a recent agreement with Geico to sell more of the cars they deem too pricey to fix. The company has been able to win more business from insurers because of its ability to handle large volumes of damaged cars following natural disasters such as Hurricane Harvey, according to an October Guggenheim report, which estimated Copart gained an additional 130,000 cars a year under the Geico deal.

Mr Johnson cites Disneyland as inspiration for his business model. His first visit to the theme park gave him the idea of placing a business within a business to maximise income. In his early self-service wrecking yards, Mr Johnson charged a gate fee, sold refurbished parts and made money from scrap iron left over after cars had been stripped.

He was also early to embrace the internet, launching an online bidding platform in 1998, three years after eBay was created.

“They had this virtual bidding process and discovered an unmet demand for American cars,” Mr Kennison said. “The rest of the world was looking for affordable transportation, and they opened that channel up.”

Mr Johnson describes Copart’s car recycling as environmentally friendly in his autobiography. Others aren’t so sure. While selling used parts can be good for the environment, selling intact vehicles to developing markets such as Mexico or Guatemala might not be, said Julia Attwood, head of advanced materials research at BloombergNEF.

“Those countries might not have that stringent regulations, so you’re taking it from a market with very good regulation to one with virtually none,” Ms Attwood said. “If you’re perpetuating the life of a less efficient car, you’re not leaving room for a more efficient one to be on the road.”

Mr Johnson, who describes himself as a risk taker in business, is conservative in his politics. He’s contributed at least $1.5m to conservative causes since 2001, including $50,000 to the “Trump Victory” political action committee this year.

Like most US corporations, Copart has benefited from the lowered corporate tax rate under Trump. But it has also broken new ground, expanding into unfamiliar markets and working with sellers beyond the insurance industry.

The used car market is poised to hit record sales of 41 million vehicles this year, as prices for new cars rise beyond the reach of many buyers, according to an analysis by Edmunds, an auto research website.

“In all my years, I’ve never seen Copart in a better position, [with] a better opportunity to seize the future,” Mr Adair, the chief executive, said on a recent earnings call.

Still, with its recent stock surge, Copart is valued at more than 20 times its expected fiscal 2020 earnings before interest, taxes and amortisation.

Even at such a high valuation, Copart is “a compounding growth story that has a long runway ahead of it,” said Derek Glynn, a research analyst at Consumer Edge.

“Especially with regard to global growth,” Mr Glynn said. “It’s one of the best performing stocks I’ve ever covered.”

Updated: November 21, 2019 02:42 PM

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