Wrecks Die but Not Their IDs : Crime: Police say insurance firms keep ‘salvage switch’ racket alive by auctioning off totaled vehicles. Companies say the sales hold down premiums.

The detectives who spotted the front half of a Honda in a Sun Valley wrecking yard wrote down its identification number, a precaution against the day it would rise from the dead.

Which it did.

Two years after detectives spotted the half-demolished wreck in the auto graveyard, the same Honda--at least, according to DMV records--was rolling again.

But only two things remained from the original car: the title document and the three-inch tin strip riveted to the dashboard with the 17-character vehicle identification number, or VIN, that establishes an official identity.

The rest of the car was a similar Honda that had been stolen. Fitted with the salvaged VIN strip to match the title document, it had assumed the identity of the long-vanished wreck and was sold on consignment through a used-car dealer to an unsuspecting Altadena resident for more than $8,000. And when police impounded the car to return it to its true owner, he was out his money.

The growing practice of using “ghost” identities of scrapped vehicles as a cover to sell stolen cars on the legitimate market--a “salvage switch,” police call it--has insurance companies and police at odds. It is almost always an insurance company, taking title to a customer’s “totaled” vehicle, that decides to write off the wreckage and sell it for salvage.

What police are demanding is that the companies work harder to make sure that wrecks stay dead.

The insurance companies would rather continue as they have been doing--auctioning off the wrecks of cars they class as too expensive to repair. That helps keep their customers’ premium costs down.

Auto-theft detectives, on the other hand, argue that it should be a tip-off that something odd is afoot if what is supposed to be a pile of scrap brings in an unusually high price at auction.

The wreckage of the Honda in the Sun Valley junkyard, for example, sold for $4,000.

“We’re talking about burned-up cars and crushed vehicles with no salvageable parts,” said Detective Bob Graybill of the Los Angeles Police Department, who heads the San Fernando Valley’s auto-theft task force. “They’re paying anywhere from a couple of hundred dollars up to $4,000 for something that’s worth $125 for scrap metal.”

“We’re not trying to stop them from selling every car,” Detective Gary Sims said. “But we are asking that they do something about the cars that are deemed cost-prohibitive to repair and that have suffered major damage or have been totally stripped.”

The solution is not so simple for insurance companies.

“The sale of damaged vehicles through salvage pools is a means to provide significantly lower premiums for automobile insurance to customers,” said Rick Dinon, a spokesman for 20th Century Insurance Co. of Woodland Hills, the sixth-largest writer of private car insurance in California.

Although no statistics are kept on the number of salvaged cars purchased for illegal purposes, police cite burgeoning caseloads as proof that they are proliferating.

“All I do is spend my time solving cases like these,” Sims said. “There are so many cars being stolen this way that there are not enough police in the state of California to deal with them.”

Police usually get wind of such cases through “dumb luck,” if something rouses an officer’s suspicions about the car’s VIN, Graybill said. Certain cars, such as Honda Accords and Preludes and Toyota 4Runners, are better candidates than others, because their popularity with buyers and their large numbers on the road make them popular with thieves.

“We think probably the major problem we have in Southern California is the salvage switch,” said Mike Powell, regional vice president of the National Insurance Crime Bureau, a nonprofit group supported by the insurance industry that tries to curb fraud and vehicle theft.

Last year in Los Angeles about 73,000 cars were stolen, 15% of which were never recovered either because they were broken down for parts at so-called “chop shops,” exported abroad or their vehicle ID numbers were switched, Sims said.

In the San Fernando Valley, the percentage of stolen cars that simply vanish is more than twice the citywide average, according to police statistics showing that 34% of the 22,376 cars stolen last year in the Valley were never recovered.

To make a car “vanish,” thieves use the salvage pools and junkyards that are the legitimate end of the line for badly damaged or simply worn-out vehicles.

Salvage pools are operated by private firms, some of which buy wrecked cars directly from insurance companies and then place them on view in huge lots, where prospective buyers can inspect them and make bids at regular auctions. Others auction off vehicles for a flat fee and the insurance company keeps the remainder.

About 2.5 million vehicles a year nationwide--damaged in accidents or stolen and recovered--are sold at auctions for an average of $1,200, creating a $3-billion market, said Bradley Scott, president and chief executive officer of Insurance Auto Auctions, a Woodland Hills-based company that operates salvage pools in four states.

Some of the cars are purchased by legitimate buyers, such as collectors refurbishing autos or mechanics in search of spare parts.

But one licensed dismantler--who buys wrecked autos, then sells the usable parts--said his business has dropped by 20% in the last four years because he can’t afford to beat inflated bids that he suspects are made by thieves.

“Just about every single car, somebody bid double of what I bid,” said the dismantler. “There’s no way that a legitimate business could buy a car and pay twice as much for it.”

Scott contends that less than 5% of the cars sold by his company are purchased for illegal purposes. He agrees, however, that his firm’s business is booming. He reported making $60 million last year, when the firm ran 14 salvage pools.

Sometimes the scam works in reverse, detectives said. A badly damaged car will be bought at auction and a similar car will be stolen to provide parts to rehabilitate it, putting it back on the road under its original identity.

And sometimes insurance companies will wind up paying claims on the same car repeatedly. Some cars are wrecked, paid off by insurance carriers, auctioned, refurbished with stolen parts and sold, then “stolen again and the same process happens all over,” said Lt. Rich Henderson of the California Highway Patrol.

“We want to break the cycle,” Sims said. He estimated that if insurance companies would stop selling “total loss” and “total strip” cars, theft could drop 10% to 15% in Los Angeles County, where 137,000 cars were stolen in 1992.

Authorities argue that in the long run, insurance companies would have the best of both worlds if they stopped selling totaled vehicles as is, accompanied by titles, and instead surrendered the title to the DMV and broke the vehicle down to its usable parts for resale by licensed dismantlers.

Insurance companies disagree.

“The suggestion that insurance companies could save premiums by not selling the damaged remains of vehicles is to ignore the economics of the issue,” Dinon said. “In the total scheme of things, there is far more benefit from the sale of salvage than there is offset by crime or fraud associated with it.”

Last year, Dinon said his company made $10 million by selling salvaged cars, which helped offset the $200 million in claims it paid.

He also said that if insurance companies were unable to recover their losses through the sale of salvaged cars, the companies would have to repair them instead of replacing them with new ones, subjecting policyholders to long delays while their cars are repaired.

“It’s a tossup either way,” said Bob Hurbi, a property claims manager for Allstate Insurance. “There’s no real way of knowing whether the loss is greater than the gain.”

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Just a little over a week ago, the Los Angeles Police Department received a tip that a salvaged Honda Accord had been re-registered to a Thousand Oaks couple. Detectives determined that the car had been stolen and its VIN switched, Detective Bill Fulton said.

Working with police, the buyers contacted the man who had sold them the car and arranged to get their $10,000 back. When he arrived in Thousand Oaks, Akop Terstepanyan, 33, of Hollywood was greeted by police and arrested.

DMV documents discovered on Terstepanyan led investigators to a Burbank house, where they found three stolen cars, all with switched VINs, police said. Parts of at least five other stolen cars and several detached VINs were found in the back yard, Fulton said.

Police later arrested Oganes Terstepanyan, 38, the owner of the house. The Terstepanyans, who are cousins, were being held on suspicion of grand theft auto and receiving stolen property.

After chop shops and salvage switches, exporting stolen cars abroad is the most common problem, Graybill said. And some schemes have used all three.

Such was the case last month when police searched Oleg Kotlyarevsky’s auto body shop in Van Nuys and found wrecked cars, purchased at salvage pools, that had been stripped of their VINs. During a warehouse search at Los Angeles Harbor in San Pedro, police found the missing numbers attached to four stolen Jeeps awaiting shipment to Russia, authorities said.

Police suspect that Kotlyarevsky switched the VINs from the wrecks to the stolen cars and used forged DMV documents to export them from the United States. He is awaiting trial on one count of cocaine possession and possession of a counterfeit title of ownership, and he faces five counts of grand theft auto.

In an effort to curb such crimes, Scott’s salvage-pool company set up a computerized database to help law-enforcement agencies and insurance companies detect fraud. His firm supplies information on more than 90,000 salvaged vehicles sold annually at its 14 salvage pools in Arizona, Oregon, Hawaii and California.

Scott said his company, at the request of insurers, also voluntarily crushes certain cars--typically luxury models such as Porsches--that have suffered major damage and are likely to attract thieves who covet their VINs and titles. Fewer than 100 cars are crushed each year, he estimates.

Authorities have asked the insurance industry to take voluntary crushing a step further.

Last fall, at the suggestion of police in Orange County, Powell of the National Insurance Crime Bureau said that a proposal was presented to 20 insurance companies throughout Southern California to break down salvaged Preludes and Accords to parts for resale. The rest of the car could then be crushed and the VIN number destroyed. But so far, not all of the companies have agreed to participate.

Sims of the Los Angeles Police Department said he hopes that someday all insurance companies will agree to crush any examples they acquire of the 20 models most popular with car thieves.

On a recent morning, the detective made his way through acres of wrecked cars at a North Hollywood salvage pool.

“This one should be crushed and that one should be crushed,” Sims said, pointing at a completely stripped 1990 BMW and a totaled 1993 Mazda 323--both still fitted with their original VINs--that were destined for the auctioneer’s block the following day.

“I go nuts when I come out here,” Sims said. “It’s just a big, vicious cycle.”