Chapter 3

Cyclical or Structural

Copart's insurance volume has fallen for three straight quarters, and the reason matters more than the magnitude. Two forces are at work. One is cyclical — consumers dropping coverage and carrier mix rotating away from Copart's biggest accounts — and it is already moderating. The other is structural: RB Global's IAA is reporting salvage market-share and contract gains over the same window. Copart's auction returns remain the industry's best, but a slice of the decline is share it has to win back.

The moat: liquidity that lifts returns

Copart's advantage is not the fee model — it is auction liquidity, and liquidity is what keeps insurers sending it cars. The company has run an exclusively online auction since 2003, nearly two decades before rivals were forced digital by COVID-19, and it now carries roughly 300,000 paying registered members from almost every non-sanctioned country [1]. International buyers take about 40% of the vehicles sold at Copart's U.S. auctions and account for close to half of auction proceeds, because they buy the more valuable cars [2]. The demand pool is deep and unconcentrated: the ten largest individual buyers together purchase only a low-single-digit percentage of U.S. volume [3].

That breadth is the mechanism behind the one number a seller cares about — the price the wreck fetches. Even through the current volume softness, U.S. insurance average selling prices rose 4.1% year over year in the third quarter of FY2026, a seasonally adjusted record for Copart [4]. Higher returns to the insurer are what make the total-loss pathway attractive in the first place, which is the connective tissue between the moat and the demand engine below.

Sources: Q4 FY2025 earnings call [5]; Q3 FY2026 earnings call [6].

The competitive field named in the 10-K is short: RB Global — including its subsidiary Insurance Auto Auctions — is listed first among U.S. auctioneers, ahead of Carvana, Openlane, Manheim and ACV Auctions [7]. The one competitor that can bypass the auction model entirely is LKQ, the largest U.S. dismantler, which can buy salvage directly from insurers [8]. For total-loss salvage at national scale, the contest is effectively a duopoly between Copart and IAA.

The structural tailwind: total-loss frequency

The long-run reason Copart's addressable market grows is not more accidents — accident frequency has drifted modestly lower — but that a rising share of damaged cars is written off rather than repaired. Copart defines total-loss frequency as "the percentage of cars involved in accidents that insurance companies salvage rather than repair," driven by the relationship between repair costs, used-car values and auction returns; over 30 years it has trended up [9]. Management's growth algorithm rests on that arithmetic: modest declines in accident frequency, more than offset over time by rising total-loss frequency [10].

The figure reached 23.6% in the first calendar quarter of 2026, up almost five percentage points in four years [11]. Copart's own framing is worth weighing skeptically and then crediting: it argues it is not a passive beneficiary of this trend but a driver of it, because the auction returns it generates are what make totaling a car the cheaper choice for a carrier [12]. That is the same liquidity advantage from the previous section, expressed as market growth rather than price. It is a real secular tailwind, and it is why a low-single-digit unit decline looks anomalous rather than terminal.

The stall, in three quarters

Against that backdrop, the FY2026 unit trend is a genuine break. Global insurance units fell 8.4% in the first quarter, 9.0% in the second and 2.7% in the third; U.S. units were weaker still, down 10.7% in the second quarter [13][14][15]. Excluding the prior-year catastrophe volume that flatters the comparison, the underlying declines are milder — 5.6%, 4.0% and 1.9% — and, importantly, improving through the year [16][17][18].

Source: Q1–Q3 FY2026 earnings calls; "ex-CAT" excludes prior-year catastrophe volume [19][20][21].

Management attributes most of the softness to two cyclical forces. The first is a consumer pullback on coverage: earned car years, an insurance-exposure measure, fell 4% year over year in the fourth calendar quarter of 2025 even as vehicles in operation grew 1.4%, and CCC data cited on the call shows 25% of repairs are now self-pay [22]. Fewer insured cars means fewer claims flowing to salvage; Copart argues this behavior is cyclical and counter-inflationary, reversing when premium pressure eases [23]. The second is carrier mix — the point where management is unusually candid.

The structural crack: IAA is taking share

On the second-quarter call, management conceded the part that the cyclical story does not cover: "some of our strongest carrier relationships haven't seen much growth over the past one to two years," even while framing carrier shifts as "more cyclical than fundamental" [24]. The tell is on the other side of the duopoly. Over the same stretch that Copart's units fell, RB Global's automotive unit volumes rose — up 9% in a quarter its CFO attributed to "year-over-year increases in market share across salvage and remarketed vehicles as well as organic growth from existing partners" [25]. RB Global's own 10-K credits full-year automotive GTV growth to "market share gains, including the full-year impact of certain contract wins in the prior year" [26]. Press coverage in October 2025 flagged the same thing — a major insurer shifting salvage volume from Copart to IAA.

Sources: each firm's own reporting quarters (Copart fiscal quarters end Oct/Jan/Apr; RB Global calendar quarters end Jun/Sep/Dec). RB Global Q3/Q4 2025 calls and FY2025 10-K [27][28]; Copart Q1–Q3 FY2026 calls [29][30][31].

Two caveats keep this from being a simple share-loss story. First, part of RB Global's growth is lower-value remarketed (non-salvage) vehicles — its average price per lot fell as mix shifted toward cheaper cars — so not all of the 9% is salvage taken directly from Copart [32]. Second, IAA's growth is decelerating: automotive units slowed to a 2% rise by the fourth quarter of 2025 as prior-year contract wins anniversaried [33]. The two lines are converging toward zero from opposite sides. But "some of it is remarketing" and "it is slowing" do not erase the core fact: IAA won contracts, Copart's strongest carriers stopped growing, and the salvage channel was not uniformly weak in the window Copart's units fell.

What would decide it

The evidence splits cleanly along the two things Copart sells. On price and returns, the moat is intact and even strengthening — record U.S. insurance ASPs and the deepest global buyer pool in the industry — which is why revenue and operating income held roughly flat through nine months even as units fell (Financials and Estimates). On volume and share, the position is contestable: carrier contracts move, and over the past year they moved toward IAA at the margin.

That is the read: the stall is partly cyclical and self-correcting, and partly a genuine, if bounded, share loss to the one rival with national scale. The strongest fact against a bullish interpretation is the direct one — IAA's explicit contract-win and share-gain language while Copart's own accounts flattened. The condition that would resolve it is observable each quarter: whether Copart's ex-catastrophe insurance units re-inflect toward growth as IAA's decelerate, or whether Copart stays negative while IAA holds its gains. The first says the moat pulled the volume back and the de-rating overshot; the second says a mid-teens compounder has become a share-defending incumbent — which is precisely what the 57% de-rating is testing.