California junkman Willis Johnson got rich building Copart Inc.

By Emma Vickers

Bloomberg

Nov. 28, 2019 10:46 AM PT

The 2019 Ferrari 812 Superfast is a beast by any measure. With 789 horsepower and a top speed of 211 miles per hour, it retails new for about $363,000.

It could be yours for a fraction of the price, if you act quickly and don’t mind a few dents and scrapes. Copart Inc. 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 junkyards ranging from supercars to suburban people carriers, some slightly damaged, some total wrecks.

The business of selling damaged autos has never been better for Copart founder Willis Johnson, a gold-chain-wearing Oklahoma native who’s turned one California junkyard — and drivers’ misfortunes — into a $1.9 billion fortune, according to the Bloomberg Billionaires Index.

The 72-year-old has amassed a network of junkyards across the U.S., Brazil, Britain and the Mideast and just opened a 22-acre site in Berlin. His son-in-law, Jay Adair, is the chief executive, with a stake of more than $800-million.

Copart shares have surged 85% this year, giving the Dallas-based company a market capitalization of $21 billion.

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 have 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.”

Johnson and Adair declined to comment through spokeswoman Fatima Ali.

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

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

In 1972, Johnson bought his own yard in Vallejo, Calif., 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, “Junk to Gold.” Although 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 $28 million from country singer and fellow car enthusiast Alan Jackson in 2010. Johnson keeps his extensive collection of classic cars at the estate near Nashville.

Copart dominates the salvage auction market, with a market value 250% greater than its closest competitor, IAA Inc.

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.

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 maximize income. In his early self-service wrecking yards, 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 Inc. was created.

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

Johnson describes Copart’s car recycling as environmentally friendly in his autobiography. Others aren’t so sure.

Selling used parts can be good for the environment, but selling intact vehicles to developing markets such as Mexico or Guatemala might not be, said Julia Attwood, head of advanced materials research at Bloomberg NEF.

“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,” 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.”

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

Like most U.S. 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,” Adair, the CEO, 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 amortization.

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,” Glynn said. “It’s one of the best-performing stocks I’ve ever covered.”

Emma Vickers writes for Bloomberg.