When a car gets into accident, an insurer must decide whether to repair it or cut a check to the claimant for the pre-accident value and recoup whatever it can by sending the car to a salvage auction. In the US, that salvage auction is most likely operated by Copart or IAA, who each handle ~2mn of the 5mn cars assigned to auction every year. If the pre-accident value of a car is $10,000 and it costs $7,000 to repair it, the insurer will send the car to auction if they think they can recover more than $3,000 by doing so. So instead of shelling out $7,000 to a body shop, an insurer will pay the claimant $10,000 and sell the car in auction for, say, $4,000 (after auction fees), leaving them better off by $1,000…they are out of pocket $6,000 in the auction scenario ($10,000 paid to claimant minus $4,000 recovered in auction) vs. $7,000 in the repair scenario. The pre-accident value of the car might be so low that it’s not worth fixing at all. If it takes $5,000 of repairs to get a vehicle to its PAV of $5,000, well, screw it, you’re just going to pay the claimant $5,000 and recoup what you can for the damaged car in auction.
In my Copart post from 2018, I showed the following exhibit:
If I stretched the left and right sides of the time series, you’d see that the total loss % was just 4% in the 1980s and more than 20% today.