12/2/2011 10:20 AM ET|
Will the recession total your car?
The economy has dented your car's value, at least in the eyes of insurers. Here's why, despite fewer serious wrecks, more cars are being declared a total loss.
The roads are safer today than ever. For several reasons -- older drivers, better cars, graduated licensing for teens -- fatal accidents in the U.S. have been falling for years. In fact, the government reported this month that highway fatalities had fallen to their lowest level since 1949.
Yet we are totaling far more cars.
In 2000, about 9% of the cars appraised for repairs were judged totaled, says car insurance claims analyst CCC Information Services. In 2010, that number rose to 14%.
We're not having more wrecks. And we're not having worse wrecks.
We're having a recession.
"Totaled" to the average driver means a wreck with a "holy cow" amount of damage. But "totaled" to your car insurance company means simply that repairs to the car don't make financial sense. That decision hinges on the car's value, its age and the repair costs. The Great Recession has done a number on all three.
Why we're buying and insuring older cars
It all started with a recent, astronomical run-up in the price of used cars. In 2008, as the recession took hold, new-car sales plunged. Would-be buyers feared for their jobs and hung on to their old cars. Tighter credit meant many who wanted to take the plunge couldn't. And manufacturers could no longer raise the money needed to underwrite subsidized leases and rebates.
Here's what new-car sales looked like over the past five years, according to Automotive News:
- 16 million in 2007.
- 13 million in 2008.
- 10 million in 2009.
- 11.6 million in 2010.
- 12.2 million (estimated) this year.
The auto market is a complicated ecosystem. "About 60% of all new-vehicle sales result in a trade-in," says Susanna Gotsch, the director and industry analyst at CCC Information Services.
Since the sales meltdown, the pool of like-new used cars has shrunk. Prices for those cream puffs have risen, pushing some buyers toward models with a few more miles. Those older cars now are selling at a premium, with sticker shock rippling all the way down to clunkers that can be bought without credit.
Last year alone, the Bureau of Labor Statistics says, the price of used cars rose 12.7%.
Cars are older, smaller -- but not cheaper to repair
As people keep their old cars longer and feel less inclined to buy new ones, the average age of autos on the road has risen by more than two years, from 8.5 years old in 1995 to 10.7 years old today, says Gotsch.
The cars are smaller as well. With the sudden rise of fuel prices in 2008 (and Cash for Clunkers removing 700,000 gas guzzlers from the roads), smaller, lighter, more fuel-efficient vehicles gained market share. Today, the roads carry a growing proportion of small vehicles that suffer more extensive damage in a wreck.
The impact of a crash pushes destruction farther back through a small car, involving a larger proportion of the body, says insurance analyst Greg Horn of Mitchell International. "The bottom line is that the smaller the car, the more likely it is to be totaled," says Horn.
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1970 average new car cost for a $1500
2011 average new car cost for a $40000 (increase of 2667 %)
1970 average cost of a house $25000
2011 average cost of a house $150000 (increase of 600%)
A vehicle now costs are now hire than the cost of owning a house. When you take into account that the warranty and loan are for 5-6 years, and the resale is 25% at the end of that loan. Most families need 2 cars.
Welcome to car payments equal to more than your mortgage.
What the hell is wrong with that picture? And why cant you see it, or the banks, or the government.
Who gives a rat's ash if it means profit?
Insurance companies are run by lawyers and executives who think like lawyers who only want whats in it for them, to hell with the people actually paying the premium.
What do you want to bet they get bonuses at the end of the year based on how many customers they've ripped off?
About 2 years later and now 19 some jerk was driving his big Dodge Ram 500 down the wrong side of the road to pass backed up traffic and make a traffic light. At the same time someone was being nice and let me pull out of a parking lot. I was looking one way to make sure there was no traffic coming. I didn't think to look the other way you know, because I didn't expect someone to be driving on the wrong side of the road. Then BAM! hit me head on. Car was totaled. My car was now only worth 4 grand and the loan still had $5,500 left on it. The $4,000 went straight to the bank I never got to see any of it. Basically the moral of the story is the $125 fee for gap insurance is a much better investment then the $1,500 I had to pay for a car i didn't even own anymore because some jack--- was impatient. And then I still had to rush around and buy another car quick (with very little money) because I have work and school.
I'm 23 now with a 2006 Acura RSX-S and a $14,000 loan. you better believe I have Gap insurance. You may be the best driver on the road but that doesn't mean the worst driver isn't sitting next to you at a traffic light.
OK....could it have something to do with how vehicles are made today? Cars are mainly plastic and meant to crumple up around you in an accident. A 5 mph accident in a modern vehicle is devastating to the car. An older car might drive away with a few scratches if that.
Check with your mechanic before writing off your totaled car. You might be surprised at how (relative to buying a new car) affordable repairs can be. And remember, the insurance company can only take your car's title if you let them. In my case I was up-front about wanting to keep the car, so they knocked off a couple of hundred what they owed me for the accident and I kept my car.
Has anyone tried to find out how much a Electric vehicle like the Volt or Leaf is on trade in?
Good luck because nobody seems to want to say. I used to be against buying used because I always felt I might be buying someone else's problems. But considering how badly they depreciate.
I have changed my tune on new. I say now let someone else pay that high first two year hit.
If your airbag goes off in an accident, it can cost thousands to replace. That's enough to total most older vehicles.
The Author has it right that the insurance companies are totaling more cars due to the recesion; however, left out the part where they are also offering way below fair market value for the insurance payment to the old owner of the car. They are only totaling more cars because of the fact that they can make more money off of you by totaling your car!
For instance They totaled a 2002 Transam and offered me $6000.00 for it. I fought for my life and walked away with a check of $19,0000.00. They are only totaling more cars because they can make a profit off of you who do not understand your rights. And well lets face it ... they are still doing it so there is an issue.
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