By Ray Birch
RIVERSIDE, Conn.—It’s a bumper year for auto salvage auctions–thanks to all the new technology that’s being loaded into vehicles.
Automotive industry expert Maryann Keller told CUToday.info that the number of cars being totaled by insurance companies today, as opposed to repaired, is growing.
The situation, she said, should be concerning for borrowers who are upside down on their automobile equity and for the lenders who hold the loans.
The matter is also affecting insurance prices, including gap insurance, as well as simply the overall cost of vehicle ownership, said Keller, principal at Maryann Keller & Associates and a former Wall Street auto industry analyst (see related story).
“The salvage auctions are having a boom year. More cars are being totaled because of the nature of the new cars. More technology equals higher cost, not only in the purchase price of the vehicle but also much higher repair costs—which have resulted in a higher frequency of cars being totaled by insurance companies. I have never seen the salvage auctions with this many cars.”
No Longer 'Repairable'
Maryann Keller
Keller said that for an increasing number of wrecked vehicles, what might have in the past been considered repairable damage is no longer.
“I think the greatest example is our wonderful, sexy new headlights that automatically dim for oncoming traffic and have rows of tiny lights as well as xenon bulbs,” said Keller. “These bulbs are much brighter at night and our road vision is better. But, my God, if you are in a front-end collision, even a minor one, replacing the headlight and its housing can cost $3,000 or more. And don’t think you can do the repair yourself.”
Keller also pointed to new rearview mirrors, the price of which price has skyrocketed due to technology.
“With our older mirrors you just gazed out of the car to see who was following you. Today the exterior rearview mirrors can include sensors telling you whether traffic is in your blind spot, often the mirrors are electrochromic so they will dim . . . ,” explained Keller. “In most new cars the exterior rearview mirror costs $600 to $900, versus a couple hundred dollars five years ago.”
Most of the expensive sensors used in cars, such as for emergency braking, are located in the bumpers, the most vulnerable parts of the vehicle, Keller noted.
“A lot more new materials are being used, as well, such as aluminum and some carbon fiber,” she said. “This has made it challenging for repair shops, which are working to adapt their work practices and even their work environment.”
Tesla Rates Going Up
Keller said that recently AAA indicated that the insurance rate on Teslas was going up.
“Tesla’s management argued that their cars are safer with all their new wonderful safety features,” said Keller. “But on the other hand it does not take a lot for the insurance company to total a Tesla, simply because it’s a very hard car to repair. You have to buy parts from Tesla, which are expensive. So even though the car looks like it is repairable, it might not be from the insurance company’s point of view.”
Keller said that the trend should catch the eyes of lenders, especially on loans for new cars, which experience an immediate, significant drop in value. If a new car is totaled, and the borrower defaults, unless there is gap coverage, the insurance payment won’t often cover the loan balance.
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