Or why auto insurance has gotten so ridiculously expensive — after used vehicles have gotten so ridiculously expensive.
By Wolf Richter for WOLF STREET.
I’m going to lay out some crazy shocking numbers relating to used car prices, cost of repairs, insurance, and rental cars. This isn’t data, but it’s one incident that illustrates what we’ve discussed here for the past two years, the craziness of what has happened in terms of inflation – and just how far the purchasing power of the dollar has plunged with regards to used vehicles, repair costs, insurance, and rental cars.
And the most shocking part is that it isn’t even shocking anymore, it just makes you feel crappy, and we griped and grumbled, but paid, spending money like drunken sailors, as inflation has taken root in its insidious ways, thereby confirming what Powell had said, that consumers “hate inflation, hate it,” and that they’re in a foul mood, but keep spending.
Our 2018 Ford Fusion Hybrid, with 75,000 miles on the odometer, got rear-ended. My wife, who was driving it back from work, was not injured. The driver-side airbags deployed. The rear was fairly symmetrically crushed. And the front left corner, which got shoved into the vehicle in front, got bent up, and the headlight assembly was destroyed.
We had bought the vehicle from a rental car company in February 2020 with 35,000 miles on it for about $15,000, before used-vehicle prices began to spike in the craziest manner never before even thought possible.
The insurance adjuster looked at the vehicle for 10 minutes and totaled it – meaning that he estimated that it would cost at least 80% of the vehicle’s replacement cost to fix it. It was apparently such a clear-cut case that he didn’t even bother to have the vehicle taken to a body shop where the damaged panels could be removed to get a look at the damage underneath, check for damage of the suspension parts, etc.
Stunning item #1: The insurance company offered us nearly $18,000 for the vehicle that we’d bought for $15,000 three-and-a-half years and 40,000 miles earlier. Normally, that vehicle might have been worth $10,000. Obviously, this isn’t some kind of collector’s car that might gain value, but a run-of-the-mill former rental car; what changed is the purchasing power of the dollar that, with regards to used vehicles, has essentially collapsed over a three-year period.
Stunning item #2: Repair costs, so parts, labor, paint, and supplies. Even a less-than-exhaustive look by the adjuster determined that it would cost at least 80% of nearly $18,000 to fix the vehicle, so at least $14,000 in repair costs. If the suspension parts turned out to be damaged, it would cost more on top of that. No telling what the ultimate repair cost would have been.
So bye-bye. An auction company picked it up. It’s common that such vehicles are purchased to be exported to a cheap-labor country, often in Central Asia, to be repaired with cheap but highly skilled labor and cheap parts, and for this then creampuff to be sold for a nice price in one of the Gulf states or elsewhere in that part of the world. This is a big trade, and part of the dynamics behind the thriving used-vehicle exports.
Shocking item #3: The cost of the replacement vehicle. The $18,000 would have bought roughly what we had: a 2018 Ford Fusion Hybrid with about 75,000-ish miles on it. There were some for sale in that range.
But our sweet spot where we buy is 1-3 years old, with 25,000 to 35,000 miles on it. We found one in that range at a CarMax about 100 miles away, a 2020 Fusion SE Hybrid with 25,000 miles. It was originally a lease return that had been bought by another person and then traded in. The Carfax checked out, everything was fine. The price? Close to $23,000 before title, tax, and license fees, doc fees, etc. We moaned and groaned and bought it.
Shocking item #4: The price of the rental. We rented a compact car from Enterprise, for one week, and it was $519. That was more than double last time we’d rented a compact car from Enterprise, which was over Labor Day 2019 for a week from Salt Lake City.
Shocking item #5: Auto insurance premium, oh my. Our last two auto renewals – September 2022 and September 2023 – had been a shocker; and when we changed the vehicle to this vehicle, because it was a newer model, another lump was tacked onto the premium, with the effect that our insurance premium went up 50% over the two-year period. It’s not that this insurance has suddenly gotten so much better, but that the purchasing power of the dollar with regards to auto insurance has plunged over those two years.
One of the reasons why auto insurance has gotten so much more expensive is the effect I just described here: the collapse of the purchasing power of the dollar with regards to used vehicles and repair costs; instead of paying us about $10,000 for the old vehicle, the insurance company paid us about $18,000; and repair costs have skyrocketed for vehicles that the insurance company pays to have repaired.
Shocking item #6: we weren’t really shocked anymore and paid, having expected this, after having been confronted with this mess for a while, and having seen it work its way into everything. Inflation has taken root.
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