As used car prices continue to climb, can you afford to have an accident?
SIOUX FALLS, SD (KELO) – Buying a new or used vehicle has cost significantly more in 2021 – and in the new year, experts say prices won’t drop anytime soon.
This high-value market makes a car accident or an insurance claim even more complex.
“The index showed that it increased by 42% compared to the previous year. The used car market was much higher, but the new car market was also up 12%,” said Autoland owner Brad Dumdie.
With such a price increase, some may wonder if their insurance will cover the new cost of a replacement in the event of an accident.
“We always use the actual cash value at the time of the loss. So no matter how the market moves, the market decides the value of the vehicle,” said Nathan Lindeman, Farm Bureau insurance agent.
Lindeman says right now the industry is seeing much higher payouts for cars and trucks of all ages overall.
“We see much higher values on used cars,” Lindeman said.
“Even a lot of older cars are making a lot more money than they used to because that’s what’s affordable,” Dumdie said.
Sticker shock leads some people to try to avoid the car buying process altogether by making the car last a little longer.
“We’re definitely seeing more people servicing or repairing their old cars, that’s for sure. We are also seeing an increase in prices there. Tires and parts cost are going up,” Dumdie said.
It also takes longer to get replacement parts, stretching the limit of some insurance coverage for repairs.
“We’re going from an average of 3 to 5 days someone needs a rental car to 7 to 20 days,” Lindeman said. “Most policies have limits on how much they will pay out per accident.”
Lindeman says the increased cost of repairs and the higher cost of buying another vehicle has made it more common to drive a cosmetically damaged vehicle during the pandemic. But for many others, high prices or not, when it comes time to replace a vehicle, it’s just a matter of buying a car as usual.
“It’s been very active, probably busier than normal actually,” Dumdie said. “People have adapted. Inflation is higher, gas is higher, groceries are higher, and so are cars.
While Dumdie says the rising market hasn’t diminished demand for new and used cars, the shortage of supply remains his biggest concern. He says the supply of new and used cars is still very low as the shortage of computer chips continues to drastically reduce the number of new cars being made, which continues to drive up the used car market.
As for insurance rates, Lindeman says rates have remained fairly stable, but as people buy higher value vehicles, they also see higher insurance premiums.