Why Auto Total-Loss Rates Will Increase

At the end of 2010, the average new car price was $29,719, according to the Detroit Free Press. After five years, it’s also estimated that the average car will lose 60 percent of its value. That means in five years, a car that was priced at $29,719 with normal depreciation will be worth significantly less at approximately $11,887. 

Right away, experienced claims adjusters can see where I’m going with this. A vehicle that sustains a front collision that results in the deployment of both airbags and breaks the windshield can easily result in a total loss for a vehicle worth just $11,887.

A recent trend in car buying may spell an increase in total-loss rates. Many buyers are flocking toward more fuel-efficient cars, and many of those cars are priced significantly under that low, low price of just $11,887. In fact, many of the top-selling cars average under $20,000 and are compact in design—meaning that they will total out far easier.  

Related: More Blog Posts from Sounding the Horn

Advances in technology, particularly metallurgy and electronics, will also increase repair costs. Remember that in the fall of this year, the U.S. Department of Transportation will require electronic stability control (ESC) on all cars less than 6,000 lbs. in vehicle weight. While there is sound reasoning in requiring ESC—it reduces rollover accidents, which are the most deadly type of car accident)—the wheel sensors and mandatory anti-lock braking systems required for ESC will add to repair costs.   

As we look a few years into the future, it is safe to assume that we will see an increase in the percentage of claims being declared as total losses because we have an old fleet of cars on the road and the most popular, new cars are small and priced below the average.

Do you agree? What trends are you seeing? Post them in the comments below.

Statements and opinions expressed in this blog are solely those of the author.  They are not offered as and do not constitute legal advice or opinion of Mitchell International, Inc.

About the Author
Greg Horn

Greg Horn

Greg Horn is vice president of industry relations for Mitchell International. Previously, he served as vice president of material damage claims at GMAC Insurance, where he was responsible for all aspects of the physical damage claims process and the implementation of a unique vehicle replacement program. Prior to GMAC, he served as director of material damage processes for National Grange Mutual. He can be reached at greg.horn@mitchell.com, www.mitchell.com.

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