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How the recession totaled your car



More totaled carsThe 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 the last four years, according to the National Safety Council.

Yet we are totaling far more cars.

In 2000, about 9 percent of the cars appraised for repairs were judged totaled, says car insurance claims analyst CCC Information Services. In 2010, that number rose to 14 percent.

We're not having more wrecks. And we're not having worse wrecks.

What we're having is 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 abruptly. Would-be buyers feared for their jobs and hung on to the old car for another year or two. Tighter credit meant many who wanted to take the plunge couldn't. And manufacturers could no longer raise the money needed to underwrite the tasty 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 percent of all new-vehicle sales result in a trade-in," says Susanna Gotsch, 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 to 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 percent.

    Cars are older, smaller, but not cheaper to repair

    As people keep their old cars longer and feel less inclined to buy new vehicles, 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.

    With roads full of older, more vulnerable cars that still use expensive-to-repair technology such as air bags, the tipping point at which a car is declared a total-loss happens at lower and lower values, the experts say. If used cars weren't fetching such good prices, the problem would be worse.

    "We have seen it go from upwards of 12 percent with some (insurance) carriers to, say, upward of 20 percent of the vehicles have been totaled," says Gotsch.

    The math behind your totaled car

    To a stranger or an insurance company, your beloved and ultra-clean 10-year-old car isn't worth much. You're probably wondering whether to keep collision and comprehensive coverage on your car insurance policy.

    But say you did. Your 2002 Nissan Altima in "good" condition is worth about $3,500, according to Kelley Blue Book. And say you absent-mindedly connect with a parking-lot light pole, cracking the bumper and headlight and wrinkling the hood.

    The average claim last year on cars older than seven years was $1,913, CCCIS says. Let's use that number as your damage claim. If you have rental-car reimbursement coverage, your adjuster will add an estimate for that to the total. Then, he looks at what kind of salvage value the car has if sold to a parts yard.

    If the total for repairs, plus rental, plus any storage fees, plus salvage value is more than the pre-crash value of the car, he'll probably take title to the car and write you a check.

    If the estimate of repairs exceeds your state's threshold, then he'll write you a check. About half the states set a threshold, ranging from Iowa's 50 percent of actual cash value to Texas' 100 percent.

    If the car simply won't be safe, he'll write you a check.

    CCIS says one in four wrecked vehicles more than 7 years old winds up a total loss.



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