If you have shopped for a new or used vehicle lately, you have probably noticed that vehicle prices have increased dramatically. The average new vehicle costs nearly $49,000, an almost $10,000 increase from before the pandemic. Not surprisingly, the cost of repairing vehicles has also escalated. The major driving forces behind increased costs are supply chain issues and inflation.
According to CCC Intelligent Solutions, repairs now include more parts and labor hours than in the past. In 2013, the average number of parts replaced on a vehicle involved in an accident was 8.9. The average labor time needed for the repair was 23 hours. In 2023, the average vehicle repair includes 13.7 parts and 27 hours of labor. Vehicles today are more complex and include such options as backup cameras, rain-sensing windshield wipers, navigation, and numerous sensors. Due to vehicle complexity and parts availability, the average time needed to repair a vehicle is currently 16 days. This is an increase of 60% compared to 2019. These longer repair times directly affect the amount paid for rental expenses.
Before the pandemic, the auto industry had moved to a “just in time” inventory system, which meant that the inventory for auto parts was limited. During the pandemic, plant shutdowns led to a shortage in parts, specifically parts that included semiconductor chips. The average new vehicle has between 1,400 and 1,500 semiconductor chips. Many electric vehicles have 3,000 or more chips! The chip shortage impacted new vehicle inventory as well as the availability of replacement parts. With limited new vehicle inventory, the demand for used vehicles surged, and prices skyrocketed during the second half of 2021 and all of 2022. In 2023, vehicle valuations are predicted to see a gradual decrease.
To complicate matters, the United Auto Workers (UAW) recently went on strike. This is the first strike that targets all three Detroit automakers at once. It is difficult to predict what the strike will mean for the auto industry, but we may see higher prices again due to supply and demand issues.
As you can see, many factors have contributed to very challenging times for the auto insurance industry. Contact your independent insurance agent if you have questions about your policy.