US buyers get a break on car prices, which leads to soaring insurance costs

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In one of the cruel twists of an inflation-weary U.S. economy, car prices are coming down after surging by record amounts during the COVID-19 pandemic.
Car prices have eased as the supply chain snarls of the pandemic–especially shortages of vital computer chips–have untangled and automakers boost inventories on their lots.
Meanwhile, factors including rising costs associated with repairing increasingly complicated vehicles and more storm damage amid climate change is pushing insurance rates higher.
But auto insurance costs were up 22.2% over the same period, the biggest increase since the 1970s.
Car prices, meanwhile, continued to moderate.
New vehicle prices declined 0.1%, compared to a year earlier, while used prices slipped 2.2%.
The degree to which insurance rates are weighing on buying decisions is unclear, but there are signs it’s become a bigger factor, especially for consumers on tight budgets.
The company said 63% of drivers it surveyed saw rates increase in 2023 and predicts rates will rise another 7% in 2024.


April 11 (Reuters) – Darin Davis and other American car buyers are experiencing a new kind of sticker shock.

The insurance rate had almost doubled when the 56-year-old Dallas real estate agent renewed it in January for the white 2024 Cadillac XT4, which he had purchased only a few months earlier.

“When you’re spending so much money on a new car, it takes the fun out of owning one,” Davis remarked, adding that he might have chosen a less costly model if he had known such a significant increase was imminent. However, it was already too late.

In a brutal turn of events that a weary U.S. s. economy, after rising to all-time highs amid the COVID-19 pandemic, car prices are now declining. However, rising auto insurance rates, which for some models now make up more than a quarter of the total cost of owning a car, are eating up at least some of those gains for consumers.

As the pandemic’s supply chain snags have cleared up—particularly the shortages of essential computer chips—and automakers increase their lot inventories, car prices have decreased. Meanwhile, increasing storm damage due to climate change and growing expenses for maintaining more complex cars are driving up insurance rates.

Furthermore, those who are displeased with insurance inflation are not just auto buyers. It is an illustration of the unpleasant surprises that have combined to impede the efforts of Federal Reserve policymakers to reduce inflation generally.


The Labor Department reports that last month’s Consumer Price Index increased by 30.5 percent over the same period last year. In contrast, the cost of auto insurance increased by 22.2% during that time, the highest rate of increase since the 1970s.

On the other hand, car prices remained stable. Prices for new cars fell by 0.1 percent from the previous year, while prices for used cars fell by 0.2 percent. This lowers upfront costs because car dealers are providing buyers with more incentives. Insurance rates may or may not influence purchases to a significant extent, but there are indications that they are becoming more of an issue, particularly for customers with limited resources.

Sean Tucker, a senior editor at Irvine, California-based Kelley Blue Book, an automobile valuation and research company, stated, “We’re hearing from a number of shoppers that they’re declining to buy a car-or returning one-because they can afford the car, but not the insurance for it.”.

Getting an insurance quote before making a payment is advised, according to Tucker, who mentioned that Kelley Blue Book has added insurance guidance to its list of buying tips.

The cost of local collision repair shops, the possibility of damage from wildfires and tropical storms, and other factors all affect how much auto insurance costs in different parts of the nation. As per Insurify, an online insurance marketplace, the typical expense in the U.S. S. for complete auto insurance increased by 24% in the previous year and is currently slightly over $182 per month. According to the company, 63 percent of drivers it surveyed said they had an increase in rates in 2023 and that they anticipate an additional 7 percent increase in rates in 2024. However, that number might increase.

Jessica Edmondson of Insurify, a data specialist, stated, “We’re seeing a lot of activity in (the first quarter) that indicate to us it may increase even more.”.


As a percentage of the “total cost of owning a vehicle,” which includes insurance as well as regular maintenance, taxes, depreciation, and fuel, insurance seems certain to keep rising. As per Kelley Blue Book, insurance comprised 16 percent on average of this gauge for a compact car in 2019 and is projected to increase to 26 percent by 2024. It was 13 percent for a compact SUV in 2019; this year, it will be 20 percent.

The current spike in rates is the result of several factors working together. When the pandemic caused production disruptions, more cars than ever before were totaled, and quality problems increased, potentially resulting in insurance claims. Insurance companies incur higher costs when providing rental cars to policyholders while repairs are being made because of the delay in fixing cars caused by a lack of mechanics. Additionally, a typical car is becoming more and more equipped with electronics, which can increase their cost and difficulty of repair.

Kristin Dziczek, a Federal Reserve Bank of Chicago policy advisor and authority on trends in the automotive industry, stated, “A bumper is just a bumper, but a bumper full of sensors costs more to correct.”. She mentioned that the average cost of an electric car is thirty percent higher, and repairs can take longer.

The way automakers manufacture vehicles that have an impact on insurance has also changed. Take Tesla (TSLA), for example. O)New Tab, opens new tab invented the gigacasting process, in which a single part is cast to replace thirty or more separate metal parts in a conventional vehicle. While this lowers production costs, fixing a car that has been in an accident may become more expensive.

Other automakers are doing the same. Cadillac currently produces a single model with sixteen gigacastings.

After increasing the deductible and combining his homeowners’ and auto insurance, Davis, the Dallas real estate agent who purchased a new Cadillac, claimed to have finally discovered a more affordable solution.

Timothy Aeppel reported, and Dan Burns and Anna Driver edited.

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Tim Aeppel specializes in the area where businesses and economics meet, particularly in manufacturing. Tim had worked for The Wall Street Journal for six years as the traveler manufacturing correspondent before taking on the role of Chief Economics Correspondent. Upon starting the paper’s first environmental affairs beat, he began his career at the Christian Science Monitor. Using his keen eye for detail and in-depth knowledge of the macroeconomic forces that shape the global economy, Tim has devoted a significant portion of his career to pursuing stories on factory floors and industrial backstreets. He is a graduate of Principia College and Tufts University’s Fletcher School of Law and Diplomacy.

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