The Economy and Diminished Value

Current State Of The Economy

I have run into many insurance companies who use a “rule” for the age of the vehicle or for the mileage or for other factors. In fact, I was employed as an adjuster for a company that would not consider diminished value on a vehicle that was older than 8 years old, or that had over 100,000 miles on it (although if you sued them, they would take another look, hehe).

The problem with using a rule is that not every car fits within the rule. Take for example, a 1965 Ford Mustang. If this vehicle has been restored or even if it hasn’t, if it is in good condition, then the vehicle will definitely suffer inherent diminished value if it is involved in a substantial auto accident. If we stick with a 1965 Ford Mustang, then there are some other things about that vehicle that will cause the standard methods of calculating diminished value to fail.

 Here are some of the factors one would have to consider on a “classic” vehicle:

  1. The market for a classic vehicle remains relatively unchanged.
  2. A moderate accident on a classic vehicle like this may not result in any diminished value at all because a classic vehicle that is “desirable” is expected to have had some work done on it. In fact, it is pretty common for a vehicle like the 1965 Ford Mustang to have panels replaced due to rust, or other wear and tear related damages (but not frame damage).
  3. No matter the mileage on a vehicle like a 1965 Ford Mustang, it is still a desirable vehicle, and if had been restored and then substantially damaged beyond cosmetic damages, it will suffer inherent diminished value.

The point I am making here is that each vehicle requires a valuation on its own merits.

 A More Current Example of Diminished Value

As another example to demonstrate a more probable scenario for the average consumer, let’s look at a 1998 Honda Accord.

For a Honda Accord, we have to take a lot of factors into consideration. First of all, the area of the country where the claim is being handled will affect the marketability. For example, no offense to Floridians, but the average age group that lives in Florida is a little higher than the national average. An older age group fits into a different demographic than what is the prime market for a used 1998 Honda Accord. Get it?

Anyway, I’ll assume for this example that the area where we have to evaluate diminished value is in a place that is similar to the national trends for a vehicle like the 1998 Honda Accord.

Let’s see why a 1998 Honda Accord with over 100,000 miles would still have diminished value if it sustains any notable damages:

 

  1. The NADA book indicates that even up to 125,000 miles, that a 1998 Honda Accord would be considered to have lower than average mileage.
  2. Honda vehicles, especially the Accord model have always been marketed as economical when it comes to gas mileage and maintenance, and in my experience, this model does live up to this claim, and most people believe this about the Honda Accord.
  3. The current state of the economy (not as strong as we would like), causes some temporary trends related to “getting a bargain” to become apparent, and used auto sales traditionally increase in times of economic hardship.
  4. In relation to “getting a bargain” in times of economic hardship, used auto dealers are looking for ways to maximize profits, and they consistently ask for information related to prior damage when making trade in offers on used vehicles so as to acquire desirable vehicles at the lowest possible price.
  5. Insurance companies are becoming more and more connected with databases that house claim history, and companies such as CARFAX are becoming more and more prevalent in the used auto industry.
  6. 1998 Honda Accords were newly and drastically redesigned and don’t “look” as dated as they could as the body style remained very, very similar for another 3 or 4 years. So a 1998 Accord could be easily mistaken for a 2001 Accord which gives the prospective buyer a little more pride in their purchase.

If a professional gets involved, then you could have plenty of evidence to give the insurance company a valid challenge on their opinion of diminished value, you just have to know how to document the value properly (and most of the time an adjuster license like mine helps your credentials, hehe).

Just request a free claim consultation and we will contact you to give guidance on your diminished value claim.

Posted in: Diminished Value