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Vehicle, Repair Costs Driving Bigger Loans

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April 3, 2020—While it’s no surprise that advanced safety features in vehicles drive up the cost of car repairs, more information has come out in recent months detailing just how much of an impact those features make on cost—and the impact on consumers.

In a controversial Wall Street Journal article, “A $45,000 Loan for a $27,000 Ride,” in late 2019, the Journal took a look at the increasing trend of consumers taking out significant longs to pay for new vehicles—sometimes to the point that the debt exceeds the car’s value (referred to as “negative equity”).  

According to Edmunds, 33 percent of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity, compared with 28 percent five years ago and 19 percent a decade ago. Those borrowers owed about $5,000 on average after they traded in their cars, before taking on new loans and rolling old debt into a new loan. 

Those numbers illustrate affordability issues, says Susanna Gotsch, industry analyst for information provider CCC Information Services.

“As consumers have demanded more features and light trucks, the cost of the vehicles have risen,” Gotsch says. “It’s becoming much less affordable for people to buy a brand new vehicle, and that results in bigger loans.”

“These aren’t Rolls-Royces,” said David Goldsmith, a lawyer who defends consumers in auto cases, in the Wall Street Journal article. “They’re Ford Escapes.”

Data from CCC backs up that point across the board. The average total cost of repair overall was $3,225 in 2019, up 5 percent from 2018. Total loss frequency, partly bolstered by the fleet of older model year vehicles on the road, also went up to nearly 20 percent of accidents.

Another aspect driving the repair cost up, according to a recent Consumer Reports article, is that the sensors integral to ADAS often live in easy-to-damage areas—inside bumpers and windshields, and in side mirrors—that can easily cause a fender bender to become a major expense.

And it’s not just body shops that are seeing an increase in repair costs. In a 2019 Ratchet+Wrench feature story, California shop owner Jack Perea broke down the costs of repairing ADAS features, and advanced safety features, at large. For example, some vehicles also require sensor calibrations as a part of wheel alignments so that adaptive cruise control sensors can work properly.

This increased cost could affect how consumers interact with their vehicles, and their ability to effectively maintain or repair their vehicles. ADAS technology has trickled down in the past two years from luxury cars into more affordable models. According to AAA, more than 90 percent of new vehicles in 2018 had at least one ADAS feature. And while repair costs have risen as a result, a recent Consumer Reports article posits that the cost of ADAS repair and maintenance could decline over time as more vehicles have them as standard equipment and as more repair shops have the necessary skills and equipment. 

Furthermore, the decrease in vehicle accidents should also balance out that increased cost. For example, rear-end collision rates in vehicles with both FCW and AEB were 46 percent lower than those without these systems, according to a recent study by the University of Michigan Transportation Research Institute in Ann Arbor. The study showed that lane departure crashes fell 21 percent for cars with LDW and lane keeping assistance (LKA), and that having a backup camera and other systems, including reverse AEB with rear cross traffic alert, reduced backup collisions by 81 percent, among other safety findings.

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