HomeCar InsuranceVehicle shortages to continue, market affects insurance premiums | News

Vehicle shortages to continue, market affects insurance premiums | News


Consumers continue to pay considerably more than the manufacturer-suggested retail price for new cars, and now the insurance needed to legally drive them is also rising as semiconductor chip shortages and foreign conflict persist.

Supply chain disruptions and opportunities to lock in low interest rates on auto loans have created insatiable demand for new vehicles over the last year, subsequently pushing the price of many used cars as high as new ones.

According to the latest Consumer Price Index data from the Bureau of Labor Statistics, in March, new vehicle prices increased 12.5% year-over-year.

In the Oklahoma City metro, the average new car is priced 10.3%, nearly $4,000, above MSRP, according to automotive search engine iSeeCars. The price increase ranks 12th-highest among the top 50 most populous metro areas.

Karl Brauer, executive analyst for iSeeCars, said where cities fall in that ranking depends on availability versus demand.

“You see the different types of vehicles that are popular in different areas, and then that has to be crossed with how many are available in those areas,” Brauer said.

Oklahomans looking to purchase a new vehicle are paying 24.5%, or an estimated $8,800, above MSRP for a Ford Mustang. The Jeep Wrangler Unlimited, Nissan Kick, Ford F-150 and Lexus RX 350 are also considerably higher than MSRP.

The National Automobile Dealers Association reports the chip shortage has reduced dealer inventories to 40-year lows. Brauer said Russia’s invasion of Ukraine is adding to the supply chain slowdown.

Brauer said ongoing shutdowns and restrictions in terms of movement in the Asia Pacific region are limiting the ability to produce the chips. Additionally, Ukraine is one of the top suppliers of the element neon, a key component of a microchip.

Volkswagen Group told German publication Boersen-Zeitung they anticipate the chip shortage to continue into 2024, and even then, there will be structural undersupply.

While new car prices show no signs of dropping, Normanites could soon begin to see declines for used vehicle prices, which decreased 3.8% in March, according to BLS. The price of used vehicles is still up 36% year-over year for the Oklahoma City metro area.

Brauer said for a multiple month drop in used car prices to take place, more new car shoppers need to get into their next vehicle, then sell the one they no longer need.

“We have a set amount of people who want to buy a car today, but that could be lower than it was two months ago,” Brauer said. “We need more than two months to call it a trend.”

Brauer estimates car shortages to continue for 12-24 months until the backlog of new car demand is fulfilled.

Sustained car price increase is affecting insurance premiums

The challenges in the automotive industry are affecting the price of car insurance for consumers.

Norman-based Farmers Insurance agent Jonathan Quinonez said industry pressures are in fact currently playing a role in insurance rate increases.

Quinonez said actuaries come up with rates at a certain price point, but because of vehicle shortages, insurance companies are paying more than before for estimated losses. This causes rates to increase around 4% for those seeking a new policy with many providers.

“That’s all across the board,” Quinonez said.

When Quinonez works with Norman residents, he tells them to look at the safety features offered on vehicles they are shopping for, which can mean more discounts on their policy. The Insurance Institute for Highway Safety rates vehicles’ performance on tests and assess safety-related features to apply a grade of poor, marginal, acceptable or good.

“I have seen where somebody will go from a Dodge pickup to a Subaru that [has the top IIHS rating], and their insurance literally cuts in half,” Quinonez said.





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