If they don’t get you coming, they get you going. It’s the fate of the hard-working American that, just as cars are becoming more affordable, higher interest rates hit. And then, as automakers adjust prices down and offer better financing deals, insurance skyrockets. That’s right, we’re talking about insurance today. Get excited about getting depressed.
Actually, first, we’re going to talk about all the factors that should be making new cars more affordable just to show how much this sucks. Right off the bat, new vehicle inventory continues to climb and is getting closer to pre-COVID levels with a reasonable supply. Are you worried that the container ship that hit a Baltimore bridge is going to screw up supply? You probably don’t need to worry.
High interest rates are not ideal, sure, but credit availability is slowly improving and a lot of that comes from automaker finance companies currently offering better financing deals.
It’s all pretty much good news until you get to the damn insurance, which is going up for understandable reasons and also some questionable ones.
There Are So Many Cars
Here’s the first piece of good news. We have more cars. As covered in my Trimflation article, a short supply leads initially to higher prices due to scarcity and then a secondary worsening of affordability due to automakers building higher margin/more expensive vehicles. I plan to do a follow-up later this year to see where trimflation stands a year after identifying the condition as I’m not entirely convinced that automakers are suddenly pushing out a lot of cheaper cars, but current data seems to suggest the situation has improved.
Even if automakers are building fewer lightly optioned cars, the increase in the supply of vehicles means that incentives are on the rise and dealers might therefore be selling higher optioned vehicles for lower prices, which is a win for consumers.
Where do we stand at the moment? There are a lot of cars.
Cox Automotive tracks these things and there’s an Automotive News piece this morning that explores those numbers:
Cox said inventory stood at 2,837,400 in its latest estimate, a 74-day supply, up slightly from the previous month. A year earlier, it was 1.9 million vehicles, a 35 percent year-over-year increase, Cox said.
Cox said inventory varied greatly based on sticker price. Vehicles that were $30,000 to $40,000 had the tightest supplies, at 59 days, while the supply of vehicles priced under $20,000 stood at 66 days. Vehicles between $20,000 and $30,000 had a 67-day supply, Cox said. Supply was greatest among vehicles in the $60,000 to $80,000 range at 98 days, down slightly from the previous month.
To put this in context, A 60-day supply is largely considered to be a healthy market supply. Anything under 60 days shows some mix of limited supply or strong demand (or both). Toyota is regularly under 60 days as people love buying Toyotas and the company can barely make them fast enough to satiate America’s demand for RAV4s.
Being at a 74-day supply overall shows there are deals to be had, but it isn’t such a big number that it should cause an immediate panic. It’s also good news that the under $20k car isn’t entirely extinct, just endangered, with vehicle supply at 66 days.
Again, the industry is catching up to its pre-COVID supply levels and interest rates and other factors are still keeping some people on the sideline (more on that soon).
Baltimore Bridge Accident Shouldn’t Hamper Car Supply For Too Long
The collision of a container ship with the Francis Scott Key Bridge in Baltimore last month was an awful tragedy and one, I sense we’ll find out, was probably avoidable. The fact that the bridge sits across the Port of Baltimore, a key shipping location for vehicles, initially created a lot of concern that this might screw with our rising supply of new cars.
This concern was bolstered by the fact that Baltimore is by far the largest port in the United States when it comes to vehicle trade, covering about 15% of the total trade.
Thankfully, this ultimately doesn’t seem to be a big issue as other nearby ports are capable of absorbing the traffic and the port is only a small piece of the car parts trade according to an S&P Global Mobility analysis:
The level of disruption caused to vehicle shipments by Baltimore’s shutdown is expected to be minimalized by a multitude of other options being available to vehicle companies wanting to route their vehicles to the US’ east coast. Brunswick; Newark, NJ; and Philadelphia all provide viable alternatives.
Further hope that supply chain disruption will be minimal is provided by diving into Panjiva’s data on motor vehicle parts (HS 8708 for those interested). Examining the trade data for a one-week period in January 2024 reveals that Baltimore is a much less significant player when it comes to original equipment (OE) and aftermarket parts. Here, Baltimore sits 15th in the list of US ports and had just a 1.1% share of motor part traffic in the week.
Again, more good news. Or, at least, not more bad news.
Credit Availability Improves Slightly
I’ve staked a bet on the industry being able to sell more than 16 million passenger cars in the United States in 2024, partially on lower interest rates. I should clarify, because it came up in the comments, that I’m not necessarily arguing for a return to the super lower interest rate environment we were in and, frankly, I agree with those who say interest rates staying on the higher side is ultimately a good thing as it gives the Fed wiggle room to jumpstart the economy if something goes wrong.
All that being said, I do think there’s a case for rates eventually coming down (even if not in June) a bit to give consumers relief. I don’t have to make those decisions, thankfully.
According to Cox Automotive, the availability of credit improved again for the second straight month:
Credit availability has improved for two consecutive months and rose 1.1% month over month with the arrival of spring. Still, credit access remains tighter than a year ago in all channels and most lender types, except loans from auto finance companies.
I think that bit about “auto finance companies” is the key here. If you want to finance a loan outside of a dealer it’s going to be tough unless you have a good credit union or some other way of financing a car at an attractive rate.
This is why low APR offers from companies like Mazda and Volkswagen seem to be paying off for those automakers. So, again, this is decent news. The overall car financing picture isn’t perfect, but there’s credit out there if you’re willing to go to certain automakers.
Auto Insurance Rates Are Going Up And Are Not Slowing Down
Yup, the thing that’s gonna super suck about buying a new car right now is that your insurance rates are going to probably go up a bunch. In fact, they already have. Looking at this graph from the U.S. Bureau of Labor Statistics, you can see a little decrease in 2020 when we all stopped driving, and then a rapid increase.
Why is this happening? The American Property Casualty Insurance Association has some thoughts:
The answer is for the simple reason that the cost of the things auto insurance pays for has been rising faster than premiums. This is exacerbated by inflation trends, legal system abuse, and in some states, regulatory uncertainty.
In 2022, auto claim losses and expenses spiked to more than $1.12 for every $1 in premium.
Some of the key contributors to rising costs include cumulative years of record-high inflation that have greatly increased the cost of repairing and replacing cars. Over the last five years, the cost of car parts and used cars and trucks increased nearly 40 percent and the cost of vehicle repairs increased by more than 20 percent. Other key cost drivers include higher numbers of car thefts and more complex and expensive repairs due to the increasing sophistication of the technology in today’s vehicles.
Dangerous driving behaviors are also having an impact on costs. As daily driving patterns and traffic volumes rebound from pandemic lows, traffic fatalities remain alarmingly high.
All of this is true. Cars are getting more expensive to repair, drivers are getting worse, and road design in this country is despicably bad. Add onto that a lack of good automotive technicians and now insurance companies are paying more to keep customers in rental cars while they wait for repairs.
And to make things more exciting, let’s just take a look at the Colorado State University forecast for hurricane activity this year:
Ahhhh fudge.
Insurance companies are crying poor because that’s what insurance companies do so they can raise rates, but the underwriting assumptions beneath all of this is also probably in need of an update due to every part of a modern car becoming laden with sensors and climate change, et cetera.
There are other reasons, too, as Sherwood points out:
Insurers are trying to make money and raising rates is the way to do it.
“We will continue to pursue rate increases to restore profitability in states that are not yet at target margins,” Jesse Merten, chief financial officer at Allstate told an investor conference in early March. “And in other states, we’ll take rate to keep pace with increases in loss costs.”
Wall Street seems pretty confident profits are on the way. Share prices of major auto insurers such as Allstate and Progressive, are hovering near all-time highs, and are handily outpacing the market this year, rising about 21% and 29%, compared to the 8% gain in the S&P 500.
All of this means you might go in and budget for a new car, get the monthly payment you want, only to be surprised you owe way more than you planned overall because insurance is too high.
As a KBB editor mentioned to Reuters in its report:
“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,” said Sean Tucker, a senior editor at Kelley Blue Book, a car valuation and research company in Irvine, California.Tucker said Kelley Blue Book recently added insurance guidance to its list of buying tips, urging shoppers to get an insurance quote before they put down any money.Car insurance rates vary widely across the country and are influenced by everything from the cost local collision repair shops charge to the potential for damage from tropical storms and wildfires. According to the insurance shopping site Insurify, the average cost in the U.S. for full auto coverage rose 24% last year and now stands at just over $182 a month. The company said 63% of drivers it surveyed saw rates increase in 2023 and predicts rates will rise another 7% in 2024. But that figure could rise.
What I’m Listening To While Writing TMD
Ok, tbh I’m just listening to more Angel Olsen because I am in a mood. But let’s instead enjoy the super weird and deeply enjoyable “Steppin’ Out” from Joe Jackson. What even is Joe Jackson? I feel like every Joe Jackson song I like is a 90-degree rotation from the other song I just listened to the moment before. Compare this to the stripped-down cover of “The Harder They Fall” or the New Wave-y “Is She Really Going Out With Him.” What a weirdo, I love it.
The Big Question
Have your insurance rates gone wild lately?
Rate for insurance up close to 30% in last year. But reading the excuses put forth by the insurance industry for it are the exact same old shit they have put forth for decades. It’s like paying the mob for protection. You are screwed either way.
Our 23 Mirage went down $20, somehow Florida now allows a lower limit on something I forget at the moment so I went with it. It’s $380 a year now liability only. Yeah some people think it’s crazy to have only liability on a 6 month old car but I’m old, drive conservatively now and only put 2000 miles on it in 6 months. My Nova went up $20 because I had to raise the stated value to make up for inflation. Replacement cost went up. That’s $420 a year for full coverage $20k stated value. Don’t even start on homeowners insurance in Florida, nobody I know even has it anymore due to cost or just gettting dropped.
There is nothing wrong with having liability only on any car, it’s basically self insurening. I use that approach on all of my cars and have a fund stashed away in case I need to cover something that would be covered by fancier insurance. I daily drive vintage cars that are for the most part cheap but appreciating in value. My insurance costs in NW PA are very in line with your Mirage for a BMW E36 M3, Jeep Comanche and Austin Healey Sprite. The 09 Honda Civic Si is a bit more but it’s also a newer car so I’m not surprised.
Insurance is nuts – just cut a $4950 check for a six-month policy. Of course I have far too many cars and this latest hike (last year it was less than $4k every 6 months and yes, I’ve shopped around) is going to make me get rid of a couple shit boxes. The big problem is that carriers for home policies are pulling out of CA left and right because we won’t stop expanding exurban sprawl into fire zones and I need to subsidize these buyers while living in the middle of a major city and the number of carriers I can cross-shop continues to shrink…
Your chart and your sentence don’t match. Is the Baltimore port the most important for cars, or is it in 15th place?
My insurance hasn’t gone crazy, but it has steadily increased the last three years through means other than premium increases. My home and auto are under an umbrella policy, which gives me “discounts”, and the discounts have gotten smaller each year while my insurance company sends me letters letting me know they are friends of the common man and keeping their premiums steady. I’d be more irritated at the disingenuous letters, except when I recently shopped around for insurance, all the other providers were alarmingly more expensive.
The lack of minimal damage testing has resulted in some stupendously bad design choices (he screams to the cloud). Surprised no one brought up brokers. I’ve been with the same broker for twenty years, he finds the best fit for me, can choose from over a dozen companies. I told him to increase property damage from 50k to 150k couple months ago because of all the new EVs around me that are easily totaled. only increased my premium $50. year.
I just did the same, although only from 50 to 100K and it cost me $65 for 6 months. I only drive on Sundays but my wife commutes by car and I feel like I have been on borrowed time for a while already.
That cars are more and more being designed without a thought for repairs is insanity. It’s the reason I don’t dream of a Rivian, no matter how good the R3 looks.
Auto and motorcycle, no. Homeowner insurance, here in Missouri- yes, up 40%.
Higher insurance rates are partially due to dramatically increasing repair costs, but more importantly huge increase in un/under insured claims. The number of uninsured drivers has been steadily rising, but it still behind the number of claims where an insured’s driver’s policy was insufficient to cover damages.
Fair point. The minimum coverage is so inadequate everywhere I know of. It’s well overdue to be reworked to accommodate rising values and medical costs. If someone with minimum coverage in my state totaled my Kia, $15k would be well short of even the trade value, let alone replacement value. And any hospitalization will absolutely wreck the $25k minimum bodily injury.
And Idaho’s not the worst I know of. If it happened in Washington, it might be $10k property coverage.