Tuesday, August 1, 2017

It may not be as bad as you think. A lesson in accelerated depreciation

It's exciting to see how far accelerated depreciation has come over the last few years.  We came from needing to start a proceeding in small claims court to simply now needing to tell your adjuster (ICBC) you are making a claim.  We still have a ways to go, but there is movement which is great!

In my opinion there are a number of contributing factors to why accelerated depreciation exists.  Psychology, poor repairs, the risk involved with buying a previously damaged vehicle, lack of resources to help minimize the loss and stigma.

Today I'm going to speak to the topic of a lack of resources to help minimize accelerated depreciation.

Where would you go if you were trying to sell a vehicle that had been damaged and then repaired?  There are very few resources online, if any, that help a consumer determine their vehicles value.  Most people go to a dealership to figure out their vehicles worth.  But there are a few issues with this.

A dealership may:
  1. Offer a fair trade in price at wholesale.  Dealerships do not buy vehicles for what they are worth in the retail market.  They need to leave room for margin, recondition etc.  Due to this you lose anywhere from $3000 + when trading a vehicle in.  This has nothing to do with the damages.
  2. You are offered a low number because the dealership isn't comfortable taking your vehicle in on trade due to the damages.  This is the most common situation.  To counteract their concerns, they will offer a low number to protect themselves.
  3. A dealership sees an opportunity to make extra money on the trade in and purposely offers you a low number.  Dealerships are businesses and if the opportunity arises to make extra money, no one would blame them.
Recently we had a client who had a 2014 Ford Pick up truck that had sustained $44,000 in damages.   After the repairs, the client wanted to trade his vehicle in towards a brand new truck.  He found a dealership with the new truck he wanted and the dealerships offered him $33,000 for his 2014 Ford Pick up with a $44,000 declaration. 

The client hired us to find a wholesaler willing to guarantee the selling dealership a higher price for the trade in.  If we could find a wholesaler willing to guarantee the dealership a higher price, the dealership still gets to sell a brand new truck, our client gets take advantage of the tax savings and the wholesaler gets a great deal on a damaged and then repaired vehicle.   

At the end of the day we were able to find a wholesaler willing to purchase the 2014 Ford Pick up truck for $40,000 at wholesale.   $7000 + in found money.  

Why this is so important is consider that when you approach insurance for a loss, it needs to be reasonable.  If this client had gone to ICBC with a claim for accelerated depreciation chances are he wouldn't have gotten all of his money back because they understand that when you trade a vehicle in you may loss more money than necessary.

Alternatively, had he been paid out the full loss from ICBC, this is money that didn't need to be paid out and extra costs to all British Columbia drivers.

It is my belief that this money comes out of our premiums, so it makes sense to try to minimize the loss as much as possible.