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Auto Insurance Diminished Values

The concept of diminished value is one that not many auto insurance consumers are aware of. The term has been around in the industry for many years, but is not very well known to the general public. Diminished value is the name given for the loss in market value to a vehicle following an auto accident and resulting repair. It operates on the premise that once things are damaged, they are never as valuable as they once were.

If a consumer was out shopping for a used vehicle, and was trying to decide between two cars of the same make and model and the same number of miles on them, and they were both listed at the same price, but one had been in an accident and subsequently repaired and the other had never been damaged, that consumer would obviously be more likely to choose the undamaged vehicle. To get a buyer to choose the car that had been wrecked and repaired, discounting its price would likely be necessary (if the buyer knew the history of both cars). The amount of the discount necessary to get the buyer to choose the car that had been in a wreck over the other car is its diminished value.

Causes of Diminished Value

There are many reasons why cars that have been repaired lose some of their value versus cars with no collision history. The most obvious reasons, of course, are the possibility of non OEM parts being installed in the course of the repair or of shoddy workmanship affecting the vehicle's performance. But there are other important factors as well. For example, the presence of certain replacement parts on a vehicle can void the original manufacturer's warranty on a car. And these repaired cars are usually not eligible to be certified in the manufacturer's pre owned certification program.

Common Diminished Value Categories

There are many different categories of diminished value in automobiles, but most of the things that cause this decline fall into one of three categories: inherent, shop related, and insurance related diminished value.

Inherent diminished value takes into account factors which are beyond the control of both collision shops and insurance providers. A pertinent example is the common perception among auto owners that repaired cars are never as good as they were prior to a collision. These perceptions are no one's fault in particular: they cannot be traced back to the people who worked on the car (who may very well have done excellent work on the car) or the insurance company representative handling the case (who may have done everything in her power to assure a quality repair). Yet they exist, and are extremely common and hard to overcome. Inherent diminished value exists outside of the specific activities associated with the actual repair, because there are certain difficulties inherently tied to the effort of getting people to trust a vehicle that has been repaired after an accident. The simple fact that a buyer would always choose an unwrecked car over one that has been through a wreck with all other factors (including price) proves the potential for diminished value in every repaired vehicle, no matter how well the repairs are done.

Shop related diminished value is normally the result of shoddy workmanship from the repair shops fixing a wrecked vehicle. There are many examples of shop related diminished value, including items like poorly matched paint, replacement parts that don't fit right, rattles and other sounds that never were present before the accident, and wind leaks inside the cab of a vehicle. When collision shops are financially compensated for the work they do on a vehicle that has been in an accident, they have an obligation to do the job right and restore the wrecked vehicle to its original condition. When they fail to do this, the evidence of their poor workmanship is normally obvious, leading to diminished value.

Insurance related diminished value occurs when the insurance company claims adjuster working on behalf of the auto owner on the repair of a wrecked vehicle either intentionally or accidentally fails to perform needed repairs on the vehicle to restore it to its pre accident condition. One very common example is in the use of non OEM (original equipment manufacturer) parts. Insurers will often order the use of non OEM parts to hold down the cost of repairs. Sometimes these parts perform just as well as the originals. But sometimes they don't fit quite right, don't perform up to snuff or otherwise fail to match the old parts.

Diminished value is an important concept for drivers to understand because it can cost you a lot of money if your car is wrecked and you have to go through the process of repairing it, them trying to sell it.

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