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The Hidden Costs of Higher MPGs

—March 28, 2016
The Hidden Costs of Higher MPGs

If you thought the relationship between gas mileage and insurance ended at the ‘pay-as-you-drive’ approach, we’ve got news for you.

From monthly premiums to collision repair, the quest for better gas mileage has resulted in impressive—and growing—costs in the auto insurance industry.

The mad dash for higher mileage

When Obama bumped up the Bush Administration’s 35.5 gallon fuel economy requirement from 2020 to 2016, it was all auto manufacturers could do not to hit the panic button.

Greg Horn, VP of Industry Relations, recalls it well: “[They] scrambled to meet the target date, or faced buying ‘credits’ for missing their imposed goals: passenger cars that get 39 miles per gallon and light trucks like F150’s, Silverado’s and Ram’s achieving 30 miles per gallon.”

They needed fast solutions that could be easily implemented. So they looked at existing smaller cars from other parts of the world. Like any solution based on a whiplash reaction, the long-term implications of these changes weren’t top of mind.

Increasing fuel efficiency in high torque trucks

With towing capacity and torque strength having priority over higher MPG’s for most consumers, manufacturers relied on vehicle lightweighting as their primary option.

New models like the all-aluminum F-150 have been all over the news, and while it remains the best selling truck in the U.S., the Chevrolet Silverado is closing the gap. In fact, if you add Silverado sales to it’s sister truck, the GM Sierra, the combined sales topped the F150 last year. A major issue with full aluminum construction is that a huge segment of the truck market in rural areas, and the technology and education investment to stay up-to-date on newer materials will take a bit longer to be implemented in rural shops .

Upping MPG’s in passenger cars

Manufacturer methods for increasing fuel efficiency in passenger cars are a bit more varied across different models. Some have added gear ratios to automatic transmissions or opted for smaller, turbo-charged displacement engines (or even twin turbos). Again, lightweighting is equally popular.

The issue with “lightweighting”

From hoods to bumpers and everything in between, new materials like ultra-lightweight aluminum, carbon fiber and plastics are replacing steel more and more. While these do result in less fuel usage, they don’t stand up to time or damage. Even when steel is used, it’s often thinner and less durable, complicating repair or making it impossible.

“Hot stamped” ultra-high strength steel, used in newer models like the 2016 Honda civic, significantly reduced weight and while increasing rigidity. While that may seem like a good thing, damaged components cannot be sectioned, leaving replacement as the only option.

Greg Horn elaborates on this point: “Previously, when a Civic was involved in a rear-end collision that bent a frame rail, the car was placed on a frame machine and pulled back into spec. The 2016 Civic has to have the rear body panel and the truck floor removed to replace a damaged rail.”

Insurance industry trends: what to expect

Due to the lack of reduced repairability of lighter weight parts, as well as their altered assembly methods, we can expect insurance repair costs and insurance premiums to continue to rise as more and more higher mileage vehicles are released.

Because carriers base pricing on the previous model’s cost experience, radical increases in cost are likely to come up in the next few years.

Want to read more industry-leading news on auto insurance, collision repair, and insurance industry news? Get it for free when you sign up for Mitchell’s Industry Trends Report.



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