1- Base Loss in Value
What is base loss in value?
Base loss in value is an arbitrary and random percentage of a vehicle’s NADA retail value. 17c uses a 10% base loss in value coefficient.
What this essentially means is that at NO POINT, regardless of the type of vehicle, intensity or grade of damage, a vehicle cannot lose more than 10% of its corresponding NADA retail value.
NADA is the National Automobile Dealers Association, an auto dealer advocacy group. NADA publishes a monthly book with vehicle values as well as a website. NADA is primarily used by finance companies.
A quick look at NADA’s Frequently asked questions reveals the following:
|Are there any values that reflect a car’s worth after being repaired from an accident?There is no data to support a precise value loss for damage. Because those types of values are not available, NADA does not recognize a diminished value. The loss from damage depends on the severity of the damage repair, how good the repairs look, the age of the vehicle repaired and its class. Class means that a more expensive car when new will be affected more with damage than a lesser priced new vehicle. Damage on a Mercedes has a greater affect, than the same damage on a Chevrolet Lumina. It is always a good idea to take the car to a trusted body shop and ask their opinion, as well as your insurance company. Once you receive their input you can deduct an amount both agree on from an NADA value.|
As you can see, insurance companies use NADA even-though NADA does not have the capability to specifically calculate Diminished Value. The values are “NOT AVAILABLE” according to NADA.
In addition, NADA clearly states that the loss in value depends on the class of vehicle (economy, luxury, utility etc…) whereas the insurance company uses the same modifier (10%) on all cars. The premise that a half a million dollar Rolls Royce loses value in the same fashion as a Kia Rio is fundamentally flawed and lacks supporting data.
Lastly, NADA is not quite suitable as an appraisal tool as it does not account for regional prices changes. Even-though their website asks for your zip code, comparing prices of the same vehicle in three completely separate locales reveals the same NADA value.
It seems that NADA asks for your zip code for advertising and tracking purposes. NOT to provide you with location based valuations.
We priced a Mazda Miata convertible in Atlanta, Los Angeles and Montana, locations with very different climates, demographics and economy and NADA retail was the same. A reasonable person would assume a convertible would be worth more in L.A. than in rugged Absarokee Montana.
NADA Retail: $21,650
Base Loss in Value =$2,165 (10%)
The “base loss in value” component of 17c is wrong for the following reasons:
- 10% is arbitrary with no data to support its validity
- Loss in value valuations are not available from NADA
- NADA does not recognize diminished value
- You cannot use the same 10% coefficient for all vehicle classes
- NADA Retail is flawed as it doesn’t use location based valuations