Understanding Diminished Value

Published: January 16, 2016

Updated: July 24, 2018

Author: Luke Jones

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The first Guild 21 conference of 2016 took place in Toronto, Ontario on Thursday and high on the agenda was the subject of diminished value (DV). Still a relatively unknown concept amongst automotive and insurance consumers, diminished value is seen and used often in other industries.

For example, a refurbished piece of technology is one that has been repaired to standards that make it like new, yet it carries a lesser price than a new model… this is DV in action. Kevin Gardiner of Auto Club Enterprises spoke at the Guild 21 conference this week and discussed diminished value and its growing importance for repairers, insurance providers, and customers.

In terms of the automotive industry, diminished value typically refers to a vehicle’s value after there have been repairs, should the vehicles retain its pre-repair value or not? It is a controversial question among insurance companies in the United States and Canada, and small claims cases where consumers are introducing DV are on the rise.

There are three types of diminished value in regards to the automotive industry:

Unsatisfactory repair – If repairs of a damaged vehicle do not meet high standards, or are obviously poor (such as un-matched panel colors) then the repaired vehicle would be worth less than its pre-repair state. This situation is an obvious example of DV.

Claim or insurance DV – If an insurance provider does not allow OEM parts to be included in a repair, another well-known industry example of diminished value.

Customer perception – This is where diminished value in the automotive industry becomes controversial and it is where the most problems are arising. It depends on how a customer views a vehicle’s value after it has been repaired. Even if the repair is to the highest standard and reproduces the like new look and feel of a damaged vehicle, is the result to be valued less than a vehicle of the same configuration, model, year, and color that has never needed to be repaired?

“Many people have a sense that the trade-in value of a car could be reduced. What is the loss there going to be? This is where many claims against insurance companies come from,” said Gardiner, adding this is the case even if repaired parts are newer.

“This often comes up around aftermarket parts. Insurance companies use these parts. But this leaves a perception of less value from owners,” says Gardiner.