Rising Insurance Rates Have Buyers Walking Away From New Cars

Rising auto insurance rates are hitting consumers hard, but dealers are feeling the pinch as well. While few dealers actually sell auto insurance, they are losing sales because of the rising cost of insuring a new car, some tell WardsAuto.

“We have definitely lost some deals after we have written them” because of the high cost of insuring the vehicle, says Norman Dorf, president of Honda of Tenafly in Tenafly, NJ.

Auto insurance rates have risen precipitously in the past year. In March, they were up 22.2% compared to the same month in 2023, according to the Bureau of Labor Statistics.

A good number of his customers are from New York state, which is just across the Hudson River from Tenafly, Dorf says, and auto insurance for first-time buyers from the Empire State is very expensive.

Indeed, according to MarketWatch, New York is the fourth most expensive state for full-coverage auto insurance with an average of $2,783 annually, based on data from Quadrant Information Services. The U.S. average is $2,088.

Dealers Don’t Want to Become Auto Insurance Agents

Few auto dealers actually sell auto insurance, industry consultant Max Zanan tells WardsAuto. A new-car buyer can’t drive out of the dealership without coverage, but most dealers work with a local brokerage to help customers who aren’t already insured, he says.

Selling insurance would require the dealership to hire a licensed insurance agent, Zanan explains. That doesn’t make sense when a dealer can easily work remotely with a local agent or allow that agent to use an office in the dealership.

“Car dealers are one-trick ponies,” he says. “Selling insurance is so far outside their expertise.”

To be sure, a car dealer selling auto insurance seems like a great idea. After all, they have what amounts to a captive audience. “On paper, it makes sense,” Zanan says.

And indeed, a few dealerships do have a licensed insurance company on site.

But dealership finance and insurance managers aren’t licensed to sell property and casualty auto insurance, Zanan explains. So, the dealer would have to hire a licensed agent. And that agent would need to sell more than just auto insurance to make it pencil out.

One dealer, who asked that his name not be used, says he did have an Allstate office in his dealership for a time. It seemed to make sense, he says. But he closed the office because business wasn’t good.

“It is not competitive in my market,” he says.  “You need to be a broker (and) you need to have options for the customers.”    

The Upfront Approach Is the Best

Kelley Blue Book has heard from dealers that they have had “people who have declined to buy a car or have returned it after getting the insurance quote because they can’t afford the insurance,” Sean Tucker, Kelley Blue Book senior editor, tells WardsAuto.

He recommends that dealers be upfront with customers about the cost of insurance before they sit down to sign paperwork. For consumers, Tucker suggests they get an insurance quote before going car shopping to see if the car they are interested in fits their budget.

Consumers don’t realize how much insurance costs have increased as cars have become more electronics-laden and the overall cost of a vehicle has risen, as well, Tucker says.

According to Cox Automotive, the average transaction price for a new vehicle in March was $47,218.

While that was down slightly from February, and down 5.4% from the peak of December 2022, it was up 15.5% compared to March 2021, Kelley Blue Book estimates.  

What is needed to make car insurance rates more affordable is more affordable cars, Tucker says.

“Dealers need to put some pressure on the automakers to give them affordable cars to sell,” he says.