Car almost totalled: Should you repair it, or write it off and buy a new one?

Dubai: If you have a major car repair expense coming up after nearly ‘totalling’ your car in an accident or any similar incident, how do you judge if this is just the beginning of a series of near-term repairs, or if the Dh3,000 repair will get you motoring happily along for another 50,000 kilometres?

“When faced with a significant cost of repairing your car at any point during possession, it can be nearly impossible to figure out whether to stick with it or cut your losses and buy a new car,” said Ibrahim Riba, a senior car insurance salesman based in Abu Dhabi.

“When a car is ‘totalled’, the cost to repair is above a percentage of value or it's not repairable. In other words, when your car is damaged so much, repairing it will cost more than the car's value, deeming it ‘totalled’ or ‘total loss’. A car does not need to appear completely obliterated to be deemed ‘totalled’.”

How to determine repair cost versus worth of the car

So how do you know if the cost of a repair is worth it to you? For insurers, simple subtraction makes the decision easy. If the cost of a repair is higher than the value of a car, the insurer will total the car. And if you are in a position to purchase a new car, this kind of simplified equation is helpful.

“However, what a car is worth to you is not necessarily as simple as that. If you own your current car free-and-clear, and would struggle to take on a car payment, the determination of whether the cost of the repair is worth it becomes a little more difficult,” added Riba.

“A good rule of thumb in this situation is to buy a new car if the repair would cost more than one year's worth of car payments — but keep the car if it is less. And don't forget the potential value of trading in your car, even if it needs a repair, and that when the insurance company deems the vehicle a ‘total loss’, it should pay you for the car's replacement value.”

Repair costs are not a good indicator that helps you decide

So while it may be tougher to sell or trade in a car in need of a major repair, your old ride may still be worth something and can help you with the purchase of something newer or more reliable. But keep in mind repair costs are not an ideal indicator of when it is best to replace rather than repair your vehicle.

“The reasoning for why analysing repair costs aren’t an ideal indicator is because your personal vehicle is an expense, not an investment, and it serves a purpose; that purpose is not to provide a financial return,” said Ian Bagley, a Dubai-based insurance analyst.

“When you consider the cost of repairs written off over the expected durability of those repairs, the cost per kilometre will usually be considerably less than the cost per kilometre of a replacement vehicle, even if the cost of repairs is greater than the expected value of the vehicle after repair.”

You often spend more with replacement rather than repair

While significant repairs should significantly extend the life of the vehicle, spending thousands of dirhams on repairs will only extend the life a few thousand miles and results in a high cost per kilometre for those repairs, and may result in a higher per-kilometre cost than a replacement vehicle.

“You will almost always spend more with replacement rather than repair, so from a cost perspective repair is almost always preferable,” added Bagley, who has been working in the insurance sector for over two decades.

“Of course, some repairs may be so expensive that they exceed the cost of a replacement vehicle of comparable quality and durability, especially if parts are out of production and must be custom made; in that case replacement may be the better option.”

Average age of a vehicle on the road is now 12.5 years old

According to multiple statistics, the average age of a vehicle on the road is now 12.5 years old. While that’s a testament to the big improvements in quality from the cars of three or four decades ago, vehicles still wear out and need repair.

“Almost anything can be repaired or restored for a cost, but at some point, the economic equation of continuing to repair an aging vehicle just doesn’t make sense for most drivers. Some repairs can be costly, such as timing belt replacement,” added Riba.

“Most vehicles will need a timing belt between 100,000 and 150,000 kilometres, but this is a normal preventative repair. The second such service, however, may come at a time when the cost outstrips the value of the car. Items like brake pads and tires wear out, so it’s normal to spend on them, but if you’re having substantive things repaired, like transmissions, chances are good other things are worn out too.”

Bottom line?

The temptation to think a car worth around Dh10,000 isn't worth Dh5,000 in repairs is understandable, but auto repair costs should be compared against the full cost of a new or newer car, including financing and possibly higher insurance and registration costs.

But whatever you do, don't fall for the mistake of comparing repair cost to the vehicle’s market value: The real math is what it will cost you to buy something better than the current car you can repair.

As Bagley and Riba mentioned above, a bill with a Dh1,000 repair once a year starts to look pretty cheap compared to a Dh400 per month car payment. But you need to avoid the situation of the monthly Dh1,000 repair bill, though. However, it’s not always about costs when making a decision.

However, they also agree that the cost should almost never be a consideration, because it almost never pencils out long term. This is primarily because vehicles are an expense, not an investment, and repair almost always reduces the long term expense.