Dealers shouldn't hold their breath waiting for GAP prices to fall -- even though used-car prices have risen.
Ordinarily that would be a reasonable expectation. If a vehicle is totaled in an accident or stolen and not recovered, guaranteed asset protection covers the difference between what the vehicle is actually worth and the remaining balance on the customer's loan.
So when used-vehicle prices plunged in 2008, it meant a wider “gap” in value for GAP policies to cover and bigger payouts. Today, used-vehicle prices are on the rebound. Shouldn't that mean lower wholesale prices on GAP?
Dealerships buy GAP policies at a wholesale price and sell them at a retail price, typically about double the wholesale price. If GAP providers charge less to reflect lower risk, dealers could either lower retail prices and sell more GAP policies or keep retail prices the same and pocket a bigger margin.
Not so fast, industry insiders say. That's because GAP prices are set based on what insurance companies think the risk will be in a few years, not what it is today.
As a result, prices -- and margins -- should remain stable.
The bottom line is that prices for GAP have stopped going up, but overall they haven't come down, either. Dealers and companies that sell GAP policies say retail prices range from about $600 to $800. That's an increase of about $100 in the past few years. “In general terms, there has been a distinct slowdown in increases in rates,” said Mike Fuller, director of strategic planning for dealer products and services at GMAC Insurance.