Hurricanes Boost Car-Makers' Sales for First Time of 2017

The two storms that battered parts of Texas and Florida in the past month have given U.S. automakers a reprieve from two problems that have cast a shadow over the price of their shares all year: bulging new-vehicle inventories and an oversupply of off-lease vehicles.

Automakers are scheduled to report U.S. sales on Tuesday, Oct. 3, offering the first indications of the demand for vehicles to replace those damaged or destroyed in Houston's record floods and the pummeling much of Florida got from Hurricane Irma.

Some analysts expect September to show the first monthly increase in vehicle sales this year -- though their previous forecasts of sales gains for the industry in March, May and August proved inaccurate.

Any increase likely would be minimal; Edmunds projects a 0.4 percent rise, and Kelley Blue Book expects a 0.7 percent gain. However, either amount would be enough to push the industry's annualized selling rate to 17.5 million units -- the highest of the year.

“Hurricanes Harvey and Irma will continue to disrupt new-vehicle retail sales in September and beyond,” said Thomas King, head of data and analytics at J.D. Power and Associates.

King said retail sales in the south-central region, which includes Houston, were up 14% in early September as shoppers replaced storm-damaged vehicles and completed purchases that were postponed during the storm. But retail sales in the Southeast, which includes Florida, were down 16 percent as the region and dealers returned to normal operation.

According to data compiled for Reuters by car-shopping website CarGurus, during the height of the storm, online car searches in Houston were down 25 percent -- from an Aug. 4 baseline -- but as of Sept. 17 were up 18 percent.

Cox Automotive Chief Economist Jonathan Smoke says the "immediate replacement demand" following the storms is around 600,000, including 400,000 in southeast Texas. Around 200,000 of the replacement vehicles will likely be new and the rest used.

Most of the vehicles will be used either because many people lack flood insurance, their insurers only pay them the current replacement value, or they owe more than their vehicle is worth so they will not be able to afford a new car.

High demand around Houston has already prompted dealers in other states, automakers and their captive finance companies to shift nearly new vehicles into that market for auction.

Before the storms hit, U.S. automakers were facing the largest levels of unsold inventory in 13 years, said Joe Langley, a senior analyst at economic forecasting and data company IHS Markit.

IHS estimates automakers have 500,000 to 600,000 more vehicles in stock than they need. There are concerns that competition for market share amid declining sales mean automakers will not cut production enough.

A spokesman for the nonprofit National Insurance Crime Bureau said that as of Wednesday around 297,000 auto insurance claims had been filed related to Harvey and 128,000 had been filed because of Irma.

Executives at Copart Inc., which dominates the auto salvage auction business alongside KAR Auction Services Inc., said last week during an earnings conference call that the company could salvage more than 85,000 vehicles damaged by Harvey. KAR did not provide an estimate, but the website for its Insurance Auto Auctions Inc. unit lists around 54,000 flood-damaged vehicles that have been processed so far.

Used vehicle prices are rising. Geoff Parker, a regional vice president at KAR's ADESA used-car auction unit, whose territory includes Texas, said auction volumes have been up around 10 to 20 percent following Harvey and 25 to 35 percent more dealers have been attending auctions.

Parker said auto dealers in Ohio, Georgia and Tennessee have been shipping used cars to Texas for sale and an automaker's captive finance company has just shipped 1,000 off-lease vehicles from Michigan for sale in Texas.

Post-Irma sales in Florida have been slower to rise because the storm left many dealers without power for longer.

Carey, Nick. (2017). "Storm sales boost gives U.S. carmakers chance to cut oversuppply". Retrieved from http://www.reuters.com/article/us-autos-storms-sales/storm-sales-boost-gives-u-s-carmakers-chance-to-cut-oversupply-idUSKCN1C32UT.