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Harvey’s Brutal Impact on Automotive

September 1, 2017 0 Comments

Hurricane Harvey has been hailed as one of the worst natural disasters in U.S. history, and its impact on the automotive industry is no exception.

Automotive data firm Black Book estimates that up to one million vehicles have been ruined along the Texas Gulf Coast, and Evercore ISI analysts predict that one in seven vehicles in Houston were destroyed.

Michael and Pansy Granberry, living in the suburbs of Friendswood, had their home flooded with two feet of water, and they suspect their three cars took electrical damage that will be “too expensive” to fix.

“The Lexus is gone and the Cadillac, my favorite, I just bought it at the end of February, won’t do nothing – it’s just blown,” said Michael Granberry. “We’ve already talked to the insurance company, and they said they will be out soon to take care of it.”

The Granberrys are trying to find a rental to help them get by in the meantime, but rentals are in high demand in Harvey’s aftermath.

Jonathan Smoke, chief economist at Cox Automotive, estimates that some 300,000 to 500,000 individually-owned vehicles were destroyed by Harvey, with insurance expected to cover a large portion of the damages.

Smoke’s estimates are based on the Houston-area storm damage and vehicle ownership rates, which he compared against the claims and rates resulting from Superstorm Sandy in New York and Hurricane Katrina in New Orleans.

Vehicle ownership rates in Houston are higher than those in both New York and New Orleans were at the time of those natural disasters. Houston’s rate is 1.8 vehicles per household, compared to 1.3 in New York and 1.6 in New Orleans.

According to Cox Automotive, Sandy destroyed around 250,000 vehicles, and Katrina wrecked around 200,000. Other research puts Katrina’s destruction at 500,000 cars and trucks, but those numbers include vehicles possibly ruined by later storms like Hurricane Rita and Hurricane Wilma.

“It makes sense that the total vehicles damaged will be more severe than we saw in either of those cases,” said Smoke, adding that 300,000 is “a fairly conservative estimate” and 500,000 is “clearly plausible.”

366,000 new vehicles parked on dealership lots were probably affected as well, including some 150,000 to 200,000 in the hardest-hit areas, estimates Jessica Caldwell, an analyst for Edmunds.

According to Black Book, more than 500 Houston-area dealerships were affected, including all 17 owned by AutoNation, which makes up the “largest dealership network in the U.S.” AutoNation opened its doors again on Thursday.

Chris Hopson, an automotive analyst with IHS Markit, predicts auto sales should pick up by late September or early October.

In the short-term, U.S. auto sales will take a hit, with automakers likely selling “tens of thousands fewer vehicles than expected” due to Hurricane Harvey. The region hit by Hurricane Harvey makes up 30 to 40 percent of Texas auto sales and accounts for up to 9 percent of total U.S. sales, said Barclays.

“We have a whole week in August where we’re not going to see sales in the Houston area,” said Hopson.

That said, auto sales might see a boost come fall, particularly with regard to SUV and pickup truck sales, with Houston being one of the biggest purchasers of large vehicles in the U.S.

Following Sandy in late October of 2012, New York auto sales spiked in November by almost 50 percent, said Smoke.

“We think most of this will come pretty quickly.”

Pickups are most likely to see sales increases, Smoke said, with models like the General Motors’ Chevrolet Silverado, Ford’s F-Series, and Fiat-Chrysler’s Ram.

Analysts initially predicted the auto industry’s first year-over-year sales increase in 2017, but in the aftermath of Harvey, Kelley Blue Book is projecting a decrease of 0.5 percent to 1.5 million units nationwide.

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