By on August 29, 2017

flooded cars (public domain)

You’ve already noticed an uptick in prices at the pumps, all courtesy of Texas oil refineries shut down by Hurricane Harvey, and further gas price hikes are on the way. However, the stalled storm’s impact on the automotive industry is only just beginning to be felt.

The damage inflicted on the hard-hit Texas coastline and especially in the swamped greater Houston area has the potential to make August a grim month for new car sales, coming in a year that hasn’t been kind to automakers in the United States.

U.S. new car sales sank every month this year, ending the notion that the industry is facing a plateau, not a decline. It’s bad news for automakers jockeying for increased market share (even though sales remain very high in a historical sense).

Just days before Harvey hit, on August 24th, J.D. Power issued a forecast stating August sales would sink 2.9 percent, year over year.

Now we’re hearing roughly 500 dealerships in America’s fourth largest city are impacted by the storm. That’s not counting the hundreds of others in communities throughout southeast Texas. In some cases, the dealerships itself — like the Aransas Autoplex superstore in Port Aransas, reported destroyed by the Texas Automobile Dealers Association — will require rebuilding. In many more cases the dealer’s inventory will be a complete loss, with retailers remaining shuttered for some time after the rain stops. Just watch this CNBC video for proof.

While many dealers tried to take the best precautions available, floodwaters have a way of finding areas deemed high and dry. CNBC‘s Phil LeBeau suggests a million new vehicles might be lost.

Joining flooded inventory and shuttered dealers as a potential sales killer is a population far more concerned with rebuilding and recovery than purchasing new cars. Indeed, many vehicles will need replacement after the waters recede, but that comes later. Right now, communities are evacuated. Homes lost or underwater. A population, including dealer employees with more pressing concerns than soggy inventory, in flux.

Texas’ healthy economy and large agricultural base also means the state’s drivers prefers high-value vehicles like trucks and SUVs — exactly the vehicles automakers count on for continued profitability in a sales slump.

There’s no doubt August sales will take a hit, but the impact, just like the storm’s physical effects, can’t be fully assessed until sunny skies return. Mitchell Dale, co-owner of McRee Ford in Dickinson, Texas, aptly summed up the status of many dealerships in an interview with Automotive News.

“Right now, we just don’t know.”

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27 Comments on “As Harvey Continues Swamping Dealers, Slumping Industry Braces for a Hit...”

  • avatar

    Get ready for some title checking used car buyers!

    “U.S. new car sales sank every month this year, ending the notion that the industry is facing a plateau, not a decline.”

    Controlled descent through collusion.

  • avatar

    Those flooded cars will need to be replaced as soon as the water recedes; people need transportation to resume their lives. No car = no job. Car dealers will get inventory shipped in and operate out of sales trailers and RV’s if that is what it takes. Service bays will be mopped out, tools replaced, and service departments will be up and running in less time than it takes FEMA to get their phones turned on. Greed (and self preservation) is an amazing motivator.

    The Good News: Replacing flooded cars may go a long way towards moving some inventory that was backing up nationwide.

    The Bad News: a lot of flood damaged/destroyed cars will end up on used car lots once the titles have been washed. It should be mandatory that flood damaged cars go straight to the crusher.

    • 0 avatar
      SCE to AUX

      Don’t trust Carfax to certify that shiny car you want, either.

      My formerly wrecked car ($4k damage including frame welding) ended up on a used car lot with a clean Carfax 3 states away, even though it had been repaired in a Nissan-certified shop.

      A clean Carfax and a dollar will get you cheap coffee, AFAIC.

    • 0 avatar

      Respectfully, I see both as bad news. But I do think flood damaged units by default should be crushed and they need to pass specific tests to survive.

    • 0 avatar
      87 Morgan

      I like to think self preservation.

      A lot of folks are going to need to get back to work so they can rebuild their lives and some of them may just work at the local chevy or toyota store.

      Lets cut them a little slack today.

    • 0 avatar

      the problem with that line of thinking is that there are often good cars that get pulled out of the used car market.

      my street flooded a few years ago while my 93 Nissan hardbody was parked at the curb. I heard the rain, but by the time I got to the truck, I had water about an inch deep in the cab. I pushed it to higher ground, let it dry out, and found it needed a new computer. one $45 used computer later, I drove that truck for another 30k miles. If I had claimed it on my insurance, it would have been totaled and I probably would have gotten about $200 for it after deductible.

      what I’m getting at is the idea that all flood cars are created equal causes a lot of babies to be thrown out with the bathwater, which (like Cash 4 Clunkers) actually harms more people than it helps.

      Branded titles? sure. Physically marked in some way to show flood damage (possibly an F stamped at the end of the firewall vin)? excellent. But, just pitching cars, en masse, into the recycle bin seems like a poor use of resources.

    • 0 avatar

      This event is big enough (greater Houston is the size of New Jersey I read) that many business won’t reopen, ever. Many will take a long time. Most people don’t have significant savings, or flood insurance. I figure there will be a large diaspora out of Houston in the weeks and months to come.

      “Hey, my sister lives in Oklahoma, and we can stay with her and she knows someone who will hire me.” That story is going to repeat itself over and over again I think.

      • 0 avatar

        The sad thing is that some folks moved from New Orleans to Houston, after Katrina. Now they’re going through the same thing all over again.

      • 0 avatar
        Dave M.

        In my 35 years in Houston, I’ve experienced 7 catastrophic floods (500 year floods my ass). I might be the luckiest person alive since I’ve suffered no flood damage yet…the worst I went through was a week without electricity during Ike.

        It astounds me that anyone doesn’t have flood insurance. It should be mandatory like it is in Dallas. We live in a glorified swamp for God’s sake.

        The in-laws bought their $550k new house in December. Guess what they didn’t have? Happy to say they dodged the bullet by 6″ last night.

        • 0 avatar

          I agree. Unless you are absolutely certain you’re not going to get flooded, you should have that insurance. I live on the east coast and the only reason I don’t have flood insurance is that I live on a hill roughly 100 feet above sea level. Where I live would be an island and the town itself practically submerged before I got my feet wet. Wouldn’t be able to go anywhere since I don’t have a boat, but I don’t have to worry about THAT kind of water damage.

  • avatar
    S2k Chris

    This would be a good opportunity for someone (maybe Bark?) to walk us through how this affects parties all up and down the channel. To someone with a very limited amount of knowledge, me, it would seem as though it works as thus:

    -Automaker is whole, they sold the car to the dealer (though they don’t get credit “for the sale” but that’s basically meaningless PR data, no?)
    -The dealer takes a loss of overhead, etc, but is paid by insurance for their inventory so they don’t take a loss there; hopefully they can cover their bills but understand this hurts
    -The insurer gets absolutely screwed by having to total all of those cars and cover the losses to the dealerships

    Thoughts? Happy to have anyone correct the above, and I think we’d all find it an interesting article…

    • 0 avatar

      Insurers are in the business of preparing for losses. They have been accruing reserves for years just for this day. They are not getting screwed.

      • 0 avatar
        S2k Chris

        Okay, “bear the brunt of the loss”? You get my point.

      • 0 avatar

        Insurance companies do accrue reserves of cash for this purpose but such incidents do eat into profits and that’s something they flat-out don’t like; they’ll do anything they can to avoid totaling those cars that got flooded. I wouldn’t doubt a good portion will be shipped to desert states, dried out and re-sold.

    • 0 avatar

      The Automakers will make out on this and the dealers won’t be too bad off in the long run. The insurance checks will start rolling in and the people will need to get a new vehicle, especially the gov’t and commercial fleets that will spend the near future cleaning up and rebuilding. The bigger dealer chains will probably make out the best in the short run as they are able to transfer inventory from locations out of the effected area. While the smaller dealers will have to beg the mfg to divert extra production to them or see if they can buy units from other small dealers that were unaffected.

      • 0 avatar

        Dealers will take a big hit because of the deductible and downtime, money they couldn’t make and expense they still have to pay (property tax, rent, etc).

        The only winner would be for manufacturers who doesn’t know how to get rid of stale inventory.

  • avatar

    I can see new opportunities in the F&I office…

    “That’ll be $1250 for the water damage restoration package ma’am.”

  • avatar

    The best and easiest way to get money to these people is to waive paying their federal taxes for the rest of the year. For many working people, it will help with down payments and pay a couple of months of car payments.

  • avatar

    Look at the other side of this: Sure, there’s hundreds of thousands of brand-new cars destroyed but there’s also a million-plus private cars destroyed as well that will need replacement. August may see a bit of a hit but starting in September we should be seeing a surge in the Texas coastal region at the least.

  • avatar

    “the Aransas Autoplex superstore in Port Aransas, reported destroyed by the Texas Automobile Dealers Association”

    A ‘was’, inserted after the comma and before the word ‘reported’, would be helpful. A quick glance led me to suspect the dealers association took the opportunity to proactively reduce left over inventory.

    Seriously, I wonder how many individuals may have been tempted to unload a beater or a lemon upon the waters? With all the inundated cars on the news I know that I’d be chary of buying any used car over the next several months.

  • avatar

    Watching that CNBC video is like deja vu, remembering the same pictures coming out of New Orleans in 2005. The S197 Mustangs were still a new thing then, and I recall seeing pictures of new Mustangs sitting on a dealer’s lot, with multiple water lines on them, showing how the water receded around them over time. Something like half a million cars were totaled after Katrina, and this will be much worse.

  • avatar

    “the Aransas Autoplex superstore in Port Aransas, reported destroyed by the Texas Automobile Dealers Association”

    Is that anything like, “Alderaan, reported destroyed by the Death Star”?

    Olive oil, baby oil.

    Garlic powder, baby powder.

  • avatar

    Bet VW kicking themselves they didn’t inventory all their dieselgate down TX way.

    What if there’s more Harvies – on a more regular basis? Where would that end? Don’t they always complain about the dry heat Texas way? For many Americans Lucas electrics could become a fact of live.

  • avatar

    I wonder how many automotive captured finance leases just moved into the “non-performing” category. I shudder to think what those writedowns will look like.

    • 0 avatar

      When you factor in the observation that 50% of the population is check to check, no savings or reserves, this is a huge issue….I’m guessing ALL the subprime paper/BHPH/Satander/subsidized leases just went under water…no pun intended….and what of the marginal housing ?

      • 0 avatar

        77% of Americans live paycheck to paycheck and finance all the things (from vehicles to blenders to carpeting to medical bills to home repairs to avocado toast).

        For the first time since the 1930s, the average American is dying in net-negative debt (a median debt of $62,000 they are leaving behind).

        The initial estimate of flood damage in Houston is 100 billion to businesses, homes and vehicles.

        Only 18% of all flooded homes had any flood insurance (only 28% of even high-end homes had flood insurance; based on maximum 100-year FEMA calculated flood plain map).

        Insurance analysts have estimated that it’s likely that a maximum of 20% of total amount of flood damage to businesses, business operations, and homes will be covered, and insurance payouts may be as little as 15%.

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