As Harvey Continues Swamping Dealers, Slumping Industry Braces for a Hit

Steph Willems
by Steph Willems

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.”

Steph Willems
Steph Willems

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4 of 27 comments
  • Sector 5 Sector 5 on Aug 29, 2017

    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.

  • Cleek Cleek on Aug 29, 2017

    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.

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    • DeadWeight DeadWeight on Aug 30, 2017

      @speedlaw 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%.