Harvey to impact car sales, prices after flooding thousands of vehicles

Hurricane Harvey flooded cars AP FBN

Hurricane Harvey swamped as many as half a million vehicles in the Houston area, potentially setting up a period of high demand and surging prices.

The Category 4 storm brought devastating floods to Houston and other cities in southeast Texas. Homes, businesses and roads remain under water, and economists say the damage will cost $50 billion or more. According to Moody’s, homes and vehicles alone suffered at least $30 billion in damage, as floodwaters submerged cars in driveways, garages and dealership lots.

Jonathan Smoke, chief economist for Kelley Blue Book owner Cox Automotive, estimated that 300,000 to 500,000 vehicles were lost in the Houston area. For some perspective, the Houston auto market—including 20 counties—has recorded a total of 325,000 in new-vehicle sales over the last 12 months, Smoke said.

Harvey’s destruction will no doubt hurt the industry’s sales in the short run, given that Texas is America’s second-largest sales market and a popular region for lucrative trucks and SUVs. Automakers are due to report August sales Friday. Down the road, automakers and dealers should see a spike in sales once residents begin replacing their flooded or damaged vehicles. That also means prices will rise with the supply of new and used vehicles on the decline.

Cox Automotive is projecting that September will get a “mild boost” from delayed purchases in Houston. The recovery process should take months, pushing higher sales in Texas through the fourth quarter. Texas is the top sales market for the Ford (NYSE:F), Ram, GMC, Cadillac and Mitsubishi brands, according to Edmunds. Ram is part of the Fiat Chrysler (NYSE:FCAU) stable, while General Motors (NYSE:GM) owns GMC and Cadillac. SUV and truck makers generally post strong results in Texas, where one of every five vehicles sold is a full-size truck.

After Hurricane Sandy in 2012, the New York market posted a 49% increase in new-vehicle sales during the following month, based on Cox Automotive data. Wholesale prices strengthened for three months after the storm.

The extent of the Harvey’s damage to vehicles is believed to be far worse than Sandy, which forced owners to scrap 250,000 vehicles. Sandy hit the highly-populated areas of New York City and New Jersey, but vehicles are a necessity in Texas, Smoke noted. The Houston area has an ownership rate of 94.4%, compared to 91% for the U.S.

More used vehicles will hit the market after the cleanup process begins. Roughly half of all flooded vehicles in the U.S. are cleaned and put up for sale, according to Carfax.

Hurricane Harvey stranded car transport truck AP FBN

“There’s going to be a short-term impact on sales, but the longer term impact is how many vehicles are going to be circulating back into the market,” said Christopher Basso, a spokesperson for Carfax.

Experts warn car shoppers to look out for flooded vehicles. Flood damage must be disclosed on a car’s title, but many buyers were duped after Hurricane Katrina. Thousands of flooded vehicles were fixed and sent to another state where they received a clean title.

Carfax offers a free flood check using VIN numbers. The company says rust, brittle wires or upholstery that doesn’t match can be signs that a vehicle was once flooded. There are 271,000 flooded cars that are currently back on the road, and Houston is the top city.

Ticker Security Last Change Change %
GM GENERAL MOTORS CO. 36.16 +0.50 +1.40%
F FORD MOTOR CO. 12.85 +0.06 +0.50%
FCAU n.a. n.a. n.a. n.a.