The replacement of vehicles lost in the recent hurricanes has started and the increased demand combined with the decrease in supply should drive up used-car prices.
J.D. Power and LMC Automotive report that while new-car sales were down 0.8 percent on a national basis in September, they were up 14 percent in the region that includes Houston. They were down 14 percent in the region that includes Florida, but that should change in October.
"The effect of hurricanes Harvey and Irma is expected to boost retail light vehicle demand through the remainder of 2017 and into 2018, as recovery continues,” said Jeff Schuster, Senior Vice President of Forecasting at LMC Automotive. “With the need to replace 500,000 or more damaged or destroyed vehicles, the U.S. auto market slowdown will see some relief as demand over the next 6-9 months will likely be upwardly distorted. In addition, a short-term increase in fleet sales may also be an outcome as current shortages are replenished.”
Driven by vehicle replacement need, LMC's outlook for 2017 total light-vehicle has been increased by 70,000 units to 17.1 million. The retail light-vehicle outlook has been increased to 13.9 million units from 13.8 million.
Many of those who drove new vehicles will find themselves replacing their lost cars with used units, as insurnance payments fail to match what they owned on those cars. And there are many used-car owners who lost their vehicles in the hurricanes.
CarMax Inc. has been busy moving replacement units into the Houston area and shipping out damaged carsHarvey hit during the last week of the used-car superstore chain’s latest quarter. It had to shut down its six stores, although five re-opened by Sept. 1.
The sixth store opened later that week. CarMax paid all of its employees for the shifts they would have worked and helped in other ways, including sending supplies to the area.
CarMax lost 1,000 units to Harvey, all of which were scrapped. Chief financial officer Tom Reedy said the company’s insurance covered most of these, but CarMax will still take a $1 million hit in this quarter.
The concern for the industry now is the potential for flood cars find their way onto dealers’ lots.
CarMax CEO Bill Nash said the process for detecting flood cars is greatly improved since Hurricane Katrina in 2005.
The company’s system is designed to flag salvage vehicles and CarMax buyers are trained to spot flood damage.
But this experience will put all these protections to the test.
“There are going to be a lot of flood vehicles out there,” Nash said.