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Smoke on Cars

Hurricane Harvey: The worst disaster for automobiles ever


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This article was originally published in The Hill on Sept. 6, 2017: https://thehill.com/blogs/pundits-blog/energy-environment/349487-hurricane-harvey-the-worst-disaster-for-automobiles

Once damages are finally tallied, Hurricane Harvey will likely prove to be among the worst, most-costly natural disasters to hit our United States. In addition to the heartbreaking loss of life, damages have been estimated by Moody’s Analytics to be in the range of $77 to $97 billion. That’s bigger than Sandy and getting close to Katrina — clearly a major tragedy.

Because of the nature of the damage — mainly flooding — and the landscape of Houston — mostly flat — the damage to the vehicles is particularly noteworthy. My team at Cox Automotive has taken a careful look at the situation in and around Houston and found the damage to be shocking. In fact, in a measure of damaged or destroyed automobiles, Hurricane Harvey could well be the worst ever in the United States.

Texas in general, and the Houston Designated Market Area specifically, is a vehicle-centric world. Houston is big. It is the seventh largest by population in the U.S., made up of 20 counties and the city of Houston, the fourth most-populated city in America. The vehicle ownership rate in the Houston area is 94.4 percent, which is higher than the U.S. rate of 91 percent. Of the top 10 market areas in the U.S., only the Dallas-Fort-Worth market has a higher vehicle ownership rate, where 94.9 percent of households own a vehicle. For comparison, where Hurricane Sandy came ashore in 2012, only 71 percent of households owned vehicles.

When Harvey hit, there were a lot of vehicles on the ground. With 5.6 million in operation, the market ranks eight in the country. And that number does not include new vehicle inventory at dealerships, which will push the count even higher.

The Houston market has a relatively young vehicle stock, as the market sees a higher share of new vehicle sales out of total vehicle sales compared to the country overall. Approximately 26 percent of the vehicles in Houston are model years 2014 or newer; for the U.S., that share is 22 percent.

The younger fleet of vehicles is also pricier in nature. The top selling vehicles in the area are pickup trucks, mostly Ford F-150, Chevrolet Silverado, GMC Sierra, Ram and Toyota Tundra. As the Houston market is also relatively affluent, luxury cars are also abundant.

Given what we know so far, the impact to Houston’s vehicle stock looks severe. We are estimating 300,000 to 500,000 vehicles were severely damaged or destroyed, which translates to between $2.7 billion and $4.9 billion in lost vehicle value, based on vehicle age in the market. For comparison, most estimates put vehicle loss during Sandy at 250,000; for Katrina, 200,000.

If Houston indeed lost 300,000 or more vehicles, it’s sobering to note that the entire market has seen only 325,000 new-vehicle sales in the last 12 months. That’s a year’s worth of new car sales underwater.

Sales of new and used vehicles typically fall in the month of a hurricane impacted area and then spike in months following. The New York market saw a 49 percent increase in new vehicle sales in November, the month following Sandy, which came ashore October 29, 2012. That sales spike lasted two months.

A silver lining for this disaster is hard to find. Fortunately, the U.S. economy remains on solid ground. Vehicle sales across the country remain strong as well, although down slightly from the all-time record set last year.

Houston is an automobile-dependent market. Without wheels, it will be difficult to complete the tasks of getting life back to normal. Vehicle pricing, however, will be an issue going forward. The increase in demand and decrease in supply, is expected to drive used vehicle values higher, and not just in Houston.

Similar to what was observed with Sandy, we expect this increase in demand will be met with a shift in inventory from other markets to satisfy the Houston area. That movement in supply, in turn, will likely create a modest increase in used vehicle values well beyond Texas.

Currently, according to data from Kelley Blue Book, new car sale incentives are at their highest levels ever in the United States. One possible outcome from Harvey is a nationwide reduction in new-car incentives driven by reduced inventory. At the same time, for residents of Texas and Louisiana, many manufacturers are already running disaster relief incentives for those affected by the storm.

Much will depend on claims processing, which is why we will be paying attention to what the major insurance companies are reporting. State Farm, GEICO, Allstate and Progressive are the top auto insurers there, and reports at the end of last week indicated that over 100,000 claims had already been filed. They will likely move quickly once they can confirm loss.

Sadly, not all who lost vehicles will receive an insurance payout. As many as 20 percent of motorists in the market may be uninsured. Of those insured, approximately 14 percent are not cover for flood damage. Another 13 to14 percent of covered vehicles are likely to have been financially underwater.

Shoppers need to be on high alert to avoid the potential disaster of buying a flood damaged vehicle as well. Cars and water do not mix, and the catastrophic flooding should put buyers in Houston and elsewhere on high alert looking for the signs of flood damage — water residue in the spare tire well, moisture in the headlights, a sagging headliner, etc.

Labor Day Weekend is traditionally one of the big car-shopping weekends of the year. Last weekend, we began seeing the initial signs of the recovery.

According to data provided by Cox Automotive’s Dealer.com, which runs more than 60 percent of dealer websites in the U.S., online automotive shopping and research was brisk over Labor Day Weekend. Where the rest of the country was relatively flat compared to Labor Day Weekend 2016, the Houston market showed a 16 percent increase in overall dealership website traffic and a 26 percent increase in vehicle description page views.

Overall, though, the Houston market will take years to fully recover from a disaster of this magnitude. Pending the track of Hurricane Irma, now churning southeast of Florida, the recovery may be complicated further by a second major natural disaster.

But Texas is strong. I know this, as we UT Longhorns say, “Texas Fight!”

Jonathan Smoke is chief economist for Cox Automotive. The Cox Automotive family of brands includes Autotrader®, Dealer.com®, Dealertrack®, Kelley Blue Book®, Manheim®, NextGear Capital®, vAuto®, Xtime® and a host of others. Cox Automotive is a subsidiary of Cox Enterprises Inc., an Atlanta-based company with revenues exceeding $20 billion and approximately 60,000 employees. For more information about Cox Automotive, visit www.coxautoinc.com.

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