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Young woman receiving the car keys from car salesman

Hurricane Harvey’s impact on the automotive marketplace will be significant

Hurricane Harvey’s impact will be felt on the Houston area, plus the surrounding area, for years into the future. Some estimate that 300,000 to 500,000 cars will have been lost due to flooding. Most of the cars are owned by people who need their car for transportation while others were sitting on car lots. What does this all mean to the future of the industry, especially in Texas.

We sat down with Rebecca Lindland of Kelley Blue Book, a Cox Automotive property, to ask her those very questions. Her interview can be listened to in its entirety by playing the podcast using the player above. But we thought we’d break it down and provide some extra analysis of what it all could and will mean.

Decreased short term sales

This should be obvious, but with dealerships closed for several days due to flooding, sales are going to grind to a halt. Houston makes up approximately 2.3% of all automotive sales in the country. While that’s not a huge amount in the grand scheme of things, sales targets for the month of August, and perhaps the rest of the year, will be lowered some.

Increased sales in a few months

After Hurricane Sandy, auto sales in the area saw a slump for a month and then saw an increase over the next two months. There are a few reasons for this burst shortly after the disaster, but the main reason is simply delayed sales.

Delayed sales are coming in

Delayed sales are people who were going to purchase a car anyway. They needed to replace a ride and the hurricane prevented them from doing so on the timetable they wanted. They’re still going to replace that car, so once they have their life more sorted they’re going to head to dealerships and make those purchases.

Insurance claims paid

For people who either didn’t suffer significant damage, or had flood insurance and are quickly back on their feet, they’ll be able to quickly turn around their insurance claims into new or replacement cars.

Hurricane Harvey helps inventory glut

For dealerships in the Houston area that might have been sitting on cars for a long time, the hurricane is somewhat good news. Reducing glut is obviously a good thing, and for the vehicles that Houstonians buy (pickup trucks, midsize cars, compact cars), there’ll be increased demand.

Unlike Sandy, where the industry was just coming out of a downturn, there is plenty of inventory nationwide to that be shuffled to the Houston area for sales. While this process takes some time, once the roads are clear car haulers can move in.

Will manufacturers offer extra incentives?

Manufacturers always want to sell cars. Dealerships want to sell cars. But, you might think that since the demand will be high that there’ll be an opportunity to dealerships to raise costs. Our source doesn’t believe that’ll happen, and we don’t think so either.

Approximately 2 in 10 Houstonians have flood insurance. Aside from disaster aid, many people will have storm damage expenses that they’ll need to pay for out-of-pocket. When they get their car insurance claims check — assuming they had comprehensive coverage and the insurance covers it — they might need to spend that money on other, more important, life necessities.

That means people might end up looking for less-expensive cars. They’ll be looking at used cars. Dealerships will be ready, because used car inventories are also high, and lightly used, freshly-off-lease vehicles are great for these people and it’s just as easy to shift that inventory around.

Manufacturers will want to sell new cars instead of used cars, so we can see it being a situation where manufacturers will have to combat used car prices and buyers by offering discounts on the new cars.

Perspective

It’s important to not lose perspective of the situation. Cars are extremely important to Houstonians, because mass transit doesn’t exist reliably in Houston, and the ownership rate in the Houston area for cars is at 94.4%. Dallas is at a staggering 94.9%. The rest of the nation? Approximately 91%.

A loss of 300-500,000 cars is also over a year’s worth of car sales in the Houston area.

Poeple are going to have to replace these cars. It’s not like New York City, and Sandy, where people can rely on other means of transport. The industry will recover out of necessity, and if car manufacturers play their cards right, can make up for the losses they sustained during the hurricane in a relatively short period of time.

About Chad Kirchner

Chad Kirchner is the Editor-in-Chief of Future Motoring, along with the main host and producer of the Future Motoring podcast. In addition to his work here, he's a freelance automotive journalist for outlets around the world.

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