Impact of Hurricane Harvey on the Auto Industry
By Zlatan Stankovic on September 5, 2017
All over the world, people have been watching their TVs, listening to the radio, and checking their phones for news of the terrible events in Texas. As Hurricane Harvey swept through the state last week, it left a trail of devastation and one of the worst natural disasters we’ve ever seen in terms of damage and the size of the repair project the locals now face.
As of this weekend, Harvey has been downgraded and is now considered a ‘post-tropical cyclone’ but this doesn’t help those who have been forced to leave their homes due to widespread flooding. Towards the end of last week, over 55,000 homes were left without power but this was severely reduced compared to the reported 85,000 on Wednesday. In Harris County alone, there were thought to be 135,000 different flooded structures and it’s hard to imagine how those in south east Texas must be feeling after watching their home, their community, and their state suffer from this natural occurrence.
As a result of Harvey, many industries have been impacted in a large way and the auto industry certainly fits into this category. So far, experts believe 500,000 vehicles have been damaged as well as hundreds of dealers closing right across the state. In this corner of the US, the auto industry has been shaken up in a severe way. Considering Texas is widely considered to be the second largest auto market after only California, this news affects the south as well as the whole country.
According to Toyota Motor Corp and General Motors Co who are located in San Antonio and Arlington respectively, vehicle production has actually remained largely untouched but it’s the dealers who are having to pick up the pieces. Across Houston, over 500 dealers have shut down with many forecourts currently sitting in water. Sadly, it also looks as though they will have to wait a number of weeks before knowing the full extent of the damage to not only the new cars but also the property. As we know, water brings with it a wealth of issues including mold and mildew which attacks the integrity of the building along with the water itself.
Sales Forecasts– Unlike any economic disaster could cause, these floods are likely to cause an instant halt to all car sales across south east Texas with most having more pressing matters to contend with. According to Itay Michaeli, an analyst with Citi, sales will fall by 60% with over 120 different counties being affected by Hurricane Harvey and the resulting floods. For the US as a whole, Michaeli predicted sales somewhere towards the mid $16 million mark. Thanks to Harvey, this is now expected to fall to just over $16 million; this perhaps shows the huge impact the car sales in Texas have for the whole country.
In terms of models, it’s believed that up to 40,000 units will now go unsold after previously reaching an agreement; at the very least, they’ll be delayed for a number of weeks. However, this will change towards the end of the year as the streets begin to clear and families go searching for their replacement vehicle for the years ahead. Earlier, we suggested that half a million vehicles will be damaged beyond repair due to Harvey and this number was actually calculated by looking at the figures from Sandy and Katrina and then assessing the number of households affected by the flooding. Back in 2012, 250,000 vehicles were destroyed which puts the impact of Harvey into context once again.
If Houston happens to lose 300,000 vehicles (which is the prediction for the city), it would fall just 25,000 units short of their sales figures over the course of the last 12 months. As mentioned previously, the impact for dealerships has been where the main damage has happened and AutoNation epitomises this damage. With 60 different dealers in the region, they’ve already closed nearly one-third of these along with a collision center and auction facility.
According to the Executive Vice President and Chief Marketing Office at AutoNation, Marc Cannon, the only solution in the weeks ahead will be to visit each site in turn and assess the damage to the building as well as all the vehicles.
Widespread Damage– As of this weekend, it’s still raining in Texas and the damage is largely unknown in terms of specifics but we do know that around one in four dealerships in the Houston area have been damaged in some way and this statistic has come from the President of the Texas Automobile Dealers Association, Bill Wolters. In addition to this, he added that nearly every single dealership in the area was closed even if they haven’t been damaged because employees can’t get to work and customers, as we would expect, aren’t showing any interest in buying a new vehicle at this time.
Gillman Automotive Group President, Stacey Gillman, followed along the same lines by saying her team had received 700 calls for help on Tuesday alone. With cars, vans, and trucks being damaged by the storm, everybody is looking for the right service for a solution but many are striking out of luck. After closing on Monday, the Gillman facilities in Houston actually left a hand-written message to those visiting telling them to fill out a form with their correct information if they wanted to leave their vehicles to be repaired. After leaving the gates open, they essentially opened up their business and allowed the customers to take charge and book in their own vehicles.
As the second-largest metropolitan area in Texas and the fifth-largest across the US, the population of Houston is currently thought to be around 6.5 million. With the state itself, their contribution to the auto industry is huge and only growing each year. Every year, Texans are responsible for nearly one in every ten cars sold across the country. What’s more, 15% of full-size pickup truck sales in 2017 have been to people in Texas. With this flooding, the effects on the Texas and US economy will be long-lasting with sales dropping severely in the short-term before increasing in the long-term as people find their feet once more. If we use Hurricane Sandy for reference as we have done before, sales actually increased by nearly 50% in the month after the event.
The Future– With all of this information in mind, what does it mean for the future? At the moment, all vehicle deliveries have been stopped and this was to be expected. In the coming weeks, the auto industry will assess the damage and find out the true cost of Hurricane Harvey. Across the northern section of Texas and the surrounding states, car production is still going strong and it’s likely that Houston will rely on this production for the time being.
In addition to car manufacturers, we also don’t know the damage to parts suppliers which may or may not make it harder for garages to repair those vehicles that still have a fighting chance. Therefore, we cannot estimate the long-term damage of Harvey but, as the saying goes, the counties in question will need to hope for the best while planning for the worst. How many people will now back out of car agreements? How many people will require new cars when the state stabilises? Over the next six weeks, industry performance could be very erratic which will have knock-on effects for the rest of the country.
Of course, we also haven’t addressed what will happen to the owners of cars that have been lost in the floods. At the moment, the car insurance providers have a large say over how this process goes. For the cars themselves, those that have no future whatsoever will be recovered in the coming weeks before then being destroyed at the several facilities around Texas. With these cars, they receive an ‘Undeliverable’ title while those with minor damage that can be repaired will earn a ‘Salvage’ title. For buyers in the state, they’ll be alerted to previous damage thanks to the title system.
In the past, we’ve heard several stories of people who have had their fingers burned after buying a car that had been involved in a natural disaster. Sadly, they make their way onto the used car market when they really aren’t in the right condition to be of use to anybody.
Nowadays, the consumer protection laws are right where they should be so everybody needs to stay vigilant and report any issues in the market. When buying a car, always have an inspection completed by a third party who can give a professional opinion before you hand any money across. By doing this, you protect yourself as well as the auto industry.