A ‘Harvey Effect’ could produce a new-car sales surge at the end of 2017 – Markets Insider


Flooded cars Harvey
Flooded
cars in the Houston area.

AP/David J.
Phillip


As many as 500,000 vehicles could have been damaged or destroyed
by Hurricane Harvey and the flood waters that ravaged the Houston
area.

Those cars and trucks will be replaced, and the current dynamics
of the market in the US could point consumers toward new rather
than used vehicles.

“Buyers looking to replace vehicles destroyed by Harvey are
stepping into a tough used car market,” Ivan Drury, an
analyst at Edmunds.com, said in a statement.

“Prices are at record highs due to high volumes of near-new
off-lease vehicles. On the other end of the spectrum, older used
cars are holding their values at high rates and are in limited
supply. Those who can’t afford to spend a lot are going to get
squeezed on pricing, especially as a sudden increase in demand
makes finding cheaper used cars even more challenging.”

The used-car market has been an area of fixation since the
beginning of 2017 for those who closely follow US auto sales. A
boom in sales in 2015 and 2016, accompanied by increased leasing,
has encouraged everyone to brace for an onslaught of used
vehicles hitting the market.


US Auto Sales Graphic
US auto sales have boomed but are
slowing.

Business
Insider


The assumption had been that this would depress sales of
new vehicles — and the monthly sales data was pointing in that
direction, as sales have declined in 2017 to an annual pace of
about 16.5 million, after a record-setting 17.55 million in
2016.

Edmunds.com and Drury noted that Texas is the nation’s
second-largest used-car market, with a roughly 70%-30% split
between new and used vehicles for sales in 2017. Under normal
circumstances, owners who lost a vehicle due to Harvey would turn
to the used market, but prices there are so high thanks to
vehicles holding value far better than in the past that it might
make sense to turn to the new market.

It remains to be seen whether carmakers will capitalize on
this “Harvey Effect.” The temptation will be strong: Texans love
their pickup trucks, and if General Motors, Ford, and Fiat
Chrysler Automobiles can leverage their advantages with this
segment into significant fourth-quarter sales, they could finish
out 2017 will big gains on these profitable vehicles.

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