Used car dealers expect vehicle prices to rise in wake of Hurricane Harvey

Between 300,000 and 500,000 vehicles might have been destroyed or damaged beyond repair because of the flooding in Houston caused by Hurricane Harvey, and as a result, the price of good used vehicles is expected to rise.

Used car dealerships purchase vehicles at auctions, but don’t expect vehicles that were damaged by the flood to make their way onto lots of buy here, pay here dealer America’s Car-Mart.

“Of course, we would never buy any vehicle with flood damage, but the loss of this many cars will cause prices for good used cars to increase some,” President Jeff Williams said.

The Bentonville-based company will pass on price increases to the consumer, “but we will try to minimize any price increases to ensure our customers get good cars for good prices,” Williams said. While the rise is expected to be brief, it might last up to a year. Williams was uncertain on how much prices might increase but noted that prices have fallen nearly 7% for cars and began to level off for trucks, from last year.

As for a direct impact as a result of the flooding, Car-Mart doesn’t have dealerships in the Houston area. The company’s nearest dealership is in Lufkin, Texas, about 120 miles northeast of Houston. On July 31, at the end of the first quarter of fiscal 2018, the company had 140 dealerships, mostly in small cities throughout the south-central United States.

“We could see some positive on the sales side in the next few months but don’t expect anything material,” Williams said.

When at an auction Aug. 29, Dennis Bergthold, owner of 2B’s Auto Sales in Siloam Springs, said he noticed prices were up about $500 on average. He’s heard dealers talking about how they are expecting a shortage, but he’s not seen signs of one yet.

Consumers in Houston who receive insurance money if their vehicles are determined a total loss are “going to have real available money.” And they might try to buy a similar vehicle, possibly looking as far north as Northwest Arkansas.

“This part of the country is desirable,” Bergthold said.

Cars sold at dealerships further north might be damaged by salt, which is used to clear roadways in the winter. Like Car-Mart, Bergthold won’t purchase a vehicle that’s had flood damage. He checks each vehicle’s history, and if it shows the vehicle was in Houston between Aug. 15 and through the next two months, he won’t purchase the vehicle, he said.

Hurricane Harvey, which initially made landfall along the Gulf Coast on Aug. 25, impacted U.S. light-vehicle sales, according to WardsAuto.

“Though still too early to determine accurate losses, August’s seasonally adjusted annual rate of 16 million units probably is 100,000 to 200,000 units lower because of the hurricane.”

The seasonally adjusted annual rate of sales was expected to be 16.5 million for the month but fell to the lowest level since 15.6 million in February 2014.

September sales are also expected to be impacted because of the hurricane, according to Philippe Houchois, equity analyst for Jefferies. Nearly 60% of vehicles in Texas comprise of SUVs and pickups, and demand to replace the flooded vehicles could benefit fourth-quarter production and earnings for manufacturers.

No immediate increases in production are expected, according to industry analyst IHS Markit, but the expected solution for demand is for dealers to work together to move inventory as needed. Chris Hopson, forecast analyst for IHS Markit, said the silver lining is the damaged vehicles will need to be replaced, “which can provide a temporary lift to new vehicle sales in the affected area.”

“Short-term disruption of sales will begin to be made up roughly 60 to 90 days after the event — or as soon as the insurance checks start arriving,” Hopson said. “If the reaction from insurance agencies — which enables consumers to replace lost vehicles — is swift, replacement demand could provide a boost to light vehicle sales beginning in fourth quarter 2017.”

Of course, on top of the impacts from Hurricane Harvey will be likely car damage from Hurricane Irma that as of Thursday afternoon was on a collision course with Florida.