Early Post-Hurricane Scan: New Car Sales May Get a Bump, Inventories Not Hard Hit

With it being the beginning of November, you'll soon be seeing stories about how October auto sales dropped off a cliff starting about a week ago, when east-coast car dealers started hunkering down to survive a murderous weather pattern ominously named Sandy. A related thread of falsehoods will ask whether we're looking at a shortage of some make or model because one particular dealer washed away. These stories—especially about October's sales, which we'll defuse at greater length in the next few days in our monthly What the Headlines Don't Tell You column—are the proverbial red herrings. Our expectation is that neither new car sales nor new-car inventory will take a big hit because of Sandy. Seeking Higher Ground Hurricane Katrina had a knock-on effect for the entire auto industry when it decimated the Gulf Coast in 2005, from new car sales, to supply, to fuel prices, and in flooding the used-car market with flooded cars. Circumstances were different this time. The eastern seaboard of the U.S., unlike New Orleans, doesn't depend on levees to keep out the ocean. And for Hurricane Sandy, state and federal officials were very active in warning about the potential reach of the storm. For car dealers, says Chris Basso of Carfax, this meant moving inventory to higher ground. "Many were able to move stock out of harm's way," Basso told us. Kerbeck Corvette, one of the nation's largest Corvette dealerships, is located in Atlantic City. With meteorologists rightly forecasting that Sandy would transform Atlantic City into the City of Atlantis, Kerbeck moved virtually all of its stock to the mainland city of Pleasantville. The cars are still there while staff prepare to reopen the showroom, an employee posted on the dealer Facebook page today. Not every dealership was as fortuitous as Kerbeck, but on the whole, the analysts with whom we spoke don't anticipate huge dealer losses. We might hear about trouble from big ports like Newark-Elizabeth in New Jersey and Baltimore, though. At any given time, AutoPacific analyst Dave Sullivan tells us, as many as 20,000 vehicles could be sitting at each port, unloaded from massive container ships and awaiting truck and rail transportation to dealerships all over the country. It's still too early to gauge the damage on that, Sullivan says. Why New Car Sales Won't Take a Beating The regions hit worst by Sandy make up a huge part of the new car market in the U.S., so the potential risks seem enormous. Analysts at Polk estimate that the 10 coastal markets account for 20 percent of new retail sales in the States, and a high portion of retail sales come at the end of the calendar month when dealers and manufacturers get more aggressive to move metal. News about Hurricane Sandy went mainstream in the last 10 days of October, and undoubtedly many people hit the supermarket instead of the local car dealer. Combine that with potential losses to dealer inventory, and it may sound like sales are in trouble. "We may see a dip in the short term," Anthony Pratt of Polk says, "but in the longer term, there will probably be an increase in sale." For one, all those submerged, tree-pulverized cars in dramatic photos have owners. And those owners have insurance policies. Over the next few weeks, the carless will get checks in the mail for their losses, and may will go out to buy new cars. The world outside the Sandy-drenched U.S. coast still is moving, though. New cars already are on ships from Europe and Asia headed for American ports. In fact, with the Eurozone crisis unleashing a metaphorical hurricane on vehicle sales, many automakers already were looking to shift stock from Europe to the U.S. Here in the States, Pratt says, "Inventory levels have been pretty good. [Automakers] shouldn't have trouble moving stock around." For Americans who weren't Sandyblasted, there's even potential for some windfall. Pratt explains that automakers will be looking to make up for sales they're losing while the East Coast digs out and dries off. We've heard anecdotal reports of those dealers outside the storm zone being told they'll have to help make up the the lost volume. That translates to especially good incentives and lease programs for customers in those regions. Used Cars Are Going to Be a Problem It'll be weeks or months until we have a better picture of the impact of Hurricane Sandy on the used-car market, but suffice it to say, the seeds of trouble already are planted. Many cars that suffer flood or storm damage are crushed, but many aren't—on the contrary, Chris Basso at Carfax, the title reporting company, says roughly half of cars damaged in Katrina came to market either cleaned by owners or properly branded. Katrina, which caused much worse flooding, resulted in 500,000 to 600,000 flood- or salvage-branded vehicles coming to market in the following years, title-monitoring company Carfax has said. And this accounts only for vehicles that were registered as damaged; thousands more cars were cleaned out by owners, sprayed with Febreeze, and eventually sold with no record of their damage. Comparison Test: 2013 Ford Fusion SE EcoBoost vs. 2013 Honda Accord EX, 2013 Nissan Altima 2.5 SV, 2012 Volkswagen Passat 2.5 SE First Drive: 2013 Nissan Pathfinder Long-Term Road Test Update: 2012 Subaru Impreza 2.0i Sport Premium Hatchback Manual There are two consequences of this. First, be careful if you see a great deal on a used car coming from New Jersey in the next few weeks, AutoPacific's Dave Sullivan says. (A lifetime New Yorker, this author is inclined to suggest caution for great deals on used cars from New Jersey regardless of storm conditions.)  Second, Sullivan adds, used car inventories in the U.S. already are tight and going to get tighter. Many people who lost their cars in Sandy aren't rushing out to replace a $5000 car with a brand-new one; they'll be looking for something covered by their insurance check. Thousands of flooded or damaged cars that otherwise would have entered the used-car market at some point now will be junked, further depleting the supply. Combined with ample supplies of new cars, the security of buying one with a clear history, and potential incentives from manufacturers, we think many shoppers—whether or not they lost a car in Sandy—will decide to go new instead of used. A number of analysts and dealerships we contacted for this story weren't able to comment in large part because it's just very early to look at consequences of Sandy. Indeed, they're right. Whether it's the dealer cleaning up the lot or an insurance company just beginning to catalog claims, it'll still be many weeks and months before we know the full scope of Sandy's damage—automotive and otherwise. Read full story » from Car and Driver Blog http://blog.caranddriver.com

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