Auto industry feels Harvey’s impact
With as many as 500,000 vehicles estimated to be destroyed by Hurricane Harvey and hundreds of car dealers shut down by the unprecedented flooding, the natural disaster has shaken a piece of the auto industry.
Texas is the auto industry’s second-largest market in the U.S. after California, and major portions of the state’s southeast region are under water with little or no relief in sight.
Auto production in the state — led by General Motors Co. in Arlington and Toyota Motor Corp. in San Antonio — appears to have avoided major interruptions. The most immediate impact is being felt by dealers, many of whom have shut down operations and may have to wait weeks to know the full extent of damage to their properties and inventory.
With a large portion of southeast Texas effectively paralyzed by flood waters and continuing rainfall, near-term sales are likely to take a hit. As many as 20,000 to 40,000 new-vehicle sales could be delayed as a result of the storm, according to Cox Automotive estimates.
But a rebound is expected in the final months of the year as motorists replace damaged or totaled cars and trucks.
An estimated 300,000 to 500,000 cars and trucks could be lost due to the flooding, according to Jonathan Smoke, chief economist for Cox Automotive. He arrived at that figure by looking at damages from hurricanes Katrina and Sandy, and comparing vehicles per household and conditions in the Houston area. Such destruction would exceed Sandy in 2012, he said, when 250,000 vehicles were destroyed.
“If Houston indeed lost 300,000 vehicles,” Smoke wrote, “it’s sobering to note that the entire Houston (market area) has seen 325,000 new vehicle sales in the last 12 months.”
The impact on dealerships has been severe. AutoNation has 60 new- and used-car stores in Texas. To date, 17 have closed, along with an auction center and collision center.
“We’ve only just begun to get to a handful of our stores,” said Marc Cannon, AutoNation’s executive vice president and chief marketing officer. “It’s an exercise of going store-by-store and car-by-car so we can access the damage and figure out what needs to be done.
“It’s a fluid situation. It’s still raining there. This is a unique, huge situation that has engulfed that whole community.”
Bill Wolters, president of the Texas Automobile Dealers Association, estimates about 25 percent of dealerships in Houston have been damaged by flood waters caused by Harvey, originally classified as a hurricane before being downgraded to a tropical storm after making landfall.
“Almost all of the dealerships are closed, and they have been since the hurricane hit, but not all of them are damaged,” he said. “The majority of the dealerships are not damaged, but they can’t open because their employees and customers can’t get to the dealership.”
Wolters believes most Houston dealerships will be able to emerge relatively unscathed. “We think dealers may be able to ride this out and open back up,” he said, “but this is a tragedy of epic proportions, especially on the personal side.”
Stacey Gillman, president of Houston-based dealership chain Gillman Automotive Group, told The Detroit News on Tuesday that her employees fielded around 700 calls over the last couple of days from people who needed a place to bring vehicles damaged by the storm.
Gillman, who closed her Houston-area facilities Monday, left hand-written notes on service doors that said tow-truck drivers and vehicle owners could leave damaged cars for repairs as long as they filled out a slip of paper with the pertinent information and slipped that into the night-drop box. Gates were left open so drivers could park for repairs.
“Now that the water is starting to recede, we’re slowly starting to see some wrecks come in,” Gillman said. She declined to predict how many her service departments might work on in coming days.
With a population of about 6.5 million, the Houston metropolitan area is the fifth-largest metropolitan area in the United States and the second-largest in Texas.
The importance of Texas to the auto industry is hard to overstate: Texans buy 9 percent of vehicles sold retail in U.S.; 14 percent of full-size pickup sales this year have been to Texans.
That’s why flooding in the final week of August could cause a significant U.S. sales loss for the month — possibly a drop of 2 percent, according to Jessica Caldwell, Edmunds’ executive director of industry analysis.
Eventually, however, automakers could see a boost as dealers replenish inventories and car owners vehicles lost to water damage.
“That process will likely last months, pushing higher sales in the region in (the fourth quarter),” Cox said. He said initial estimates indicate a potential net improvement on full-year sales after replacement sales pick up in earnest.
Car sales spiked 49 percent in the month after Hurricane Sandy, Cox said. That surge lasted two months.
The long-term outlook
Toyota Motor Manufacturing Texas in San Antonio is 200 miles west of Houston. The operation, which produces Tacoma and Tundra pickups, was only briefly interrupted.
“We stopped production on Saturday but resumed from the first shift (Monday) morning,” said Amanda Roark, a Toyota spokeswoman. “No damage has been reported and our other manufacturing facilities remain unaffected.”
New-vehicle deliveries to the Houston area’s Gulf States Toyota distributor have been suspended, and Roark said 21 of the distributor’s locations have been closed since Saturday. The damage to inventories is unclear.
GM’s Arlington Assembly Plant is 250 miles north of Houston. The facility builds the Chevy Tahoe and Suburban, GMC Yukon and Yukon XL, as well as the Cadillac Escalade. A GM spokesperson said operations had not been interrupted.
Disruption of parts suppliers may take a while to be known. Southfield-based Lear Corp. has operations in Arlington as well as in Piedras Negras, Mexico, southwest of San Antonio. Lear spokesman Mel Stephens said Tuesday the company’s operations had not seen any interruptions.
“If there is an issue with the ability to move materials around, then that could cause a disruption,” he said, “but we haven’t had that.”
The long-term effects on the auto industry are difficult to estimate, says Stephanie Brinley, senior analyst at IHS Automotive.
“It is uncertain how many potential buyers exit the new-vehicle market after a massive event, and for how long they will remain out of the market,” she said in an emailed response. “Eventually, however, buyers in Texas who were planning to buy a new vehicle may return. This could lead to an unusual spike in a later month.”
After the flood waters recede, what happens to all those cars that were swamped on dealer lots?
Cars caught up in the flooding would be inspected by insurance companies to determine their fate, according to Karen Phillips, general counsel for the Texas Automobile Dealers Association. Vehicles that are considered totaled will receive an “undeliverable” title and would need to be demolished. Cars that are damaged, but not totaled, receive a “salvage” title that is a different color to alert potential buyers of the fact it had been damaged.
Vehicles damaged in natural disasters have presented problems for buyers in the past, often making their way into the used car market, according to Jeff Bartlett, deputy editor for autos at Consumer Reports.
“Fortunately, the consumer protections have improved over time, but this ongoing tragedy is a reminder for all shoppers to be vigilant and diligent when purchasing a used car,” Bartlett said. “And to factor an inspection by a professional mechanic who is not associated with the sale.”