Houston Rebuilding Plans Buoy Carmakers After August Sales Sag
(Bloomberg) -- Hurricane Harvey wiped out the U.S. auto market’s shot at its first month of growth this year, but rebuilding efforts across the Texas Gulf Coast are about to drive demand for pickups and new cars to replace those lost to floods.
After an initial lull period to take stock of the devastation and reopen dealerships, the boost to sales over the next several months could be significant. Harvey may have done more vehicle damage than any storm in U.S. history, destroying as many as half a million autos, according to Cox Automotive.
In addition to seeing replacement demand from the heavily vehicle-dependent city of Houston, manufacturers led by Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles NV are expected to sell more pickups, both to support reconstruction efforts and meet demand from a market that already loves trucks. The shares of the three largest U.S. automakers rallied Friday even as the industrywide sales pace missed estimates.
“We think we will see sales in the area increase pretty quickly and we’re confident that will boost the entire market,” Michelle Krebs, an analyst for Autotrader, said by phone. “It’s a big truck and SUV market already, so we expect sales of those vehicles will be strong.”
Hyundai Motor Co. and Nissan Motor Co. posted the biggest U.S. sales declines for August among major automakers. South Korea’s largest car manufacturer and its affiliate Kia Motors Corp. combined reported a 15 percent plunge, while Nissan dropped 13 percent.
Of the six largest carmakers, only GM and Toyota Motor Corp. saw sales rise last month. The industry’s annualized selling rate, adjusted for seasonal trends, slowed to 16.1 million light vehicles, trailing analysts’ average estimate for 16.4 million. The pace was 17.2 million a year earlier.
To meet replacement demand in Texas, carmakers may have to crank up assembly lines just as they did after Hurricane Sandy hit the New York metro area in 2012, and after Hurricane Katrina battered New Orleans in 2005. Boosting production would be welcome change for a U.S. auto industry that’s been laying off workers at passenger-car plants as demand contracts following a record seven-year growth spurt.
Fiat Chrysler led gains Friday with its stock surging 4.8 percent in New York trading. Shares of Ford and GM rose 2.9 percent and 2.2 percent, respectively.
There is “every indication” that Ford will need to boost production in the wake of Hurricane Harvey, Mark LaNeve, Ford’s vice president of U.S. sales and marketing, said on a conference call Friday. He said the period following Katrina is the best proxy the company has for what may happen next.
“The month or two immediately following were weak, as people were recovering and we were trying to get the dealers back on their feet and backfill inventory,” LaNeve said. “But then we saw a very dramatic snap-back in maybe the 60- to 100-day window following it where consumers and companies were replacing their vehicle needs.”
Vehicle sales rose 49 percent in the New York region the month after Sandy, said Jonathan Smoke, chief economist at Cox, the parent company of car-shopping researchers Kelley Blue Book and Autotrader.
The 300,000 to 500,000 cars and trucks that Houston may have lost likely exceeded the 325,000 new vehicles sold in the region during the last 12 months, he said. By comparison, the New York area lost about 250,000 autos related to its 2012 storm.
The Houston metro area ranks eighth nationwide in registered vehicles, with 5.6 million in operation, and accounts for about 2.3 percent of U.S. new-vehicle sales, Smoke said.
As many as 130,000 new autos that were on dealer lots in the Houston area may be scrapped as a result of flooding damage, Matthew Stover, an auto analyst for Susquehanna Financial Group, said in a report Wednesday. The losses may actually turn out to be a silver lining, alleviating concerns about bloated car and truck supply that surged earlier this year to the highest level since 2004.
“Harvey may have solved the industry’s inventory problem,” Joe Spak, an auto analyst for RBC Capital Markets, wrote in note to clients Wednesday.
The expectation of demand strength ahead comes on the heels of a weaker August. Nissan deliveries fell by much more than analysts’ average estimate for a drop of just 0.6 percent.
Sales also declined for Fiat Chrysler, Honda Motor Co. and Ford. Volkswagen AG, the world’s biggest automaker, said combined deliveries for its VW and Audi brands rose following the recent addition of the Atlas SUV made in Chattanooga, Tennessee.
Ahead of the storm, some analysts had been expecting U.S. sales to record their first monthly gain this year. Kelley Blue Book and LMC Automotive both trimmed nationwide sales projections they had released before the hurricane hit Houston, a top-10 market for new-vehicle purchases.
“Though demand softened in the last part of the month, August was still a good month for the industry,” Jack Hollis, group vice president of U.S. sales for the Toyota brand, said in a statement. The RAV4 leapfrogged Nissan’s Rogue in year-to-date deliveries with a 30 percent jump in August. Toyota outsold Ford in the market for the second straight month.
“GM outperformed our expectations,” Autotrader’s Krebs said. “With the new SUVs, they are introducing products that are right at the heart of what consumers want.”