(Bloomberg) -- In central Ohio, the wholesale market for cars is suddenly picking up. New players are showing up at auctions and bidding is becoming more intense. The reason: Hurricane Harvey.
With the storm potentially having damaged 1 million vehicles in Houston, the rush is on in states near and far to acquire and ship new ones into the city.
The mad scramble is an arbitrage opportunity of sorts. For Brad Rawlins, wholesale manager for a line of dealerships near Columbus, Ohio, some 1,200 miles from Houston, sending cars down to Texas will cost $500 apiece or more. Those costs are manageable, though, because the vehicles may fetch upwards of an extra $1,000 each in short-supplied Houston. Tighter supply and new-found competition could push prices up a few hundred dollars in his region.
“For us, we’re just trying to be on the forefront of it: Get our processes in place, get our cars there and be ready,” Rawlins said. “Guys I’ve never had to compete against are in the lane right now, y’know, because they got the same vision as we do.”
The bet dealers are making is on voracious consumer demand from Houston to find substitutes for lost or destroyed cars, coupled with a void of vehicles in inventory there. Harvey may have done more vehicle damage than any storm in U.S. history, destroying as many as 500,000 autos, according to Cox Automotive. Car-market researcher Black Book estimates the toll was even greater, saying up to 1 million might have to be replaced.
Another potentially catastrophic storm headed for Florida could wipe out inventory in a second major U.S. auto market. Dealers for carmakers including General Motors Co., Fiat Chrysler Automobiles NV, Subaru Corp. and Tata Motors Ltd.’s Jaguar Land Rover have shut down to prepare for Hurricane Irma. AutoNation Inc., the largest U.S. dealer group, has closed all 35 of its South Florida locations, spokesman Marc Cannon said by email.
While Harvey dragged on auto sales in August, the stocks of carmakers including General Motors Co. and Ford Motor Co. have rallied amid expectations that post-storm replacement demand could boost deliveries this fall and into early 2018. The mix of vehicles consumers are likely to want should be favorable -- Texas is a major market in the U.S. for pickups and SUVs.
“We see multi-faceted benefits to new vehicle sales, new vehicle inventories, and used vehicle prices,” Ryan Brinkman, an auto analyst with JPMorgan Chase & Co., wrote in a report Tuesday. Prior to Harvey, weak used-car values had been one of investors’ “chief concerns” with the auto industry, he said.
Read more: Used-Car ‘Time Bomb’ Expected to Drag on U.S. Auto Sales
Rawlins, 48, has been in the wholesale business since he started washing cars as a teenager. He’s been watching storms and making the best of bad situations since Hurricane Charley in 2004, when his business got a boost sending excess inventory to Tampa, Florida.
“It’s going to drive the market up,” said Rawlins, who’s already committed to sending 200 vehicles to Houston. “Eventually, it’ll reach all the way back into our market in Central Ohio.”
Adesa, a unit of KAR Auction Services Inc., on Wednesday held its first auction in Houston since the storm. While the volume of vehicles was lower than usual, Michael Schenks, general manager of the auction, said he saw a number of new faces. Attendance was up about 20 percent at all of the Texas auctions this week, said Geoff Parker, an Adesa regional vice president.
Schenks and Parker declined to discuss specific volume or price figures, but they do expect a much bigger auction next week when flood-replacement vehicles add to the selection of autos at the eight-lane site.
Rawlins watched the Wednesday auction online and was surprised that prices didn’t really rise yet, though he’s confident they will. Some dealers in Houston may be more preoccupied with cleanup than restocking inventory. Plus, it’ll take time for retail demand to return after insurance checks are issued.
After Harvey wiped out $15 million worth of Friendly Ford’s inventory, the dealership in Crosby, Texas, has taken only one shipment of seven vehicles, according to Blake Salinas, a sales manager.
“We are having difficulty getting fresh inventory down here,” Salinas said by phone Wednesday. While Ford has told the dealership that vehicles are being rerouted from other parts of the country, “we haven’t seen that effect yet,” he said.
Some Ford dealers outside of Texas will be forgoing shipment of vehicles they’re supposed to get this month and next, telling the manufacturer to redirect them to the state, said Said Deep, a company spokesman.
For many consumers in Texas, going without a car entirely isn’t really an option.
“Vehicles are a necessity in Texas,” said Jonathan Smoke, chief economist at Cox Automotive, the parent company of shopping websites Autotrader and Kelley Blue Book as well as auctioner Manheim. The sprawling Houston metropolitan area has the second-highest rate of vehicle ownership, behind only Dallas, he said.
Floods that came with Harvey nearly submerged Lisa Phillips’ 2014 Mercedes-Benz SL350, which she’ll have to replace. Getting around the sprawling city is tough, and Ubers are expensive, she said.
“I’m kind of just stuck walking around my neighborhood,” said Phillips, 30.
Phillips said she’s wary about replacing the Mercedes with a used vehicle that’s been on the market in Houston. That’s the kind of shopper Rawlins has in mind -- he reckons vehicles shipped in from the Midwest will be more attractive.
“You know the car from Ohio wasn’t in the flood or couldn’t have been in the water whatsoever,” he said. “So to me, that would build extra value.”