Harvey will lead to a surge in car sales once insurance checks arrive

Posted by jbrumley on August 30, 2017 9:54 AM
flooding-car

- ‘Demand does not disappear,’ analysts say -

By Claudia Assis, MarketWatch

Car sales are likely to initially suffer in the aftermath of Harvey, now a tropical storm, but some predict a swift rebound once dealerships in the affected areas reopen and as people seek to replace their flood-damaged vehicles.

Continued rain and floods from Harvey added to the misery in parts of Texas on Tuesday. Harvey struck over the weekend, leaving at least 10 dead, thousands of people displaced, and scores injured as the floodwaters rose.

Texas accounts for about 9% of U.S. vehicle retail sales, and it is the No. 1 state for truck sales, accounting for 14% of all U.S. full-size truck sales so far this year, according to data from Edmunds.com. One out of every five vehicles sold in Texas so far in 2017 was a full-size truck.

But demand for vehicles “does not disappear,” analysts at B. Riley Research said in a note Tuesday.

A potential dip in auto sales would be a temporary phenomenon, and there could be a “surge in demand from consumers looking to replace flood-impacted vehicles” as people begin to receive insurance checks, they said.

The analysts examined auto sales data from 2012 in the aftermath of Hurricane Sandy to corroborate their view. In that instance, car sales dipped in October, “but the recovery was equally swift in November/December,” the analysts said.

“We would be aggressive buyers of TrueCar Inc. (TRUE)  on any weakness related to news regarding impacted auto sales due to Hurricane Harvey,” they said in a note. They maintained their buy rating on shares of Autobytel Inc. (ABTL), but said “the company’s traffic related issues will have a larger impact vs. Harvey.”

Shares of TrueCar rose nearly 1% on Tuesday, and weekly gains neared 3%. The shares have gained 34% so far this year, which compares with gains around 9% for the S&P 500 index   .

Hurricane Harvey hit at a “crucial time” for auto sales. Labor Day is one of the seasonally strongest weekend for sales, the Riley analysts said.

Edmunds.com estimated that 2% fewer vehicles will be sold in August due to Harvey, with declines likely continuing into early September, but also called for a recovery in subsequent months as people shop for replacement cars.

Many of the vehicles on Texas lots affected by Harvey “are high-profit trucks and SUVs, so the auto makers will feel a slight pinch, at least in the immediate term,” said Jessica Caldwell, an analyst with Edmunds.com.

The company estimated that between 150,000 and 200,000 new-inventory vehicles could be affected in the areas hardest hit by Harvey, including areas around Houston, Corpus Christi and San Antonio.

Texas is the top sales market for Ford Motor Co. (F) vehicles, Fiat Chrysler NV (FCAU) Ram pickups, General Motors Co.’s (GM) GMC and Cadillac vehicles, and Mitsubishi Corp. vehicles, Edmunds.com said.

From MarketWatch

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