Natural Disasters and the Auto Industry
Hurricane season is upon us once again, and boy is it a doozy this year. 2017 has bared witness to some of the biggest storms in recorded history. First came Hurricane Harvey which tore through Texas, causing unprecedented damage to the country’s 4th largest city. Harvey was swiftly overshadowed by record breaking Irma, which pummeled the Caribbean before making landfall in Florida, showing a few major cities like Miami, Orlando and Tampa who’s really in charge. Any time hurricanes like Harvey and Irma hit a major metropolitan area, tens of thousands of people are displaced from their homes and separated from their family members. Shelter, food and water become scarce, survival becomes priority #1.
In the wake of a natural disaster as catastrophic as Harvey and Irma, the last thing you need to worry about is your car. But once the dust (water?) settles, once you and you family are safe and sheltered, it’s time to rebuild your life one asset at a time. This article focuses on how hurricanes and other natural disasters affect the auto industry.
While the final tally is not yet in, it is estimated that the total number of cars destroyed by Harvey may reach one million! Cars got off easy back in 2012 when Hurricane Sandy challenged my hometown of New York City. While the tri-state area (NY, NJ & CT) is more densely populated, coastal Texas has many more vehicles per household. So the total number of cars that were flooded, submerged in water, damaged by heavy winds or flying debris doubles that of 2005’s Katrina, who’s vehicular casualties totaled 571,000. This is a heavy impact on the auto industry…at least for the short term.
To clarify, “destroyed” means damaged beyond repair, a total loss, the cost of repairing the car is worth more than its total value. All of these cars should be given a “salvage” or “flooded” title. About half of these vehicles are personal or family vehicles.
What happens to your personal vehicle?
If you’re fully covered by your insurance company, (not just liability) you should be okay. Insurance companies are usually pretty responsive when it comes to settlements. Though with the amount of people affected by this particular hurricane, it may take some time for them to get to everybody. But around the time your check is also about the time car lots, new and used, will be ready to start selling cars back to the public. It is estimated things will go back to normal within 1-3 months. But what happens between now and then? How will you get around in the meantime?
Rental Fleets & The Used Car Market
The other half of the cars destroyed by natural disasters are non-personal vehicles, commercial and government fleets, public transportation, etc. This also includes rental fleets, sales lots new and used. Commercial vehicles are also insured and can eventually be replaced. Car lots will lose merchandise. Used car dealerships will need to take the time to rebuild their inventory, but that gets tricky after a hurricane. Demand is high, supply is low.
As demand in replacement vehicles and temporary rentals spike, this is where everything goes topsy turvy for the auto sales industry. Rental companies will be sending large fleets out to disaster zones as soon as they can. These cars will be used as rentals for victims awaiting insurance settlements, as well as being sold as replacement vehicles to those who have received their claims. These cars are going to be coming from all over the country. This means rental companies right here in Southern California will be shipping their supply of vehicles away from our region.
As a used car dealership, a large percentage of Auto City’s inventory comes from rental fleets via dealer auctions. (Once a car is retired from a rental fleet, they make for very reasonably priced used cars with a steady history of care and maintenance. For more info, check out our article about prior rental cars) But instead of selling their cars to local dealer auctions, rental companies are sending their cars to disaster areas. This causes supply to dry up, which means the auction prices spike.
What happens then? Yup, you guessed it. Retail prices spike. We, the used car dealership are now paying more for our cars at dealer auctions. In turn we either have to suffer a loss or increase our prices to you, the customer. While we are not in the business of ripping you off, we do prefer to keep a nice roof over our head! There may be a temporary price increase for car sales at used car lots. After a few months when everybody in the Southeast have their replacement vehicles, things will settle back to normal. In the meantime, the good people of Texas and Florida need our clean, rust free California cars!
How to avoid flood damaged cars
It is not out of the question for many of these flood damaged cars to be repaired in an attempt to resell them back to the public. Sure, in the right hands any car may be repaired back to reliable working order. But depending on the severity of the flood damage, GOOD repairs could be as costly as buying a new car. Saltwater can get into the wires, sensors, hoses, into the fuel system and so on. Repairing and replacing all of these components means an entire teardown and rebuild of the car. Best not to risk it, best to avoid buying flood damaged vehicles, no matter how enticing the price tag may be.
Here’s where things get ugly. Flood damaged cars can get shipped to and sold across any part of the country, not just the storm laden eastern seaboard. Prospective buyers in South Dakota, Colorado, and even right here in rain-free Southern California must watch out for flood damaged vehicles.
How does one spot flood damage on a vehicle? It may not be obvious to the naked eye. Check the title! If the title is “salvage”, find out why. If the title is “flooded”, move along. Carfax and Autocheck include title status with their vehicle history reports. In addition, Carfax and the National Insurance Crime Bureau offer free flood damage check. Carfax will show where the car was registered, so avoid buying a car that was registered/driven in a disaster zone. After all that if you’re still concerned, a pre-purchase inspection at your trusted mechanic should out your mind at ease. They will be able to tell you if the car is safe to drive. Read more on flood damaged cars and why to avoid them.
Where do these flooded cars go?
Insurance companies will take hold of these cars and turn them over to salvage yards or auctions. Undamaged parts can be salvaged and sold, while the rest of the cars are scrapped and recycled.
Can I donate my car to disaster victims?
Do you have an extra car that you are not using? Could it be donated? Yes, of course! If you wish to donate your car to disaster relief organizations, there are plenty to choose from. One example is Cars2Charities. There are others out there as well. Besides the obvious benefit of doing a selfless good deed for someone in need, donating your car also means free pickup of your unwanted vehicle and a great tax deduction! Cars2Charities is just one example, but they work with a large variety of organizations such as Salvation Army and Habitat For Humanity. Donating your car will not only relieve you of your unwanted vehicle, but it will certainly relieve stress of victims who already have so much to worry about.
In conclusion, if you see sale prices spike in the next few months, don’t panic. It is temporary, and if the good people of the Southeast can face a record breaking hurricane season, then we, the people of Southern California can wait out the price-hike storm that’s a-brewing.