Wednesday, 20 December 2017 16:24

'Replacement Demand' From Hurricane Harvey Overhyped, Carmageddon Returns to US

Written by Wolf Richter, Seeking Alpha

The total damage Hurricane Harvey inflicted on parts of Texas, particularly the vast Houston area, may never be fully known. 

In terms of vehicles, the estimates were all over the place. But one thing is known: Before the flood waters had even begun to recede, the entire industry was salivating over that huge "replacement demand."


This would come just in the nick of time, as total new vehicle sales in the US had already fallen by about 300,000 units for the year through July, despite record incentives, historically low interest rates and muscular all-encompassing marketing. The industry's elements on Wall Street propagated the idea that post-Harvey "replacement demand" would boost auto sales in 2017, turn the year around, and possibly create another record year, with more booming sales in 2018.

The estimates I came across at the time ranged from 300,000 vehicles at the low end to more than 600,000 vehicles that would need to be replaced. Much of this replacement demand would occur over the remaining months in 2017 and early 2018. These sales would be so big that they would boost US sales overall to new highs.

But now, the first real numbers are emerging. Turns out, even the low-end estimates of replacement demand were too high, and all that salivation over the projected sales boom based on the larger estimates was wasted. Harvey-based sales increases of new vehicles are real, but they won't be able to pull out 2017 unit sales.

New vehicle sales in the Houston metro, battered by the oil bust, had already plunged to Financial Crisis levels before the hurricane. In the 12 months through July, dealers sold 284,000 new vehicles, down 25 percent from the levels in late 2015 and early 2016, according to TexAuto Facts, published by InfoNation at the time.

Hurricane Harvey brought sales to a halt in late August, and new vehicle sales plunged 45.5 percent from the already beaten-down levels last year to just 15,473 vehicles for the month.

In September, the first few days of sales were essentially zero. But then dealerships reopened and the mad scramble began, and in the remaining days of the month, Houston-area dealers sold an astonishing 28,246 vehicles, up 22 percent from the beaten-down levels a year earlier. The rolling 12-month total, at 277,621 vehicles, was still down 10 percent from the same period a year earlier.

We thank Seeking Alpha for reprint permission.