DALLAS – Consumers on the battered Gulf Coast will need to buy at least 250,000 used cars and trucks as the area begins to recover – and the demand will probably push up prices.
The number of cars needed could go even higher.
In a worst-case scenario, the National Automobile Dealers Association estimates that 10 percent of all registered vehicles in Louisiana and Mississippi were destroyed in the hurricane or flooding – about 466,000 vehicles.
Either way, the need to replace private cars and trucks as well as demand for work and fleet vehicles is expected to boost used-vehicle sales to a new national record of 44.1 million cars and trucks this year.
But used-car prices could start to go up by the end of September and stay high through November, industry officials say.
The average days’ supply of vehicles in the United States has been tightening since the first of the year as the economy improves and was at 46.19 days in July.
“As to where the dealers will find cars to sell to people on the Gulf Coast, that’s the $64,000 question,” said Jack Durham, executive director of the Texas Independent Automobile Dealers Association.
“There’s going to be pressure to pull vehicles out of Texas, and with 200,000 refugees here, we’re going to have some demand in Texas. The market will kind of go crazy for a while.”
Car dealers rely heavily on auctions for their supply of used cars and trucks, and Texas auctions will probably feel some of the greater demand from the Gulf Coast. Texas is the nearest big state to the hurricane zone with a large supply of used vehicles.
“Prices at auction already seem a little higher,” said Sonny Morgan, chairman of the New Car Dealers Association of Metropolitan Dallas and managing partner of John Eagle Lincoln Mercury in Dallas and Aston Martin of Dallas.
“We had a heck of a good used-car month in July and August. You put that with the demand for cars from Katrina, and it’s just a matter of time before we start feeling it,” Morgan said.
In the weeks ahead, higher wholesale car and truck prices are “a reasonable assumption when people start getting insurance checks,” said Paul Taylor, chief economist at the National Automobile Dealers Association.
Durham is more blunt. “I think we’re going to see a complete upheaval in the marketplace for the next six months to a year,” he said.
But dealers may be limited when figuring how much of the higher costs they can pass on to consumers.
Used-vehicle prices are determined largely by new-vehicle prices. With new-car prices relatively low because of incentives and special deals, retail used-vehicle prices are down 3 percent to 4 percent, said Art Spinella, president of CNW Marketing Research in Bandon, Ore.
As a result, dealers’ margins may get squeezed more than consumers’ wallets.
Still, many in the industry say they don’t really know what to expect.
“I can’t think of any other situation where you had this many vehicles displaced,” said Durham of the Texas Independent Auto Dealers Association. “You didn’t have this volume after 9-11. This is a unique situation for the auto industry.”
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