A 'Harvey Effect' could produce a new-car sales surge at the end of 2017

As many as 500,000 vehicles could have been damaged or destroyed by Hurricane Harvey and the flood waters that ravaged the Houston area.

Those cars and trucks will be replaced, and the current dynamics of the market in the US could point consumers toward new rather than used vehicles.

“Buyers looking to replace vehicles destroyed by Harvey are stepping into a tough used car market,” Ivan Drury, an analyst at Edmunds.com, said in a statement.

“Prices are at record highs due to high volumes of near-new off-lease vehicles. On the other end of the spectrum, older used cars are holding their values at high rates and are in limited supply. Those who can’t afford to spend a lot are going to get squeezed on pricing, especially as a sudden increase in demand makes finding cheaper used cars even more challenging.”

The used-car market has been an area of fixation since the beginning of 2017 for those who closely follow US auto sales. A boom in sales in 2015 and 2016, accompanied by increased leasing, has encouraged everyone to brace for an onslaught of used vehicles hitting the market.

US Auto Sales GraphicBusiness InsiderUS auto sales have boomed but are slowing.

The assumption had been that this would depress sales of new vehicles — and the monthly sales data was pointing in that direction, as sales have declined in 2017 to an annual pace of about 16.5 million, after a record-setting 17.55 million in 2016.

Edmunds.com and Drury noted that Texas is the nation’s second-largest used-car market, with a roughly 70%-30% split between new and used vehicles for sales in 2017. Under normal circumstances, owners who lost a vehicle due to Harvey would turn to the used market, but prices there are so high thanks to vehicles holding value far better than in the past that it might make sense to turn to the new market.

It remains to be seen whether carmakers will capitalise on this “Harvey Effect.” The temptation will be strong: Texans love their pickup trucks, and if General Motors, Ford, and Fiat Chrysler Automobiles can leverage their advantages with this segment into significant fourth-quarter sales, they could finish out 2017 will big gains on these profitable vehicles.

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