Car prices are about to skyrocket again. Blame Hurricane Ida

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Ida caused widespread flooding from Louisiana, where it hit the ground like a hurricane on August 29, to the heavily populated northeast, where its remnants hit hard a few days later. It killed at least 86 people and its flooded waters destroyed hundreds of thousands of cars, including many which were in the car dealer’s lots.
Ida’s anger has simultaneously created a sudden demand for car purchases while further destroying already adjusted inventories. Hurricane Nicholas, which hit the Texas Gulf Coast on Tuesday, could add to the problems, especially if it causes flooding once again in Houston, one of the country’s largest vehicle-owned markets.

The storms could not have impacted at a worse time. “Any new problem with vehicle inventory is too much of a problem,” said Kayla Reynolds, Cox Automotive’s economic and industrial information manager.

This means big problems for the thousands of people who lost their vehicles when Hurricane Ida hit the Gulf Coast before attacking the northeast.

Retired school teachers Ira and Ruth Steinberg were perfectly pleased with their 2020 Honda Accord. Then the remnants of Hurricane Ida reached their suburban village of Hartsdale, about an hour north of the city. of New York.

A damaged car is found next to the floods after Hurricane Ida in Jean Lafitte, La.

A flash flood burst through the garage doors of the apartment and flooded it. No one was injured, but the 130 cars parked there were lost.

The Steinbergs called the Honda dealership where they had bought their previous car. “He said he didn’t have many cars to start with and that he had lost 85% of his cars because of the storm,” Ruth Steinberg said.

Fortunately, the Steinbergs ’loss will be covered by their insurance, which has a provision for renting a car after a loss, but they can’t find any. They are number 200 on the rental list for Enterprise.

The couple relies on their adult son, who lives nearby, to move. They don’t know what they will be able to afford once they get a clearance for their car, or when they will be able to buy it. But they try to maintain a good attitude.

“We’ve been through a lot of worse things,” Ruth Steinberg said. “I’m more upset about the Yankees.”

High historical car prices

Car prices, new and used, soared in the face of strong demand i tight inventories this summer, caused by a lack of computer chips and other spare parts, which limited production.
The shortage was further exacerbated by car rental companies that sold about a third of their fleets during the first months of the pandemic when travel nearly stopped. These companies are usually a major source of supply for used vehicles.
Rising car prices have been a major factor behind the global rise in the cost of living, as measured by the consumer price index, the country’s leading inflation indicator.
Car prices may have peaked (the CPI report on Tuesday in August showed that used car prices fell 1.5% from July, although they were still up 32% in the previous year), while new vehicle prices rose by only 1.2%, the slowest rate of increase since April. Other measures of car prices had also shown the overrun of prices in late summer.

But that trend probably won’t continue after Ida.

“Sorry pun, but it’s the perfect storm situation. There’s never been anything like it,” said David Paris, JD Power’s chief market information manager. “We definitely see used vehicle prices rising two to three months after a storm. But that’s when there’s a good level of inventory. This is unfamiliar territory.”

Why floods destroy cars

Big storms can affect car prices across the country for many months, because so many cars are lost simultaneously.

“A car that has gone through a flood basically rots from the inside out,” said Patrick Olsen, executive editor of CarFax, which tracks car damage. “Whenever you get mud or slime on the connections, a short circuit can be created in the system, which can cause a car to stop while driving.”

Hurricane Harvey, which affected the Houston area in late August 2017, is believed to have been the most destructive in terms of severely damaged or destroyed vehicles. Cox Automotive estimates that up to 500,000 vehicles were lost in Texas due to this storm, compared to 250,000 in Superstorm Sandy in 2012 and 200,000 in Hurricane Katrina in 2005.

Hurricane Harvey increased the wholesale prices of used cars nationwide by about 3% the month following the hurricane and prices remained high until November. Experts fear it will be worse this time around, even if fewer cars are affected.

“It’s a historically tight market, so it’s going to have a much more inflated impact than we saw in previous storms like Harvey,” said Reynolds of Cox Automotive.

US inflation eased in August. But America has not yet come out of the forest

CarFax estimates that at least 212,000 vehicles were lost during the storm. And AIR Worldwide, which estimates the losses of the insurance industry due to natural disasters, believes that insurers will cover the losses of more than 250,000 Ida vehicles. And only 78% of vehicles will be insured for such losses, according to the Insurance Information Institute, which means the number of lost vehicles will be even higher than the insured losses.

Anyone who wants to buy cars in the coming months, even those who are off the beaten path of this year’s hurricanes, should be careful: CarFax estimates there are 370,000 cars damaged by the storm on the road today , often sold to unsuspecting buyers. Some of these cars were damaged by previous storms, including Hurricane Katrina 16 years ago.

“If you see a price too good to be true, it’s probably too good to be true for a reason,” JD Power’s Paris said.

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