Phillips predicts sales surge

Phillips predicts sales surge.

Post-Hurricane Car Sales Expected to Recover Fast

Mitchell Phillips studies consumer car-buying behavior after major hurricanes. He has detected a common pattern.

Car markets hit by Hurricane Sandy will see vehicle sales return to normal faster than many people may think, says Mitch Phillips, an analyst for automotive consultancy Urban Science.

Moreover, if post-hurricane car-buying patterns hold true, sales will spike in two to three months before returning to regular levels, he says.

Starting with Katrina in 2005, Phillips has studied consumer car-buying behavior after major hurricanes. He has detected a common pattern.       

Typically, sales dip for the first 30 days after a storm as people get their lives back in order, including dealers. Sales rise to above-average, sometimes record-high levels after 60 to 90 days, and occasionally as many as 120 days, following a storm. Then they begin leveling off to pre-storm points.

“We see that same pattern again and again,” even though markets vary and hurricanes come with unique characteristics, Phillips tells WardsAuto.

“Some people think car sales come back about 90 days after a storm, but from what we’ve seen, they return sooner than that,” he says. “In New Orleans after Katrina, sales were dipping from the high point by the time some people even realized they had come back.”

He attributes the sales surges to two things. One is pent-up demand stemming from consumers who had intended to buy a vehicle, but delayed the purchase while coping with the storm and its immediate aftermath. They belatedly enter the market weeks later.

The second reason for the sales jump is that people whose vehicles are destroyed in a storm receive insurance compensation within a couple of months. Check in hand, they are ready to buy a replacement vehicle.

“It’s like a string goes down, up and down, and then you pull it at both ends,” Phillips says of post-hurricane car-buying patterns. “You get the average percentage of what sales for that market would be in the long run. Ultimately, the effect of a hurricane on car sales is neutral.”

Hurricane Sandy affected a stretch of the East Coast from North Carolina to Maine. Hit hard were New York City, northern New Jersey, Long Island and part of Pennsylvania.

Those densely populated areas account for 7% to 8% of the nation’s new-car sales, or normally about 3,000 to 3,500 vehicles a day, Phillips says.

As dealers make plans to reopen, they and auto makers should take heed to stock the right vehicles as customers return to the market, he says.

That’s because vehicle preferences can change following a hurricane. For example, after Katrina, consumers in the New Orleans area bought more pickup trucks than expected.

Pickups are not particularly popular in major urban centers such as New York City, and Phillips doesn’t expect that to change. But he advises auto makers to watch for potentially different buying choices post-storm.

“I don’t know how consumers are going to react in terms of preference,” he says. “The mix might not change that dramatically. But my advice to dealers and brands is to keep your eye on what consumers are buying by segment so you can maximize sales.  

“Understand what your product mix is. If it changes, nimbly change shipments and inventories.”

Used-car supplies had been tight before the storm and now are expected to get even tighter, says Ricky Beggs, senior editor at Black Book, a used-car value guide.

That likely will increase pre-owned vehicle values, perhaps as much as $800 for some models, he tells WardsAuto. But he anticipates new-car sales may benefit from post-storm buying activity, too.

“Usually, if a used car is damaged in a storm, it will be replaced by a used car but this one might be slightly different,” he says. “Some people with used cars could replace them with new cars.

“We’ve talked about how many people have stayed out of the new-car market for the past couple of years because of the economic downturn. This might be one little push to put them in the new-car side.”

Beggs notes the New York City region has one of the highest lease rates in the U.S. “I expect damaged leased new cars will be replaced with new leased cars.”

Storm victims are not in a car-buying mood right now and most dealers aren’t in a position to sell.

“We are working to quickly assess and repair the damage at our dealerships in order to restore full operations,” says Earl J. Hesterberg, president and CEO of Group 1, a dealership chain.

The company estimates $2 million in inventory losses. The storm affected 24 of its stores. Business interruptions are expected to last up to two weeks for Group 1 dealerships in the hardest hit areas of New York and New Jersey.

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