Hurricane Harvey and the US auto industry

Last month, in two posts, I noted that the US auto industry was in terrible trouble.  In the second post, I quoted the Detroit News from late last year:

The industry has 250,000 or 260,000 units of excess inventory “that kind of needs to be weaned from the system,” said Joe Langley, IHS principal analyst for North America light vehicle forecasting.

Hurricane Harvey might solve that problem, at least in the short term.  CNBC notes:

They seem to be in almost every picture or video of flooded neighborhoods in and around Houston.

There are scores of cars and trucks with water up to their windows and in some cases over the hood and roof.

In fact, the flooding is so extensive, Cox Automotive estimates a half-million vehicles may wind up in the scrap yard.

. . .

With so many vehicles in the flood zone, auto insurers will be busy handling claims and cutting checks so flood victims can buy another car or truck.

Auto dealers are expecting a surge in business once Houston gets back on its feet.

There's more at the link.

With estimates of lost or damaged vehicles ranging from a quarter to half a million, that should soak up the excess inventory nicely . . . but it'll bring with it a new set of problems.  The article goes on to observe:

The resale of repaired flooded cars is not illegal, as long as the flood damage is disclosed on the title to buyers. After Hurricane Katrina, thousands of rebuilt flood vehicles were sold to unsuspecting buyers with titles that had been washed or reissued in a different state.

"We didn't see this on a huge scale until Hurricane Katrina," said Scafidi. "Since then the public awareness of the problem is greater, but with thousands of flooded vehicles it's hard to prevent this from happening."

I remember that happening after Hurricane Katrina in 2005.  Tens of thousands of Louisiana vehicles were 'exported' to other states, and sold there by their owners on the original title, with no mention made of flood damage.  In many cases, owners insisted that they'd evacuated in their vehicles, which had therefore not been flooded at all.  Only after time had passed did the inevitable damage show up . . . and by then the previous owners were long gone.

(Another aspect of the post-Katrina problem was that many dealer lots were not flooded;  but their owners, and those who worked there, could not get to them for days or weeks, due to evacuations and/or flooded streets.  Meanwhile, local thieves had hot-wired the cars [or just plain stolen the keys from the dealership], forged temporary short-term registration certificates using the dealer's stock of such paperwork, and driven the vehicles out of town - sometimes with the collaboration of less honest local cops.  There were reports of hundreds of new Cadillacs, Lincolns and other high-end cars being driven north or west, on their way to resale in other states.  As far as I know, few if any were ever recovered.)

I can only advise my readers to be very, very careful when buying any used vehicle coming out of Texas for the next few months.  It's not just private sales, either.  Entire vehicle dealerships have been flooded, and they may not be fully insured.  They're in a position to have quick repairs done, then ship their inventory to other dealers for resale, thereby avoiding having to take the loss.

Get an in-depth report on any Texas-sourced vehicle from Carfax or similar sources, and look for any insurance payout linked to its VIN.  You might be buying a soggy lemon.

Peter