Wednesday, August 30, 2017

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.



Anonymous said...

Another thing to watch for is aircraft parts - especially engines. Can't count the number of folks who got a super deal on a "low time" engine, only to discover internal corrosion, because it was salvage from a storm-damaged aircraft. Don't know if anyone got killed because of that, but remember reports of forced, off-field landings.


Anonymous said...

We were talking about this in the office this morning. Submurged vehicles are often judged 'totaled' by insurance companies, and when fixed are given a 'salvage' title (reducing value of said vehicle immensely). I did not know that vehicles sold across state lines could be 'washed' of this though - thank you for that knowledge.

That is even if you are covered by comprehensive insurance. Liability insurance very likely leaves you in the lurch completely - it was your job to evacuate and protect your car. One of my coworker's daughters (lives in North Houston) was smart enough to park her vehicle in an elevated parking structure where she works. She will have to leave it there for a while until roads are cleared but at least, no damage to vehicle as of now.

Will said...

Fixing a fresh-water flooded car or truck is easy, compared to a motorhome or trailer. If salt-water, don't bother attempting it, usually.

In a car or truck, the interior has to be removed and cleaned. The biggest problem is anything with soft foam, which is a major problem. Depending on the thickness, it may or may not be salvageable. How long it sat before attending to it can be a make or break decision. Once mold gets established, it will probably need to be tossed. Amazing where you will find soft foam in a vehicle interior. Even under the hood.
If the vehicle had to wait for insurance settlement, expect to toss the entire interior due to mold.

Then, all the fluid bearing systems have to be checked, and possibly flushed. Brakes, clutch, power steering, engine, transmission, axle/differential. C/V joint boots may need to be drained. The depth and length of time of water immersion can make a difference in how systems are impacted.

With motorhomes/trailers, expect to replace the floor and some or all of the walls and possibly the ceilings. Basically, you will be dismantling the entire interior, and replacing most all the wood structure (lots of wood in there!), and tossing all the seats,couches, and mattresses.

Then there is all the appliances. And the cabinetry. Essentially, you are looking at a house, complete with a vehicle's systems. BIG job!

Anonymous said...

No one - at least no one who is smart - will consider purchasing any vehicle from the flood region until enough time has passed to ensure there's no possibility of it being a floood-damaged vehicle.

For new vehicles, it's easy: Check the manufacturer's paperwork for the build date, then verify the paperwork is valid and has not been falsified. Anything after the definitive date when all streets are dry will be good. I'm guessing Sept 20 is probably a good cutoff date.

For used vehicles, caveat emptor is the word of the day. The smart purchaser always includes an airtight phrase in the purchase agreement specifying a satisfactory inspection by a reputable independent mechanic before the first dollar changes hands (I highlighted independent because a dealerhip mechanic has split allegiance, akin to requesting a security survey of your henhouse from a fox who lives elsewere). Now, that mechanic will really have to earn his/her money, and it will pay to remind him or her that not only are you requesting the usual consumer-smart mechanical inspection, but specifically demanding detailed inspection for any evidence whatsoever of potential flood damage or repair of flood damage.

IANAL, but I'd suggest putting this in writing, copy to the mechanic, and retain an accurate copy (accurate copy means any additions or modifications are included in both your and the mechanic's copy, and initialed by both parties; should legal action be necessary it will be necessary to document criteria, and "we talked about X" or "I asked him to check Y" constitutes a verbal contract which is not worth the paper it's not written on, eg., probably unenforceable.

Along the same lines, I'd suggest putting something in the original purchase agreement stipulating to "any evidence of flood damage or flood damage repair will immediately cancel this sale."

It may be possible to get a stunningly good deal on a flood damaged vehicle (insurance companies are a good place to look), and you may judge that to be a reasonable course of action. Be aware that such a vehicle will have numerous, nagging - and potentially quite expensive to correct - problems throughout its life, especially with its electrical system. If you're willing to accept that, be sure you do it with your eyes wide open and the price you pay reflects the future hassles, because there will be hassles.

Tal Hartsfeld said...

Tricksters are everywhere.
But, then again, it seems they've ALWAYS "ruled" civilization in general anyway. Why should this period in time be any different?

Will said...

I notice that a couple states will refuse to issue titles to flood insurance totaled vehicles. Not even a "salvaged" labeled title will be allowed.

Note that the typical "salvage" title doesn't indicate the reason for that category. It is just an insurance decision. Most of the time it is a cosmetic issue. Bodywork on a motorcycle or car can be very expensive, and yet have little to no bearing on the function. Flooding, however, is the opposite situation, generally.

Bob in Stafford VA said...

I thought I heard on the news (somewhere) that the glut of excess autos can be attribute in part to Uber and Lyft. Seems more people are opting for their rides and not renting from the car rental companies. So car rental companies aren't to eager to replace their fleets with newer cars they can't rent. Make sense?!?!?