Used-car prices expected to rise
Consumers, dealers and fleets will need vehicles
Photo credit: BLOOMBERG
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Customers replacing damaged vehicles in the wake of Sandy will push up used-vehicle prices across the country, used-vehicle experts say.
"There's got to be thousands, maybe even 100,000 flood-damaged cars -- all those New York commuter and Jersey shore vehicles," said Sandy Schwartz, president of auction giant Manheim. "There will be demand for cars, that's for sure."
And the demand won't be just consumers replacing damaged and destroyed vehicles, used-vehicle market specialists said. There will be dealers replacing Sandy-bashed stock; local governments, utilities and taxi companies that lost service vehicles; and even contractors and small businesses, said Ricky Beggs, managing editor of Black Book, a market and residual-tracking service.
"You'll see a surge in pickups, vans and service vehicles from owners who lost them or have worn vehicles," he said. "Others will add to fleets anticipating more work rebuilding after Sandy."
Beggs expects used-vehicle prices throughout the country to quickly jump $200 to $1,000 per unit, depending on age.
Alec Gutierrez, senior market analyst for Kelley Blue Book, says wholesale prices will immediately rise 0.5 to 2 percent. He said that in 2005, Hurricane Katrina drove used-vehicle prices 2 to 3 percent higher in the four months after it hit the Gulf Coast. Used-vehicle supplies are tighter now than in 2005, he said.
"It's quite possible that we could see appreciation surpass the levels during Katrina," Gutierrez said. "But it's too early to tell."
Used-vehicle supply already is being affected.
"Not just in the Northeast, but nationwide as fleet companies ship vehicles east to provide inventory for dealers that will be hitting auctions," Gutierrez said.
Daily rental companies are even shipping vehicles from the West Coast and elsewhere east to meet anticipated rental car demand from Northeastern customers waiting for insurance adjusters.
"Even before Sandy hit [but after it was forecast], Enterprise was telling us, 'Buy now because there won't be any used vehicles left afterwards,'" said Dennis Egglefield, owner of Egglefield Ford in Elizabethtown, N.Y. He is trying to boost his "already-lean used" supplies.
Beggs thinks most used vehicles moved toward the East Coast will come from east of the Mississippi, "but I can see them coming from as far away as Texas," he said.
Mike Good, general manager of Street Toyota-Scion in Amarillo, Texas, said he is stocking up on late-model used vehicles.
"We think the Internet business will catch fire in the next 30 to 90 days at an even greater pace," he said. "But after 90 days we'll be very careful about what we buy from East Coast sources."
 | Schwartz sees strong demand. |
Manheim's Schwartz said it will take months to get storm victims back behind the wheel.
"This mess will last into January," he said. "The insurance adjusters are going to be so busy -- they've got all those houses and businesses to deal with too."
But as insurance companies start to cut checks for their customers, used- and new-vehicle volume will rise, Black Book's Beggs said.
"People will take insurance settlement and buy a new car rather than replace it with a used one," he said.
First, storm-area dealers will have depleted used stock because storm victims won't have trade-ins. He thinks the trade-in rate may fall to 20 percent from 60 percent in hardest-hit areas.
Then, noting that leasing rates are highest on the East Coast, Beggs thinks most totaled lease cars will be replaced by fresh leases on new cars.
Schwartz agrees, saying customers likely will object to replacing a damaged vehicle with a used one for the remainder of the lease.
"The No. 1 rule on leased cars is 'keep the customer in your brand,' so some of these could be an automatic pull-forward," he said. "I can see automakers doing some deals to get people into new cars because they don't have a lot of used stock."
You can reach Jesse Snyder at jsnyder@crain.com.
