How Sandy-damaged cars will be replaced
Used vehicles from the West Coast could be shipped across the country to help East Coast dealers meet the anticipated demand for replacing vehicles damaged by Hurricane Sandy, says Paul Lips, executive vice president for operations and finance at auction company ADESA.
Because the section of the U.S. Northeast hit hardest by the storm has a high percentage of luxury vehicles, much of the resupply of vehicles is likely to come from other states with similar customer bases, including California, Lips says.
"This could provide an opportunity for Florida, Texas, the Southwest and California where we also see a higher percentage of luxury high-end vehicles," Lips says.
"We could see the Northeast dealers buying more online from those regions or flying out there and buying large quantities of cars to ship them back. The dealers should be able to make up for the cost of transportation to move them back in," he said.
Business at ADESA auction sites in the path of the storm was also affected though "we don't quite fully understand the magnitude" yet, said Jim Hallett, CEO of KAR Auction Services Inc., parent of ADESA.
He said the affected auctions experienced temporary power outages, a lower number of dealer-owned vehicles being offered for sale and lower attendance by dealers.
The company also incurred additional costs related to moving vehicles to higher ground and preparing before the storm.
"The storm did have an impact on our whole car business as well as our salvage business," Hallett told analysts during a conference call.
Lips, who also heads the National Auto Auction Association, foresees three scenarios for restocking Northeast used-car lots:
1. Commercial sellers, including automakers and finance companies, might divert excess cars and light trucks to auctions in the Northeast.
2. Dealers in the South and Southeastern regions of the country may buy vehicles locally just to offer them for sale at auction to their colleagues in the Northeast at a profit.
3. Dealers in storm-affected areas might buy vehicles from auctions in other regions of the country either online or in person.
Lips says he expects "a little activity'' this week from Northeast dealers stocking up to serve customers who lost vehicles in the storm.
Auction activity next week -- the week of the Thanksgiving holiday -- also is likely to be slow. But Lips predicts that sales during the weeks leading up to Christmas will be brisk.
He adds: "Even if retail doesn't pick up until after the holidays, they'll probably need to restock at a higher rate than they have in prior years."
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