The aftermath of Hurricane Katrina is likely to boost demand for - and prices of - used cars and trucks, analysts say.
Used-vehicle prices will rise about 5 percent this fall from late August levels, predicts Paul Taylor, chief economist of the National Automobile Dealers Association.
Taylor says used-vehicle prices have dropped about 8 percent since May 2005. Soaring gasoline prices and a large supply of trade-ins generated by the Big 3's summer sales contributed to that decline, he says.
But Taylor notes that new-vehicle sales slowed last month, reducing the flow of trade-ins to the used-vehicle market. The loss of vehicles in the hurricane also will tighten used-vehicle supplies and raise prices, he says.
Carfax Inc., which provides vehicle history reports, estimates that Katrina destroyed 250,000 to 500,000 vehicles in Louisiana, Alabama and Mississippi.
Many consumers who bought new vehicles this summer and lost them to Katrina will replace them with used vehicles, predicts Mike Linn, executive director of the National Independent Automobile Dealers Association. About 7 percent of the association's members are franchised dealers.
Those consumers could find themselves upside down, owing more on their vehicles than they are worth, Linn says. If they have guaranteed automotive protection insurance, the coverage will pay their vehicle loans in full, he notes.
But consumers whose insurance covers only the vehicle's market value will face negative equity, Linn says. That could push them to turn to used vehicles as replacements, he says.
"If they are upside down, say $6,000 to $8,000, there is no way (many people) could buy a new car," Linn says.
Alex Rosten, manager of pricing and market analysis for Edmunds.com, an industry research firm, says used vehicles priced at $8,000 to $10,000 will be in great demand in the storm region.
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