New York (CNN Business)Just when car prices looked like they were edging down from their record highs, they’re heading skyward again. It’s Hurricane Ida’s fault.
Ida caused widespread flooding from Louisiana, where it came ashore as a hurricane on August 29, to the heavily populated Northeast, where its remnants hit hard a few days later. It killed at least 86 people and its flood waters destroyed hundreds of thousands of cars, including many that were on car dealer lots.
Ida’s wrath has simultaneously created a sudden demand for car purchases while further destroying already tight inventories. Hurricane Nicholas, which hit the Texas Gulf Coast early Tuesday, could add to the problems, especially if it causes flooding once again in Houston, one of the largest markets for car ownership in the nation.
The storms could not have hit at a worse time. “Any new problem with car inventory is one problem too many,” said Kayla Reynolds, manager of economic and Industry insights for Cox Automotive.
New problems for car buyers
That’s means big problems for the thousands of people who lost their vehicles as Hurricane Ida battered the Gulf Coast before storming up to the Northeast.
Retired school teachers Ira and Ruth Steinberg were perfectly happy with their 2020 Honda Accord. Then the remains of Hurricane Ida hit their suburban hamlet of Hartsdale, about an hour north of New York City.
A flash flood burst through the condo’s garage doors and flooded it. No one was injured, but all 130 cars parked there were lost.
The Steinbergs called the Honda dealer at which they had bought their previous car. “He said he didn’t have a lot of cars to begin, and he had lost 85% of his cars in the storm,” said Ruth Steinberg.
Fortunately the Steinbergs’ loss will be covered by their insurance, which has a provision to rent a car after a loss, but they can’t find one. They’re 200th on the list for rental from Enterprise.
The couple is relying on their adult son, who lives nearby, to get around. They don’t know what they’ll be able to afford once they get a settlement on their car, or when they’ll be able to buy it. But they’re trying to keep a good attitude.
“We’ve gone through much worse things,” said Ruth Steinberg. “I’m more upset about the Yankees.”
Historical high car prices
Car prices — new and used — soared in the face of strong demand and tight inventories this summer, caused by a dearth of computer chips and other spare parts, which limited production.
The shortage was further exacerbated by rental car companies selling off about a third of their fleets during the early months of the pandemic when travel ground to a near halt. Those companies normally are a major source of used car supply.
Soaring car prices have been a major factor behind the overall rise in the cost of living, as measured by the consumer price index, the nation’s key inflation gauge.
Car prices may have peaked — Tuesday’s August CPI report showed used car prices retreating 1.5% from July, although still up 32% from a year earlier — while new car prices increased only 1.2%, the lowest pace of increase since April. Other measures of car prices had also showed prices topping out in late summer.
But that trend won’t likely continue in Ida’s aftermath.
“Excuse the pun, but it’s the perfect storm situation. There has never been something like this before,” said David Paris, senior manager of market insights for JD Power. “We definitely see used vehicle prices pick up for two to three months after a storm. But that’s when there’s a healthy level of inventory. This is uncharted territory.”
Why floods destroy cars
Major storms can affect car prices nationwide for many months, because so many cars are lost simultaneously.
“A car that has been through a flood is basically rotting from the inside out,” said Patrick Olsen, executive editor of CarFax, which tracks damage to cars. “Anytime you get mud or silt in the connections it can create a short in system, which can cause a car to stall while driving.”
Hurricane Harvey, which hit the Houston area in late August 2017, is believed to have been the most destructive in terms of vehicles severely damaged or destroy. Cox Automotive estimates that up to 500,000 vehicles in Texas were lost from that storm, compared to 250,000 for Superstorm Sandy in 2012 and 200,000 for Hurricane Katrina in 2005.
Hurricane Harvey pushed used car wholesale prices nationwide up about 3% in the month after the hurricane, and prices remained elevated through November. Experts fear it will be worse this time, even if fewer cars are affected.
“This is an historically tight market, so it’s going to be much more inflated impact we saw in previous storms like Harvey,” said Cox Automotive’s Reynolds.
CarFax estimates that at least 212,000 vehicles were lost in the storm. And AIR Worldwide, which estimates insurance industry losses from natural disasters, believes that insurers will cover losses of more than 250,000 vehicles from Ida. And only about 78% of the vehicles will be insured for this kind of loss, according to the Insurance Information Institute, which means that the number of vehicles lost will be even greater than the insured losses.
Anyone looking to buy cars in the next several months, even those far from this year’s hurricane paths, should beware: CarFax estimates that there are 370,000 storm-damaged cars on the road today, often sold to unsuspecting buyers. Some of of those cars were damaged by previous storms, including Hurricane Katrina 16 years ago.
“If you see a price that is too good to be true, it’s probably too good to be true for a reason,” said JD Power’s Paris.
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