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How Harvey could affect nationwide auto sales

The full extent of the devastation, mayhem, pain, and loss of life that Hurricane Harvey is leaving in its path is still unknown, and people are still trying to get to safety. It sent the oil-and-gas industry reeling. Housing in affected areas took a serious hit; perhaps $40-billion in damage, according to an early guess by CoreLogic.

Fannie Mae and Freddie Mac expect losses on about 400,000 mortgages that they guarantee. This could increase as flood waters rise.

They won’t know the extent of the damage until after the wind and rain in Texas and Louisiana subside. Other homes did not have mortgages or had mortgages that were not guaranteed. So perhaps a total of 500,000 homes.

If each affected home had 1.6 vehicles parked there on average, it would mean that about 800,000 vehicles sustained flood damage. Many people evacuated with their cars, so this is just a guess. How big is this number? Over the past 12 months in the Greater Houston Area, dealers sold 285,000 new vehicles.

But not all flood vehicles will need to be replaced. Insurers might only pay to clean up and repair some of the vehicles. And many people without comprehensive coverage won’t have the money to replace their vehicle. They might also get laid off because the company they work for is under water, and it might take a long time for things to return to normal.

When a new vehicle on a dealer lot gets flooded, it cannot be sold anymore, and the insurance company takes it off the dealer’s hands. But personally owned flood vehicles that were partially immersed in water might be serviceable afterward, though they tend to stink, are hard to clean up, and may have, let’s say, some issues. If a vehicle gets washed down the street and suffers severe body damage, it’s likely to turn into a total loss.

The driver of the SUV in this photo apparently “tried to make a right turn into a gas station last night; a ditch full of water looks a lot like a road full of water in the dark,” said Michael Gorback, M.D., in Houston, who took the photo. This looks like one of the headaches the insurance industry is facing:

So if 800,000 cars received flood damage, not all will be replaced. And of those that will be replaced, many were older vehicles that will be replaced by used vehicles. But how many of them will be replaced by new vehicles? And what will this do to the decline so far this year in new vehicle sales? Will it stop Carmageddon and restart the auto boom?

Before Harvey hit, auto sales in Greater Houston had already been battered to Financial-Crisis levels by the oil bust and the subsequent construction downturn. In July, heavy incentives finally did the trick, and there was an uptick: new vehicle sales rose 6.4% from the crushed levels a year earlier, according to TexAuto Facts, reported by InfoNation, and cited by the Greater Houston Partnership.

But for the 12-month period through July, auto dealers sold 285,501 new vehicles, down 12.4% from the same period last year, and down 25% from the levels in late 2015 and early 2016.

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