The Impact of Hurricane Katrina on the Wholesale Used-Vehicle Market

Higher wholesale resale prices are “a reasonable assumption when people start getting insurance checks,” said Paul Taylor, chief economist at the National Automobile Dealers Association.

Jack Durham, executive director of the Texas Independent Automobile Dealers Association, is more blunt. “I think we're going to see a complete upheaval in the (used-vehicle) marketplace for the next six months to a year,” he said in a Dallas Morning News interview. “I can't think of any other situation where this many vehicles were displaced.”

Wholesale Resale Values Anticipated to Rise

Fleet remarketers agree that Hurricane Katrina will indeed impact commercial fleet resale values, especially in the Southeast region of the country. Some fleet management companies reported an almost immediate uptick in the wholesale market in regions adjoining the disaster area.

Paul Seger, VP of asset remarketing for GE Commercial Finance Fleet Services, reported he saw a definite increase in returns in the Texas and Mississippi markets, especially for pickup trucks. He attributes this directly to Hurricane Katrina and the projected need for replacement vehicles and work trucks.

Bob Graham, director of vehicle remarketing for ARI, agrees that the overall the impact from Hurricane Katrina will drive up wholesale used-vehicle values over the next few months.

“In the Southeast, there will be a significant demand for replacement used vehicles, rental units, and even short-term leases as the area recovers from the hurricane,” said Graham. “Currently there seems to be an immediate need for low-price units for people who have lost everything, but are getting some financial assistance. Because of fuel prices, my expectation is that first choice will be smaller more fuel-efficient cars to get people mobile, but as the recovery continues, I think the need will be broad-based with a heightened demand for work trucks of all types.”

According to Darrin Aiken, assistant VP of vehicle remarketing for Wheels Inc., “Once the area returns to some type of normal business environment, consumers and businesses will find that they have a need for vehicles to replace the ones that were lost. Simple economics should come into play with higher demand for vehicles and short supply, thus rising prices. The true beneficiaries will be the auctions and dealers. The auctions will sell more flood and damaged vehicles and normal vehicles to dealers in the lanes. All flood damaged vehicles sold by Wheels will have flood titles.”

Bill Cieslak, vice president, vehicle operations manager for PHH Arval, believes that Hurricane Katrina's impact on the used-vehicle market will be felt in several stages.

“The first is the trend by consumers to purchase more fuel-efficient vehicles in reaction to higher fuel costs. The market has shown a sharp increase in the value of fuel-efficient vehicles, both import and domestic nameplates. Conversely, large, thirsty trucks continue to lose popularity and value. Dealers in the Southeast have also been stocking up on inventory to replace the vehicles lost in the storm,” said Cieslak. "Next are the vehicles required for the debris clean up and rebuilding efforts. We expect to see a steady increase in the demand for light-and medium-duty trucks and equipment. The duration of this period should be lengthy due to the extensive construction projects,” added Cieslak.

The Post-Katrina Used-Vehicle Marketplace

One of Hurricane Katrina’s biggest impacts on the used-vehicle market, according to Autobytel, is that it has caused consumers to be less inclined to purchase low-fuel-mileage vehicles such as trucks and SUVs. Sixty-six percent of the consumers surveyed by Autobytel said that Hurricane Katrina and its aftermath will cause car buyers to purchase more fuel-efficient vehicles.

In addition, there are concerns that thousands of water-damaged vehicles will be attempted to be sold to unsuspecting consumers without a flood title by unscrupulous sellers. Remarketers are cautioning used-vehicle buyers to inspect engine compartments, trunks, and interiors for water damage or mold.

To increase buyer confidence, fleet management companies are reporting flood-damaged vehicles to Carfax. GE Commercial Finance Fleet Services recently announced that it is reporting all flood-damaged vehicles to Carfax. It is making a list of VINs for GE managed fleet vehicles that were damaged in the storm and transmitting them to Carfax. Cieslak agrees that it is important to preserve and enhance values for all vehicles sold in the region.

“We have a policy of full and open disclosure, so PHH will ‘brand’ the used vehicles that are flood-damaged, so people know what they’re getting; this trust ensures that when unaffected vehicles that happen to be domiciled in the hurricane-affected region come up for sale, we can still receive maximum marketplace value for vehicles that have not sustained damage,” said Cieslak.