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How a Weather Catastrophe Impacts the Automotive Industry

The recent storms in Houston, Texas and the surrounding cities have devastated the area. Here at Auto Influence, we’re focused on providing our readers with relevant, current auto news and advice. While the following article has a bit of an unconventional perspective on the disaster, it isn’t meant to de-emphasize the devastation that has occurred.

Predictably, the storm has had an impact on a number of industries, and the automotive business certainly isn’t excluded from this sentiment. As a result of all of the totaled vehicles in Texas, the prices of used cars could begin to rise. This is a predicament that accompanies any major water catastrophe, and it leads to plenty of questions from consumers. We’re here to provide some guidance. Whether you live in Texas or across the country, see how a major hurricane can impact the automotive industry…

Generally, whenever there’s a flood, consumers have to expect the natural catastrophe to impact various industries. For instance, following the recent storm in Texas, we’ve seen gas prices surge. Similarly, we’ll see the prices of vehicles climb. With hundreds of thousands of vehicles predicted to be totaled following the recent hurricane, there will certainly be a demand for replacement cars. Similar to “supply and demand” in any industry, the prices of these vehicles will rise accordingly.

While it will take some time for life to return to normal in those affected cities, individuals will still require transportation as they’re attempting to get to work. These consumers will be looking for a replacement vehicle as soon as possible, and it might be a bit optimistic to assume that dealerships won’t adjust their prices to reflect this boom in interest.

“It’s supply and demand,” Houston Automobile Dealers Association chairman Steven Wolf (via Kevin Bringer of CNBC.com). “And obviously there’s going to be a tremendous demand for vehicles. I think that you’re going to see some price pressure on used cars.”

Now, there are generally some questions about whether it’s ethical for car dealerships to boost the prices of their products when the public is in such great need. Supporters claim that the industry is clearly just following basic business methods, and this is one of the rare times when dealerships can capitalize on that “supply and demand.” Meanwhile, opponents believe these dealerships should be assisting their customers when they need help the most. Fortunately, some experts expect insurance companies to help with these predicaments, as they’ll presumably file claims as quickly as possible. Furthermore, in today’s day and age, public perception could go a long way in determining how car sellers approach this unique situation.

“It’s going to happen, that’s inevitable,” said Frank Scafidi of the National Insurance Crime Bureau (via Phil LeBeau of CNBC.com). “Look at all those vehicles floating around. There are people who will try to take advantage of the situation.”

“We didn’t see this on a huge scale until Hurricane Katrina. Since then the public awareness of the problem is greater, but with thousands of flooded vehicles, it’s hard to prevent this from happening… [t]he insurance companies are going to step up and do the right thing and get these claims handled quickly.”

If dealerships do indeed boost the prices of their vehicles, some experts expect the bump to be specific to the Texas area. Yes, the storms will inevitably impact all areas of the country, and you might find that prices are slightly elevated in your town. However, it’s likely that this predicament will be especially relevant to Texas residents.

“In subsequent months we’ll likely see a slight localized bump in sales as the recovery takes hold and people are able to buy replacement vehicles,” Jessica Caldwell, Edmunds.com’s executive director of industry analysis, told Fortune.com.

Fortunately, for those seeking a new car, there should be little to no repercussions from the storm. Many consumers who were impacted by the storm will presumably be seeking an inexpensive, temporary replacement for their totaled, flooded vehicle. In other words, it’s unlikely that they’re going to be dishing out big money on a new car, especially when they’ll have plenty of other financial obligations to handle.

“I think new cars are going to maintain because of the additional incentives that manufacturers are going to offer. The banks are buying extremely deep right now, the manufacturers, even pre-disaster, were offering incredible incentives, and I think those incentives are even going to get better,” Wolf said.

If you do live in an affected area, you really won’t have any other choice but to pursue a replacement vehicle for your flooded car. Water damage is one of the most serious issues your vehicle can come across, and it’s rare that these vehicles overcome this damage. In other words, it might not be worthwhile attempting to repair your totaled car, and it might be more cost- and time-efficient to pursue a used car as soon as possible. If you live elsewhere, you might want to hold off on purchasing a used car, at least temporarily. If you are in the market, rely on car-pricing resources (like Kelley Blue Book or eBay.com) to get an idea on whether your target is overpriced. If the vehicle is selling for more than you’d like, wait several weeks until the demand dies down.

Furthermore, if you are in the market for a used car, you should be especially vigilant of targets that may have experienced water damage. Some unethical dealerships might try to cover up these issues and sell the vehicles as if they haven’t seen any major issues. One of the major telling signs is inconsistent upholstery. During a flood, the interior will presumably see plenty of water damage, and this is especially telling on the vehicle’s materials. If you notice that a targeted used car has inconsistent or crudely-installed upholsteries, it might be an indication that things aren’t looking good under the hood. Furthermore, you should consider giving the vehicle a test drive, as faulty operation might be an indication of problems under the hood.

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