The East Coast is still dealing with – and trying to assess the damage from – “Superstorm Sandy”, the historically destructive hurricane/nor’easter that hammered Mid-Atlantic and Northeastern states a little over a week ago.

By now, most of us are well-versed in the immediate devastation imposed by Sandy; at least 110 Americans perished, over 8 million were left without power and massive flooding led to the heart-breaking destruction of perhaps hundreds of homes residing in low-lying areas. 

The human cost associated with Sandy and its emotional impact on the lives’ of those who lost loved ones, irreplaceable personal property, or both will reverberate for years to come and our thoughts and prayers go out to all who are suffering so acutely.

Relative to the toll levied on humanity, the economic impact of the storm – while significant – will be decidedly less harsh.
Within our industry, we have and will continue to see disruptions on both the supply and demand side of the new and used vehicle markets.  In terms of supply, both new and used vehicle inventory will be depleted as a result of the storm, but as of right now it is difficult to ascertain just how much supply will be affected.  

Although the damage left by Sandy impacted twelve states and Washington D.C., flooding appears to have been most severe in low-lying or coastal areas of Connecticut, New York and New Jersey, with the latter two ranking in the top 15 states in terms of overall vehicles in operation (#4 and #10, respectively) and new-vehicle dealerships (#4 and #8, respectively).

In addition, both states have large populations and all three have high population-density ratios (New Jersey is the 2nd most population-dense state in the country, Connecticut the 5th, and NY the 8th).   As a result, supply and demand disruptions will be more significant in these states.  

In terms of deferred new and used vehicle sales, NADA expects that the bulk of purchases postponed and stimulated by the storm will be recouped towards the end of November and through December after the majority of the damage has been calculated and insurance settlements have been made. 

Sandy-affected Mid-Atlantic and Northeastern states including New York and New Jersey have a much larger population of cars than trucks (by a score of 58% to 42%) and import brands comprise a significant share of overall vehicle sales in these regions.  As such, pent-up and replacement demand should be more acute for cars than for trucks, particularly for import brands.

That being said, large pickup and domestic fleet sales will also benefit as contractors and fleet/taxi operators will also need to replace vehicles damaged by the storm.   

Regarding used vehicle prices, NADA expects that the loss of used-vehicle supply and the increase in replacement demand due to Sandy will see used vehicle prices improve, but the extent of growth will be dependent on the number of units lost as a result of the storm.

While no two storms are alike, the flood damage caused by Hurricane Katrina, which cut a devastating swath across the Gulf Coast region in late August, 2005, offers insight into the impact that Sandy could have on used vehicle prices.

Various estimates place the number of units damaged by Katrina at approximately 600k units and the resulting contraction in supply and spike in demand led to used vehicle prices improving by as much as 3% or $309 over the four month period following the storm’s landfall.

Although Sandy’s reach encompassed an area with a decidedly greater population density than Katrina, overall damage including that caused by flooding appears to be less extensive.  This is supported by initial damage estimates for Sandy, which place insured losses for the storm between $10 and 20 billion, according to EQECAT, Inc., a catastrophe risk analytics company based in Oakland, Calif. The total loss is projected to be between $30 to 50 billion, according to EQECAT.  Numerous other estimates are similar to EQECAT’s forecasts (including Barclays and IHS Global Insight).

By comparison, the insured loss cost of Hurricane Katrina was $46.5 billion, and the total cost was $145 billion (both in 2011 dollars), according to AIR Worldwide and data distributed by the National Oceanic and Atmospheric Administration.  Given current estimates for insured and total losses, the financial impact associated with Hurricane Sandy would be about one-third of what was recorded for Hurricane Katrina. 

Considering these points, NADA expects that used vehicle prices will outperform pre-Sandy expectations in December by between 0.5%-to-1.5% at a national level, with the degree of improvement determined primarily by the number of units that are damaged and removed from operation as a result of the storm.

Regionally, the concentrated damage that occurred in New Jersey and New York mean that used vehicle prices, particularly for import and luxury cars, will most likely improve beyond NADA’s national level expectations. 

Large pickup prices should also improve more towards the high end of NADA’s predicted range as contractors and other service-related professionals look to replace vehicles that are required to support their livelihoods and because supply for the segment is already constrained. 

At the dealer level, dealers in the Northeast still assessing damage and in some cases are still waiting to have power and communication service restored.  Of course the biggest concern dealers have is for the safety and well-being of their employees and neighbors in their communities, particularly where power has yet to be restored and colder temperatures are setting in. 

To assist in recovery, the National Automobile Dealers Association has pledged $1 million to jump-start a national fund-raising campaign for the Emergency Relief Fund of the National Automobile Dealer’s Charitable Foundation.

“This is the time for dealers across the country to step up and help those in the Northeast most affected by Hurricane Sandy,” said Bill Underriner, NADA chairman and a dealer from Montana. The fund provides financial assistance to dealership employees that are affected by natural disasters.

Here is a link to the news release describing NADA’s emergency relief fund in more detail: