Dealer groups' lost sales likely to be offset by rebound in Hurricane Florence's wake, analysts say

Hurricane Florence is disrupting automotive retailers, but the problems could be offset by rebounding sales before year end, according to two analyst reports. 

Financial services firm Stephens said it considered top dealership groups’ exposure based on their percentage of vehicle mix in affected areas, and concluded that the most exposed groups are Asbury Automotive Group at 17.0 percent, CarMax at 12.1 percent and Sonic Automotive at 7.5 percent.

It said Carvana, with about 6.2 percent of its served population in the storm’s path, and 7.5 percent of vehicle sales in the area, is also among larger retailers facing a higher rate of disruption.

The storm already has caused store closures and lost sales, and is likely to result in property damage to dealership buildings and inventory. But Stephens expects fourth-quarter benefits to more than offset losses.

“Flood damage is likely to drive significant replacement demand and damage from wind/debris will drive service/parts demand,” the company wrote in its analysis.

It pointed to Hurricane Harvey, which disrupted operations in the Houston area in August 2017 but boosted replacement demand in mid and late September last year. That demand continued through November before returning to normal in December, Little Rock, Ark.-based Stephens said.

Group 1 Automotive was the most exposed dealership group in Houston, and daily sales rates for the company’s affected stores in the last three weeks of September were its highest ever, with many stores doubling volume year over year in the month, Stephens said. A company representative for Group 1 could not immediately be reached Thursday.

IHS Markit analyst Stephanie Brinley said the impact of the storm on auto sales and production in the Carolina is expected to be “short-lived,” though contingent on the “severity and length” of the hurricane.

“IHS Markit expects the industry to recover any lost sales or production volume quickly — as we saw with hurricanes in Texas in September 2017,” she said.

Photo credit: Reuters

Little solace

While the investor-focused analysis may offer some optimism, it’s likely to give little solace to dealers in the storm’s path this week. They’ve been busy moving inventory to higher ground, storm-proofing their stores and sending employees home to evacuate or hunker down.

“The main thing is making sure that all the inventory is placed in a position that is not prone to flooding, as we’ve been in constant contact with customers whose vehicles have been in the shop — whether it’s our service department or body shop — that have been completed in order for them to come pick their vehicles up,” Matt Thurston, an operation manager at East Carolina Chrysler-Dodge-Jeep-Ram-Fiat in Greenville, N.C., said Wednesday.

Dealership management had planned to assess the effects of the storm before deciding whether to reopen Saturday.

“We’ve had several [employees] that live in outlying areas that had to evacuate, and of course, anybody that needs to be somewhere other than here, they’ve been leaving accordingly,” Thurston said. More than a million people had been ordered to evacuate coastal areas in the storm’s path.

Hurricane Florence was headed toward the Carolinas on Thursday as a Category 2 storm — weakening from Category 4 earlier in the week but still producing wind gusts up to 105 mph, according to the National Hurricane Center. Heavy rain bands and tropical-storm-force winds were lashing the Outer Banks and southeastern coast of North Carolina Thursday afternoon, and life-threatening storm surge and inundating rain is expected, the hurricane center said.

Storm preparations

The National Hurricane Center projects Hurricane Florence to churn ashore early Friday and continue west before turning southwest across South Carolina late Friday and into Saturday. The slow-moving storm could drench isolated areas of the Southeast with up to 40 inches of rain.

Storm preparations reached beyond retailers. Bosch temporarily shut down three operations in the Carolinas on Tuesday, and could close other sites, depending on the situation, a company spokesman wrote in an email Thursday.

Daimler and Volvo Car Group have suspended operations at their new plants in South Carolina. BMW said it does not expect to idle its plant in Spartanburg, S.C., which is farther inland. But a company spokesman wrote in an email that the automaker would be dealing with logistics problems as the hurricane approaches.

Separately, the National Highway Traffic Safety Administration postponed a public hearing scheduled for Friday in Washington about ways to improve the New Car Assessment Program and how to make safety ratings more meaningful to car buyers, even though the forecasts show the District of Columbia would not be affected by rain until next week. The meeting has been rescheduled for Oct. 1 at the Department of Transportation’s headquarters.

Anisa Jibrell and Eric Kulisch contributed to this report.

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