Hurricane Impact on the Used Car Market
September 8, 2017
The used car market is all about supply and demand–it is something we say over and over again about used cars in general, including the collectible car market. So, how will the recent hurricanes in Texas and in Florida affect the used car market? Two huge metropolitan markets have been severely devastated by the hurricanes, resulting in the loss of homes, possessions, and hundreds of thousands of automobiles. As it pertains to cars, the demand for new and used vehicles will sky-rocket, while the supply of used cars will go down. The new car manufacturers offer a plethora of cars, but Texas and Florida are incredibly large used car markets–not only cars that people own, but dealership cars, as well as auctions that have thousands of cars on the ground, are going to be devastated, and potentially have total losses of vehicles. Inevitably what happens in situations like this is the supply goes down while the demand goes up, as people are going to need to replace their cars or means of transportation By the end of the year, and possibly even before, we predict the prices of used cars is going to rise exponentially. There is also going to be additional expertise necessary to make sure you don’t end up with a car that may not have been a total loss, but still has had damage from the hurricane, that is merely being passed off because the demand is going to be so high. So, in thinking about supply and demand as far as regular cars go, the pre-owned market is going to surge, just because of the size of the two markets that are going to be predominantly affected by the hurricanes.
Now, when you think about how the collectible and exotic markets are going to be affected, it’s interesting because both in Texas and in Florida even more so, there is an enormous concentration of exotics–from collectible old exotics like a Ferrari 308, to newer exotics like the Ferrari 458, and everything in between. There is also a concentration of wealth in both areas, and as a result they house extensive car collections for private individuals, as well as exotic car dealerships. When talking about units in operation in the business (i.e. how many cars are on the street), there are a ton of exotic registrations in Texas and in Florida. While the exotic and collectible car market already has a short supply by nature, if these cars are destroyed or are total losses, the supply will obviously go down even more, causing the demand to shoot through the roof, not to mention the value of the cars themselves.
There is, of course, no way to tell for sure what will happen to the car market as a result of the hurricanes. What we know for sure is there is going to be a disproportionate number of cars destroyed to ones that are available. So, by applying a simple economic theory to the used car market, exotic and otherwise, we can predict that used car prices will rise, as the demand for them increases and the supply decreases.