Post-Harvey car sales are a windfall
Group 1 Automotive dealerships in Houston and Beaumont set records for new vehicles sold during the weeks following Hurricane Harvey. Some, despite losing a week’s business due to the storm, doubled their typical newvehicle sales for September.
“We’ve never seen anything like that before, and I don’t think we’ll ever see anything like that again,” president and CEO Earl Hesterberg told investors Thursday during a thirdquarter earnings call.
The lift in new-vehicle sales “more than offset” continued weakness in other oil-dependent markets, and executives of the Houston-based automotive retailer expect sales to be strong for months to come.
Economists caution that Harvey is not a longlasting boon to Houston dealerships.
“It’s only going to last a couple months. It’s not going to last into 2018,” said Patrick Jankowski, senior vice president of research for the Greater Houston Partnership. “And that’s
because this is a region where you have to have a car to get around.”
Hurricane Harvey cost Group 1 some $14.7 million in property and inventory damages, employee salaries while dealerships were closed and financial support for team members whose homes flooded. That does not include lost profits during what is normally one of the busiest selling weeks of the year in Texas.
Excluding $16.8 million of net after-tax adjustments, which include $9 million in costs related to Harvey, Group 1 reported adjusted net income increasing 11.1 percent to $46.6 million.
Net income including those costs dropped 15.5 percent to $29.9 million, compared with the threemonth period ending Sept. 30 last year.
“It was clearly a big cost, $10 million of one-time charges because of the hurricane,” said Pete DeLongchamps, a vice president at Group 1, “but at the same time we were certainly able to balance our inventories and grow the business.”
He said the auto industry overall had too many vehicles on the ground before Harvey. Group 1 was able to protect 98 percent of its 11,000 new and used vehicles across Houston’s 23 stores from floodwaters. That extra inventory ultimately provided flooded customers with a larger selection.
Group 1 owns and operates 173 automotive dealerships, 227 franchises and 47 collision centers in the United States, the United Kingdom and Brazil. Its stock closed Thursday at $78.73, up nearly 12 percent on the day.
In a research note, Consumer Edge Research analyst Jamie Albertine wrote that Group 1 “simply outperformed.”
“We had expected replacement demand to play out over a longer period considering the severity of the damage and consumers’ likely focusing on rebuilding homes before replacing vehicles,” Albertine’s note read.
Overall, the Houston region’s retail new-vehicle sales in September increased 15 percent to 22,486 year-over-year. This comes amid a lackluster year for retail new-vehicle sales. Even with a boost from Harvey, sales were down 10.1 percent during the first nine months of this year compared with the same period last year.
The industry had posted record sales in 2014 and 2015.
“I don’t look for us to have a blockbuster year going into 2018 because of Harvey,” said Steve McDowell, owner of Sugar Land-based InfoNation, the publisher of TexAuto Facts Report. “When the replacement sales are over, they’re going to be over.”
His report estimated that 5,500 of the 22,486 retail new-vehicle sales in September were replacement vehicles or sales deferred by the flooding. He expects about a quarter of the 300,000 totaled vehicles will be replaced with new vehicles.
At Group 1, used vehicles didn’t have the same uptick as new vehicles during the three weeks after Harvey. That side of the business grew 50 percent in Houston and Beaumont, but it was likely tempered by customers waiting for insurance payouts that could be put toward used vehicles.
Most people replacing flooded vehicles are sticking with the same brand or same vehicle type. Those who had sedans generally aren’t switching to pickup trucks, and vice versa.
Group 1 could also benefit from the money flowing into the Houston region to assist with rebuilding. This will boost the local economy, and people traditionally buy vehicles and have them serviced regularly in a good economy.
Unrelated to Hurricane Harvey, Group 1 reported noticeable improvement over recent trends in Oklahoma, Central Texas and New England. In the United Kingdom, new-vehicle unit sales on a same store basis increased 2.9 percent, which outperformed the U.K.’s new vehicle industry decline of 8.9 percent.
In the first three quarters of this year, Group 1 acquired 17 dealerships that are expected to generate about $490 million in annualized revenues.
“We had a terrific quarter, hurricane or no hurricane,” DeLongchamps said.