Shares rise as automakers look to replace Houston’s drowned cars – Reuters

Posted: Friday, September 01, 2017

DETROIT (Reuters) – The Big Three Detroit automakers on Friday reported better-than-expected August sales and issued optimistic outlooks for demand as residents of the Houston area replace flood-damaged cars and trucks after Hurricane Harvey, sending their shares higher.

General Motors Co, Ford Motor Co and Fiat Chrysler Automobiles NV posted mixed August U.S. sales, with GM up 7.5 percent and Ford and Fiat Chrysler down. Japanese automaker Toyota Motor Corp improved sales by nearly 7 percent, Honda Motor Co’s sales fell 2.4 percent.

Still, analysts focused on the potential for Detroit automakers to cut inventories and stabilize used vehicle prices as residents of Houston, the fourth largest city in the United States, are forced to replace tens of thousands of vehicles after the devastation from Hurricane Harvey.

Mark LaNeve, Ford’s U.S. sales chief, told analysts on Friday that following Hurricane Katrina in 2005 “we saw a very dramatic snapback” in demand. Ford sales fell 2.1 percent in August.

It was not clear how many vehicles in the Houston area will be scrapped, LaNeve said, saying he had seen estimates ranging from 200,000 to 400,000 to 1 million. Ford’s Houston dealers may have lost fewer than 5,000 vehicles, he said.

Ford is the No. 1 automaker in the Houston market with 18 percent share, according to IHS Markit. The company plans to ship used vehicles to Houston dealers, and has “every indication we would have to add some production” of new vehicles to meet demand, LaNeve said.

Investor concerns about inventories of unsold vehicles and falling used car prices have weighed on Detroit automakers’ shares most of this year. Now, automakers can anticipate a jolt of demand from a big market that is a stronghold for Detroit brand trucks and SUVs.

“It’s got to be a positive for the industry,” LaNeve said.

Investors appeared to agree. GM shares rose as much as 3.3 percent to their highest since early March. Ford increased 2.8 percent at $11.34 and Fiat Chrysler’s U.S.-traded shares were up 5.2 percent $15.91, hitting their highest in more than five years.

GM reported a 7.5 percent increase in U.S. auto sales in August, helped by robust sales of crossovers across its four brands.

GM plans to move used vehicles into Houston, and the automaker said it is confident it can reduce inventories of vehicles to 850,000 or fewer vehicles by the end of the year. Big auto dealership chains also intend to move vehicles to Houston from other markets in anticipation of a surge in demand as residents get insurance checks for drowned cars.

“Hurricane Harvey did have an adverse effect on deliveries during the last week of August for every automaker but the key U.S. economic fundamentals remain supportive of strong vehicle sales,” GM Chief Economist Mustafa Mohatarem said in a statement.

Fiat Chrysler’s U.S. vehicle sales fell 11 percent to 176,033 units. The company partly citing a planned 23 percent cut in sales to rental car companies.

U.S. consumers continued to migrate toward sport utility vehicles and pickup trucks. Toyota sold more than 43,000 redesigned RAV4 compact SUVs, up nearly 26 percent from a year ago. The RAV4 has displaced the Camry sedan as Toyota’s best-selling vehicle year to date.

Reporting by Ankit Ajmera in Bengaluru; Editing by Sai Sachin Ravikumar and Jeffrey Benkoe

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