3 Tips for Auto Lenders in a Post-Hurricane, Used-Car Market

Prior to Hurricanes Harvey and Irma, the used-car market was softening. From 2014 to 2016, car leases were a booming business, with more than 12 million lease agreements inked during that time frame. Those were prosperous days for car dealers and lenders.

Unfortunately, with most economic cycles, when there’s a boom, there’s a bust. The bust started in 2017 with an estimated 3.5 million leased cars projected to enter the used-car market during the year. This created oversupply and put downward pressure on prices — especially for used sedans as consumer tastes shifted toward SUVs and trucks. The used-car market was a buyer’s market.

Then, within the span of four weeks, everything changed.

Hurricane Harvey landed in Texas and destroyed upwards of 500,000 cars. Irma cut across Florida and damaged another 400,000. Thousands of citizens are assessing the damage to their property and trying to return to some semblance of normalcy. Not surprisingly, as people slowly rebuild their lives, a replacement vehicle is typically one of their first purchases. They need to get back to work, to go to the grocery store, to get to their doctor’s appointments. Suddenly, demand for all cars is spiking. In fact, Jonathan Smoke, chief economist for Cox Automotive, stated that “… while September volume will fall 10 to 15%, October sales should rise by a similar amount … [and] demand typically remains elevated for two to three months following a major storm.”

Three tips for lenders to meet increased demand

With demand projected to remain elevated for the remainder of the calendar year, lenders can do three things to simultaneously reduce their car inventory and help borrowers affected by the wrath of Mother Nature into “new,” used vehicles.

  • Prioritize hurricane-impacted markets

Dealers from Texas to the tip of Florida to the Caribbean need good used cars. Work with your vehicle remarketing partner to prioritize selling to these markets. And, get vehicles to market as fast as possible. The faster you can get cars to auction houses, the faster you can deplete inventory before the end of the calendar year when demand is expected to soften.

  • Have proof that your cars do not have flood damage

Buyers are very wary of purchasing a flooded used car, and not just in hurricane-impacted communities. Consumers around the nation will be on the lookout for dealers trying to unload these damaged vehicles. Be sure your vehicle remarketing partner has a systematic reconditioning approach that includes a flood damage inspection process. Get the results in writing and include the documentation with the car. Documented or certified cars with no flood damage may give you an edge at auction, and a higher price.

  • Focus on leasing new trucks and SUVs

While used sedans are plentiful, used trucks and SUVs are not, and the market for these vehicles is expected to remain tight. With borrowers shouldering the financial strain of home repairs and replacing their vehicles, a new truck or SUV purchase may not be an affordable option. Leasing, however, might be. By offering attractive leasing terms for trucks and SUVs, lenders can help satisfy high demand for these vehicles.

With these three strategies, focused on remarketing and affordable leasing options, lenders can use their excess inventory to help consumers get back into high quality used vehicles and back on the road to normalcy as quickly and affordably as possible.

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