Houston primed for a comeback

As floodwaters recede in South Texas and residents head back to work in oil fields and car dealerships, one thing appears increasingly clear: Houston is not New Orleans, and Hurricane Harvey should prove far less crippling than Hurricane Katrina in the long run.

Although both areas were battered by some of the biggest storms in U.S. history and suffered tragic death and destruction, the Houston area and its car market are poised to bounce back more quickly because of economics and geography.

The nation’s fourth-most-populous metro area has been diversifying away from the boom-and-bust cycles of the oil industry for years, focusing on world-class medical care and business services. And despite the recent biblical-scale flooding, it’s above sea level, allowing for a faster dry-out.

The cleanup will be costly — perhaps more than Katrina and 2012’s Superstorm Sandy combined — and the pace of the recovery will depend on many factors, including the federal government’s ability to secure funds from Congress in a timely manner and residents’ access to flood insurance.

But Houston is not an economically broken city the way New Orleans was in 2005, when its crumbling infrastructure led to rapid depopulation, including a flight of residents to Houston.

“It’s very unlikely that the demographics of Houston will change,” said Bill Wolters, president of the Texas Automobile Dealers Association. “It’s just one of the most vital cities in the country.

“And when you compare it to Los Angeles or Chicago or New York or San Francisco — the cost of living, the tax structure, the quality of life, the job availability — it’s just too vital to lose population,” he told Automotive News.

Once dominated by refineries and chemical plants, Houston is now seen as an affordable community that is home to immigrants from abroad and from U.S. states that have stiff housing prices and less economic opportunity.

Celebrity chef Anthony Bourdain broke down his own stereotypes of Houston in a segment on his “Parts Unknown” TV show last year in which he praised what he considered a suprisingly diverse population and its culinary choices.

The 26-county Houston area generated $558 billion in economic output last year, about a third of Texas’ gross domestic product and about 3 percent of the nation’s total, according to IHS Markit.

It’s also responsible for about a third of the 2.6 million new and used retail vehicles sold in Texas last year, Wolters said.

Although the auto market in the Houston region is down about 10 percent this year as low oil prices weigh on high-paying energy jobs, unemployment is running just slightly higher than the national average and housing starts are up.

“This is a city of very hardworking people, very proud people. It’s really diverse, and we’re going to be just fine,” said Jeff Parent, president of Gulf States Toyota, the auto distributor with headquarters in Houston that serves 40 Toyota dealerships in the flooded region. “But it will definitely take some time.”

Parent estimates Gulf States alone will have to add around 33,000 new cars and trucks to meet the demands of residents whose vehicles are declared a total loss in the coming weeks.

“That 10 percent [sales decline] may go away in the next 90 days,” he said.

While Harvey has proved to be far less ​ deadly than previous storms of its size, the damage to homes and autos is enormous because of the wide scale of the flooding and the city’s sprawling layout.

Submerged autos likely number in the hundreds of thousands. “Somewhere between 500,000 and a million vehicles will have to be replaced in this area,” according to an analysis by the Black Book consultancy.

Well before vehicles start moving off dealer lots in the truck-friendly region, insurance adjusters from all over the U.S. will set up shop in the area and begin their jobs with a massive backlog.

“We have no idea how many vehicles have been submerged, but it looks like this may be just as bad as any flooding that’s ever occurred anywhere in the United States,” said Mark Hanna, spokesman for the Insurance Council of Texas.

The bad news for insurance companies is somewhat good news for car dealerships and automakers as billions of dollars are made available for replacement vehicles, although that will take time to materialize.

“The first market impact is that there is no market for several weeks,” said Steven Szakaly, chief economist for the National Automobile Dealers Association.

“You basically have a complete halt to sales, and then you’ve got a very long recovery period,” he said.

“Many households have immediate expenses and they may not be looking to replace their vehicle right away.”

As reconstruction picks up, Houston is likely to go into a long recovery phase in which it will not only make up for all the cars and trucks that couldn’t be sold during and after the storm, but could get a net increase from replacement vehicles, said Chris Hopson, a forecasting analyst at IHS Markit.

“If the scrappage numbers come up increasingly higher than estimates, there’s this potential upswing impact,” he said.

The potential need for additional inventory also coincides with year-end promotional activity in which automakers could target regional incentives for a fourth-quarter push in sales.

Wyatt Wainwright, president of the Houston Automobile Dealers Association, said that despite the unprecedented destruction piled onto the people of Houston, a glimmer of hope was returning to the community as the skies cleared last week.

“I can’t imagine a more resilient place in the country,” he said in an interview. “I can tell you 100 percent that dealers and manufacturers will step up with incentives … I promise people will start buying cars.”

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