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Auto Industry Run Over by Harvey: Will it Drive Sales Later?

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Hurricane Harvey gave a severe jolt to a number of industries, including auto. It is being reportedly said that Harvey has destroyed more vehicles than any other previous natural calamity in the United States.

Notably, Texas is the second-largest auto market in the United States, after California. The Houston metropolitan area is also the leading auto sales market in Texas and the entire Gulf Coast. Several dealerships had to be closed in the aftermath of the hurricane. The storm also damaged numerous trucks and cars parked in the dealership lots. According to automotive data firm, Black Book, as quoted in a article, Hurricane Harvey destroyed nearly one million vehicles along the Texas Gulf Coast. This has prompted some analysts to cut their August vehicles sales estimates.

Detroit biggies, however, revealed that they were not impacted due to this natural calamity as these companies were not facing troubles in getting parts across the affected region. The area of Mexico south of the storm zone is a major center for auto parts manufacturing.

Short-Run Ordeals of Auto Retailers

In the short run, however, companies with several dealerships and parts manufacturing units in the storm zone have been affected. AutoNation, Inc. (AN - Free Report) , the largest automotive retailer in the United States, has 60 stores in Texas. The company had to shut down 17 stores in the aftermath of the storm and reopened them once the situation improved.

Houston, TX-based Group 1 Automotive, Inc. (GPI - Free Report) , which is engaged in selling new and used cars, light trucks, and vehicle parts, also had to shut down the dealerships, which were opened subsequently. The company minimized the damage by moving the inventory to higher ground.

The situation of CarMax Inc. (KMX - Free Report) , the biggest used vehicles retailer in the United States, has been no different. The company has plans of reopening its six stores in the Houston area soon.

Future Too Holds Some Promise

It is true that Harvey has temporarily affected the businesses of auto companies. However, the bright spot is that there is some hope of ameliorating the health of auto companies grappling with challenges.  

It is expected that once the situation starts improving, there will be increased demand for new vehicles as chances of replacing old and damaged vehicles will escalate. Also, demand for auto parts is anticipated to increase going forward. This is extremely significant, as auto makers are fatigued with the high level of inventory and mulling of lowering down the reserve.

Among the three companies discussed above, both Group 1 Automotive and CarMax carry a Zacks Rank #3 (Hold), while AutoNation has a Zacks Rank #4 (Sell).

A few better-ranked automobile stocks are Continental AG (CTTAY - Free Report) , Allison Transmission Holdings, Inc. (ALSN - Free Report) and Ferrari N.V. (RACE - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Continental has a long-term growth rate of 7.9%.

Allison Transmission Holdings has an expected long-term earnings growth rate of 11%.

Ferrari has a long-term growth rate of 14.1%.

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