Will Sandy Help or Hurt Car Sales in the Fourth Quarter?

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Flooded CarGeneral Motors (NYSE:GM) and Ford (NYSE:F) both posted strong quarterly numbers this week, mitigating losses in Europe with strong plays in North America. As hurricane Sandy dissipates, hundreds of dealers up and down the East Coast will begin repairs and reopen for business.

While there is no data yet on the number of vehicles that were damaged or destroyed by the storm, history and news reports of the damage suggest substantial destruction. In 2005, hurricane Katrina damaged over 600,000 vehicles. Pretty much any picture coming out of New York City shows a car that could very well be totaled due to water damage.

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No doubt people will be repairing damage and trying to pawn off their battered vehicles to some unsuspecting fool. However, given the rise of services like CarFax, this practice is a little more difficult. More cars may find themselves being scrapped and recycled, and people could be heading to the dealers.

This could be a good overall for the American car market. According to Automotive News, TrueCar analyst Jesse Toprak is still predicting an October sales rate of 14.9 million vehicles, a record pace for the month since 2008. With losses in the European market constantly hanging overhead, manufacturers and dealers will need a good strategy to pull this off and make the fourth quarter look good compared to a strong third quarter.

Flooded Car 2“We usually see it over about the next 60 days,” said Pete DeLongchamps, vice president for manufacturer relations at Group 1 Automotive (NYSE:GPI), to the Wall Street Journal. After a major storm like Sandy, a mini-surge in car sales can be expected. “People need to get to work, so they go out pretty quickly to get a new car.”

Group 1 posted record quarterly profit and sales last week, but shares still dropped as much as 5.5 percent as the numbers didn’t meet expectations. AutoNation (NYSE:AN) faced a similar issue after its solid earnings. Sales are good, but Wall Street is apparently hard to please.

GM and Ford have both said it is reasonable to expect that the storm will affect sales, but to what extent remains unknown. GM will issue an update to its estimates of the damage with its sales release on Thursday.

The scope of the damage is still unclear, and the magnitude of any post-storm car sales boost remains to be seen. Overall, Sandy is unlikely to play a deciding factor in the strength of U.S. car sales for the fourth quarter, but a totaled car is a pretty good excuse to go out and buy a new one.

Investing Insights: Ford Earnings: A Lesson for Automakers.

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