Auto Industry Rebound ... Won't Last

U.S. auto sales surged higher in September...

According to the U.S. Bureau of Economic Analysis, total U.S. vehicles sales jumped to an annualized rate of 18.9 million. This was the first year-over-year gain in 2017, and a new post-crisis record...

This was unsurprising. We expected to see a significant bump in sales as folks replaced the estimated 700,000-plus vehicles destroyed by Hurricanes Harvey and Irma.

And indeed, the data suggest that's exactly what happened. Virtually all the strength was centered in the hardest-hit areas. As financial-news network CNBC reported (emphasis added)...

New car sales in the Houston area, the fourth most populous in the United States, jumped 109% in the three weeks after Hurricane Harvey compared with the three weeks before the storm, according to car shopping website Edmunds.

Some industry consultants have estimated up to 500,000 cars were damaged or destroyed during Harvey.

But Jessica Caldwell, Edmunds executive director of industry analysis, said automakers were struggling to reduce inventories in the rest of the country.

As we noted following the first of the hurricanes in August, history shows these events have no lasting effect on auto sales. Once damaged vehicles are replaced, the larger trend resumes.

So while we could see some continued strength as the rest of these vehicles are replaced, the big picture is unchanged: The auto industry is still suffering from a huge amount of overcapacity.

Expect more pain ahead.

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