Isaac Arrives at ‘Very Sensitive Time For The Automotive Industry’
While Tropical Storm Isaac doesn’t appear to be packing the same vicious punch Hurricane Katrina did seven years ago, there are concerns about what the storm on the verge of hurricane strength might do to gas prices nationwide and vehicle sales along the Gulf Coast and beyond.
Alec Gutierrez, senior market analyst of automotive insights for Kelley Blue Book, acknowledged, “Any level of incremental damage caused by the hurricane comes at a very sensitive time for the automotive industry.”
Gutierrez recalled that gas prices jumped more than 50 cents per gallon in the wake of Hurricane Katrina in 2005, and new-vehicle sales declined by 18 percent month-over-month.
“We should brace for potentially higher gas prices and a decrease in new-vehicle sales,” Gutierrez said in commentary released this morning. “Any significant jump in gas prices could slow economic growth and cause many Americans to delay the purchase of big ticket items such as cars."
At $3.70 per gallon, KBB calculated gas prices are already at an all-time high for this time of year.
“If Isaac pushes the price of fuel to more than $4 per gallon nationally, the economy could be thrown into reverse,” Gutierrez projected. “Any economic slowdown will be dependent on the severity and persistence of fuel-price increases. Depending on the damage done by this storm, a $1-per-gallon jump that lasts for three months would be devastating to the economy, while a jump of a less than 10 cents per gallon would likely have little impact to the economy. “
According to the update released at 11 a.m. EST this morning by the National Hurricane Center in Miami, Tropical Storm Isaac contained maximum sustained winds of 70 miles per hour. The system was located about 165 miles southeast of New Orleans, moving northwest at nearly 10 mph.
The latest storm track has Isaac coming ashore in Louisiana, forging north into Arkansas and Missouri before turning into the heart of the Midwest, Illinois and Indiana by the beginning of Labor Day weekend.
Center forecasters project that rain amounts could range from seven inches to 14 inches with some locations seeing as much as 20 inches.
“It is important not to focus on the exact center location. The threat of heavy rainfall and flooding is also expected to spread inland over the lower Mississippi Valley region during the next few days,” forecasters said in their latest update.
President Barack Obama said from the White House this morning that’s he’s been in close contact with all of the appropriate federal and state agencies so proper preparations are made.
“The storm isn’t scheduled to make landfall until later today, but at my direction FEMA has been on the ground for more than a week working with state and local officials in areas that could be affected,” Pres. Obama said before departing Washington, D.C., for scheduled appearances in Des Moines, Iowa; and Fort Collins, Colo.
“As we prepare for Isaac to hit, I want to encourage all residents of the Gulf Coast to listen to your local officials and follow their directions, including if they tell you to evacuate,” he continued. “We’re dealing with a big storm and there could be significant flooding and other damage across a large area.
“Now is not the time to tempt fate. Now is not the time to dismiss official warnings. You need to take this seriously,” the president added.
In addition to a potential shock to gas prices, Gutierrez believes vehicle sales could take a hit if flooding and property damage prevent Gulf Coast and other regional residents from purchasing cars and trucks during typically strong Labor Day weekend sales events.
“Any vehicles damaged during the storm also would need to be repaired which could only stand to impede sales further,” Gutierrez projected. “Although hurricane damage could slow vehicles sales in late August and early September, a significant jump in fuel prices remains of more concern."
In anticipation of the coming storm, KBB said 346 offshore oil and gas production platforms have been evacuated, halting production on 78 percent of the oil that typically flows out of the Gulf of Mexico.
“Undamaged oil platforms are expected to resume production immediately following the storm; however, if the damage surpasses expectations, a temporary shutdown of even a few weeks could send fuel prices soaring,” Gutierrez cautioned.
Consumer Confidence Flagging
If developments connected with Tropical Storm Isaac weren’t enough to put a damper on the ramp-up to the holiday weekend, the Conference Board Consumer Confidence Index turned in a sharp drop this morning.
The index, which had improved in July, declined in August. The Index now stands at 60.6, down from 65.4 in July. The Expectations Index decreased to 70.5 from 78.4. The Present Situation Index, however, was virtually unchanged, at 45.8 versus 45.9 a month ago.
The monthly Consumer Confidence Survey, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was Aug. 16.
Lynn Franco, director of economic indicators at the Conference Board acknowledged the Consumer Confidence Index is now at its lowest level since November of last year when it settled at 55.2.
“A more pessimistic outlook was the primary reason for this month’s decline in confidence,” Franco explained. “Consumers were more apprehensive about business and employment prospects, but more optimistic about their financial prospects despite rising inflation expectations. Consumers’ assessment of current conditions was virtually unchanged, suggesting no significant pickup or deterioration in the pace of growth.”
An analyst quoted by Bloomberg didn’t give a rosy assessment of whether dealers were going to turn a high volume of vehicles anytime soon.
“Things don’t look so good on the consumer front,” Chris Christopher, a senior principal economist at IHS Global Insight in Lexington, Mass., said in this report. “There is lower confidence and job prospects are not so great, so you’re seeing a very precautionary behavior set in. People don’t have much reason to spend very much.”