LA wildfires likely to bring higher used vehicle prices for Detroit
Beau Boeckmann stood outside his Ford dealership in the San Fernando Valley last week staring at a thick cloud of smoke that enveloped the sky a mere 9 miles to the south. The raging Palisades wildfire was far enough away for Boeckman to feel secure at that moment, but close enough to stir a sense of unease in his gut.
Boeckmann owns Galpin Ford, one of the nation’s three largest Ford dealerships that sells about 20,000 new and used cars a year. He thanked “the grace of God” that his business and employees remain unharmed. But a customer who lost their home and car to the wildfires has already shown up to buy a new car. Boeckmann has no sense yet as to how many more will appear or how many vehicles have been destroyed. But he expects it will be a lot based on the destruction he sees.
“There is more than one dark cloud over Los Angeles — there’s a physical black cloud and an emotional one,” Boeckmann told the Free Press on Monday evening, describing his state of mind as one of shock at the devastation.
Experts agreed. Human tragedy notwithstanding, the wildfires continued to sweep through the nation’s second-largest car market this week and thousands of vehicles will likely be totaled by the time it is over. The result will impact both Detroit automakers and car buyers, as a rush in demand to replace destroyed cars drives prices higher — especially in the used car market where inventory remains tight.
“Depending on the severity of the number of vehicles lost, a large amount would have an impact on (used car) prices at a national level,” said Jonathan Banks, general manager of vehicle valuations at J.D. Power. “To put this in perspective, it is believed that 250,000 vehicles were lost in Hurricane Sandy in 2012. We predicted a $300 per unit increase from this impact.”
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Banks did not recall the final impact, but he knew it “exceeded our estimate in 2012.”
Thousands of vehicle sales already lost
The number of vehicles destroyed in the fires is not yet known, but photographs show many skeletal charred remnants of what were once cars.
According to the California Department of Forestry, more than 12,300 structures have been destroyed since the fires started shortly after midnight Jan. 1. That figure includes vehicles as “structures,” fire officials have said in published reports. At least 25 people are reported to have died. The total economic damage and loss is estimated to be $250 billion to $275 billion, according to AccuWeather.
Kevin Roberts, director of economic and market Intelligence at car shopping site CarGurus, told the Free Press its analysis showed about 25,000 new and used vehicles are listed in ZIP codes that have been impacted by evacuation orders or warnings in Los Angeles County. This represents about 6% of listings within the state of California in a region that typically features higher-priced vehicles. Roberts said the average list price for new and used cars in the impacted ZIP codes is $52,000, 25% higher than the average listing in the state.
The Los Angeles market is the second-largest car market in the United States behind New York City. Los Angeles accounts for about 800,000 retail sales of new vehicles a year, or 6.1% of the retail auto sales in the nation, said Tyson Jominy, vice president of data and analytics at J.D. Power. Detroit accounts for 2.3%.
Jominy said J.D. Power’s data showed that during the first week of the fires, Los Angeles’ share of new vehicle sales fell 0.6%, or by about 1,000 vehicles from Dec. 31 through Jan. 5. While the drop could be related many things, Jominy said “concerns about fire and buying a car at that time” is the most likely cause to keep car buyers from purchases.
As of late Wednesday, the data firm estimated that for January, sales of new vehicles in Los Angeles could decline by 5,000 to 13,000 vehicles as people either delay purchases to get their lives back in order — or they buy a used car.
But for those who want a new vehicle, the Detroit automakers could see overall sales gains. Los Angeles is such a vast market that even if only some of the people who lost cars in the fires opt to buy a new vehicle rather than a used one, the Detroit Three would experience an uptick, Jominy said.
“Not to ignore the human element here, but there typically is a small upside in times like this and it comes in the form of people replacing lost vehicles and puts more car buyers in the marketplace,” Jominy said. “But after a couple of months, things stabilize.”
Bob Smith, executive director of the Greater Los Angeles New Car Dealers Association, told the Free Press late Wednesday that most franchise car dealerships in Los Angeles are operating, but many dealership employees have lost homes. Smith said the association will work with the National Auto Dealers Association, which has a relief fund to help those people get back on their feet.
Smith said there are “a million stories” of people who know someone who has been impacted by the fires, but it’s difficult to ascertain how many have lost their cars. Still, he is confident that, beyond a boost in used cars, Los Angeles car dealerships will also see a surge in new car sales in terms of leases.
“I’m just spitballing, but I’d have to guess there are some 2,500 vehicles on the low end that will need to be replaced, and 5,000 on the high end,” Smith said. “But I’m guessing.”
How high will used prices go?
The reason experts anticipate the used car market will see most of the demand for replacement vehicles from the fires is because most people will not get an insurance payout for weeks, Jominy said, but they need a vehicle immediately. Given that they don’t have a trade-in and perhaps no insurance payout yet, they seek what is most affordable.
While used vehicle prices are high, they remain lower than that of new cars. The average transaction price for a new car in the fourth quarter was about $45,000 compared with a used car at an average of $28,740, according to J.D. Powers’ Banks.
Banks said buyers coming into the market looking for a newer model used vehicle will be facing supplies about 8% below last year or 15% below levels in 2019. That’s because three-year lease returns are scarce with expected supply close to 30% below 2019 levels.
Cox Automotive data said used vehicle inventory nationally at the start of January was 2.217 million vehicles, but that figure only counts the used cars available through registered dealerships, not used cars for sale by private owners.
Tight supply pushed the average monthly payment for a used car to $541 a month last year compared with $416 in 2019, before COVID-19 hit, Banks said. That’s still below the average monthly payment for a new car, which was $725 a month for December, he said. That figure includes both purchases and leases factored together.
Banks said many used vehicles are likely to be shipped from other states to California to meet demand there. That, combined with the already-tight supply of used vehicles nationally, will increase overall demand for wholesale used models, thus driving up the prices.
“That being said, I don’t expect the upward movement to be too severe because prices are already high,” Banks said. “There may be some expensive vehicles in the direct area, and I would encourage consumers to look beyond their immediate area to find the right vehicle they need at a good price.”
On the new side, all is good
Banks agreed with others that this catastrophe should help boost new vehicle sales for those who do choose to replace their destroyed vehicle with a new product. In that case, it likely won’t force higher prices because inventory of new cars is strong.
“I would expect discounts will still be available and remain unchanged,” Banks said of new cars.
The available number of new vehicles has been near 3 million for most of the fourth quarter, roughly double what it was just two years ago and close to pre-pandemic norms, said Mark Schirmer, Cox Automotive’s director of industry insights and corporate communications. He added that December was a strong sales month, pulling down the nation’s available new car inventory to 2.88 million vehicles as of Jan. 16.
“So certainly product is available for those who need replacements. There are, of course, the logistics of moving vehicles into local dealers. That will take time,” Schirmer said. “Vehicle shipping costs are also lower year over year by 2.8%, and have been generally tracking lower through 2024.”
Schirmer said hopefully the evacuation efforts got most vehicles out of the path of the fire, but noted, “we’ve seen the images of burned-out cars — but we don’t have an estimate on the number lost. It likely won’t be enough to overwhelm the available supply of replacement vehicles.”
What the automakers are doing to help
In the meantime, some automakers are doing what they can to help Los Angeles residents affected by the fires.
Ford Motor Co. spokesman Said Deep told the Free Press that most of Ford’s 83 dealerships in the Los Angeles region have been open and operational. Some were closed due to the proximity to fires and others reported power outages, Deep said, but all employees and their families are safe.
The automaker is giving the employee pricing plan to those consumers affected by the fires, Deep said. In addition, Ford Credit is offering deferred payments to existing customers impacted by the fires.
Ford also announced two grants. One for $100,000 will go to the Los Angeles Fire Department Foundation and one for $150,000 to the California Community Foundation’s Wildfire Recovery Fund. Ford Philanthropy also supports the American Red Cross, Feeding America and Team Rubicon, which provide shelter, food and other on-the-ground support.
It is still too early to determine how many General Motors vehicles have been impacted to assess the inventory needed to replenish the area, GM spokeswoman Tara Kuhnen told the Free Press in an email. But to help Los Angeles drivers, GM turned on complimentary OnStar Crisis Assist Services for Chevrolet, Buick, GMC and Cadillac customers impacted by the wildfires, Kuhnen said.
“The health and safety of our employees and their families is our highest priority, and we have closed our facilities in the affected area,” GM said in a statement.
On Wednesday, Honda announced it is doubling its previously announced $500,000 donation for disaster relief funds to the American Red Cross, bringing the total to $1 million to support the people impacted by the wildfires. Honda Financial Services and Acura Financial Services also are offering payment extensions and lease deferrals to customers impacted by the fires.
Stellantis said it will offer employee pricing to those affected, and its finance partners are also providing relief to affected customers.
Detroit vs. LA as car capital
Back at Galpin, Boeckmann said he had a staff meeting to tell his team to go through its vast customer database to see who might be in affected wildfire areas and to give them a call — but not to sell them a car. Rather, to offer them help.
“If they need a car, I’m happy to give them a car to use for a while,” Boeckmann said. “You’re not calling to get something, you’re calling to give something.”
When the smoke clears — both literally and figuratively — Smith, of the Greater Los Angeles New Car Dealers Association, said the auto industry will put the survivors back on wheels.
“Detroit is the car capital, but LA makes a claim for that title, too, because of how widespread and populated it is. The people who don’t leave, will need cars,” Smith said. “People who want to rebuild, will find a way to get repositioned in cars. If there’s any silver lining to this, it’s that there’s good inventory of new vehicles in the market to satisfy those people who need them.”
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Free Press staff writers Eric D. Lawrence and Jackie Charniga contributed to this article.
Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at [email protected]. Follow her on Twitter @jlareauan. To sign up for our autos newsletter. Become a subscriber.
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