Financial Fitness


Navigating car buying in a post-hurricane market

Posted at 5:49 PM, Sep 28, 2017

When tragedy strikes, such as the back-to-back hurricanes Harvey and Irma, “A car is the first thing people purchase to get their life back to order,” says Michelle Krebs, analyst for online car marketplace Autotrader. This is a problem, she says, because, when choosing a car, “We always give people the advice, ‘don’t be impulsive, don’t be in a hurry.’”

But, in storm-affected areas, that may be hard for shoppers facing busy car lots, limited options and insurance complications. Still, understanding the special circumstances of shopping in the post-hurricane market, and following sound car-buying advice when looking for a replacement, can steer you back onto the road to recovery.

Challenging post-storm circumstances

After Harvey, about 580,000 vehicles will have to be replaced in the Houston area — far surpassing the 325,000 vehicles sold there in an average year, says Krebs. In Florida, another 200,000 or more vehicles were destroyed by Irma, according to early estimates. What’s more, selection — particularly for trucks, SUVs and older used cars — is limited.

Compounding those challenges, some people will get insurance reimbursements for less than they expected because their previous car depreciated so quickly, says Ivan Drury, a senior manager of analytics for car site Other flood victims may still owe so much on their car loan that they have little money left to shop with, he adds. So before they can shop for a new car, many people will need to understand their financial situation.

First steps to replacing your car

Getting a speedy insurance settlement is an essential first step to replacing your car. Check that you have comprehensive car insurance, which covers flood damage and will reimburse you for the market value of your car, minus the deductible, if it’s totaled. If you have an auto loan, the insurer will pay the lender first and you’ll get the remaining amount of the car’s value — or you could owe money. If you leased the car, the insurer will pay the leasing company.

File a claim for your flooded car and see if your insurance policy includes a rental car until you’re able to replace your car. Each insurance company will have different rental car policies. For example, here’s how State Farm, the nation’s largest auto insurer, handles rentals for its customers. While there were reports of people waiting days to rent a car after Harvey, major rental car companies quickly moved inventory into the Houston area to meet the surging demand and even waived some fees.

Budgeting for the replacement

If you haven’t learned the amount of your insurance settlement yet, you can estimate the market value so you can begin to budget for your next car. Look at the trade-in value on pricing guides such as Edmunds or Kelley Blue Book. You can compare that to online listings on sites like Autotrader to see real-world averages of asking prices for local cars like yours.

When you know how much your insurance company will pay, you can plan the best financial strategy for replacing your car. You can use the insurance money as a down payment on a new or nearly new used car or buy an older used car for cash. Shoppers with good credit can consider leasing a new or used vehicle.

When applying for a new auto loan, shop around for the best rate. It’s also smart to get pre-approved for financing, even if you expect to use the low rates offered with dealership financing.

Once you know your budget, use a car finder tool to help you narrow the field to a few target models. However, shoppers seeking an inexpensive ride may have difficulty finding a cheap used car. Even before Harvey struck, there was a shortage of 4- to 8-year-old used cars on the market, Krebs says. Similarly, storm victims who lost their trucks, a favorite choice for Texans, “will be in for a bit of sticker shock,” Drury notes. The average purchase price for large trucks hit $47,000 this year, and used-truck prices are holding their value “like never before,” says Drury, citing Edmunds data.

At the dealership

Do as much research online as you can by viewing inventory on dealership websites. Also be sure to find out if the automaker is offering any regional incentives or even special incentives for storm victims.

When you find a car you like, call the sales staff before going to the lot to verify that the vehicle is still available. Try calling the dealership’s internet department because its salespeople will be more likely to quote a good upfront price than if you visited in person. If the price checks out compared with the pricing guides, ask the salesperson to email you the sales price and all fees.

To avoid crowds at the dealership, shop early in the day, midweek. There might be a lot of other shoppers on the lot, but don’t let the salespeople use this to pressure you to make a quick decision. Take your time and do a thorough inspection and test drive.

If you didn’t get an upfront price, negotiate using the pricing information you collected earlier. Once you reach an agreement with the salesperson, you’ll be handed over to the finance and insurance manager to draw up the sales contract. Be ready for upsells for additional products and services such extended warranties and anti-theft products.

Wait if you can

If you have the luxury of waiting, rent a car until the market — and prices — return to normal, Krebs advises.

Drury adds: “With so many other expenses to have to account for, a hit of this nature could really dampen the car shopping experience.” But, it’s also a time to re-evaluate. “It could cause either a shift to a cheaper vehicle or a new car shopper to consider a used vehicle,” he adds.

No matter what, there is one area of emphasis for used-car buyers: the inspection. Be very careful to look for telltale signs that the car was flood damaged.

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The article Navigating Car Buying in a Post-Hurricane Market originally appeared on NerdWallet.