How Auto Sales Are Getting Crushed in Houston

by Wolf Richter, Wolf Street:

First oil & gas, then construction, then new vehicle sales

That the Houston economy – however diversified and huge it may be – got hit hard by the oil bust is an understatement. The oil & gas sector created not only a lot of high-paying jobs, many of them tech jobs, but also kicked off an enormous construction boom in the office sector. A chemical-plant construction boom followed. This came on top of a nationwide healthcare construction boom. The construction industry was on cloud nine!

But now the office sector is drowning in empty space on the sublease market even as new towers are being completed. The chemical-plant construction boom peaked in early 2015. Construction projects are being cancelled and put on hold, and the entire construction sector has collapsed.

In January, nonresidential construction starts plunged 44.7%, from $1.05 billion to $580 million, according to data cited by Greater Houston Partnership. While residential construction starts rose over the 12 months through January, total construction starts – residential and nonresidential – are down 23.6% for the 12-month period, compared to a year earlier, to $14 billion. Within a year, the construction business went from blistering boom to collapse.

Construction booms of the magnificent kind that Houston experienced after the Financial Crisis boost the local economy in many ways, from raw materials to labor, and they support a wide variety of other sectors, such as the retail and restaurant sectors – and auto sales.

Employment in the goods producing sector, which include the high-paying jobs in construction and oil & gas, fell 4.5% in February year-over-year and 6.5% year-to-date. But total employment, with support from hiring by government entities and the service sector, has been about flat.

While total retail sales in Houston dropped “only” 4.7% year-to-date, new vehicles sales crashed. Everything in its own time: first oil & gas, then construction, then new vehicles. For auto dealers it’s a brutal reality

Auto dealers in the Houston metro sold 21,434 new vehicles in February, down 20.1% year-over-year, according to TexAuto Facts, published by InfoNation, and cited today by Greater Houston Partnership. It was the 14th month in a row of year-over-year declines.

For the 12-month period through February 2017, dealers sold 294,214 new vehicles, down 21.5% from the same period a year earlier. It was the lowest 12-month total since the 12-month period through May 2012.

This chart of rolling 12-month new vehicle sales shows the collapse during the financial crisis, the boom afterwards, and the current collapse (via Greater Houston Partnership, red marks added):

Car sales in February plunged 28.9% to 7,255 vehicles; truck sales dropped 14.8% to 14,179 vehicles.

Ironically, or perhaps not so ironically, the average retail sales price per new vehicle in February hit an all-time record of $36,755. This is in part caused by the continuing shift from cars to larger and more expensive trucks and SUVs, which account for 66.2% of total sales in Houston – compared to the national average of 62.3%, according to AutoData.

Houston’s hosting the Super Bowl was also blamed for the February debacle as apparently fears of traffic congestion kept car buyers at home or focused on other things. It turned that weekend into a particularly morose affair for car dealers. But that one weekend doesn’t have much impact on the rolling 12-month total sales, which are still in free fall.

There are about 175 new car and truck dealers in the Houston Metro area, with over 30,000 employees, according to the Houston Automobile Dealers Association. It’s big business. But this is how the oil bust reverberates through an economy that is still uncomfortably dependent, despite all efforts of diversification, on the oil & gas sector.

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