Auto Industry Tries to Assess Katrina's Destructive Consequences

Auto makers say it is too early to gauge the effect Hurricane Katrina will have on the U.S. economy and vehicle sales.

The unparalleled nature of Hurricane Katrina's path of destruction — a decapitating blow to the U.S. transportation and oil refining networks — means its consequences are more difficult to forecast than other major storms.

“Given the uncertainty that still exists around the extensive structural damage to energy and transportation facilities in the Gulf of Mexico, the macro-economic impact of Hurricane Katrina is very difficult to assess,” says Emily Kolinski Morris, Ford Motor Co.'s U.S. economist.

As for the immediate effect of the hurricane on the auto industry, this much is known:

Amid doomsday-like reports emerging from the submerged city of New Orleans, Paul Ballew, GM's general director-global sales and industry analysis, urges prudence in evaluating Hurricane Katrina's long-term economic effects.

“It's important we inject a little bit of caution; that we don't overreact,” he says. “Quite simply, the U.S. (economic) expansion has been very resilient. We've seen very healthy growth, and that growth is spreading into labor markets and showing up in wages and salaries.”

The area most hit by Hurricane Katrina, stretching from the Louisiana delta to the western panhandle of Florida, is not a key market for auto sales.

“Louisiana and Mississippi account for 2% of industry sales every year,” Ballew says.

But the region is extremely important to the auto industry and the U.S. economy for its ports and petroleum.

Five Louisiana ports rank among the U.S.'s top 12 in terms of cargo volume, according to the U.S. Army Corps of Engineers.

The harbors, which were inactive due to Hurricane Katrina, are major gateways for products representing a cross-section of U.S. enterprise. Most U.S. imports of Saudi Arabian oil also pass through the Gulf Coast states.

The region accounts for 17% of the U.S.'s refining capacity, as well as one-quarter of its daily crude oil output.

The American Petroleum Institute anticipates Hurricane Katrina's effect on oil and natural gas production will be “significant and protracted.” Long lines could join high prices at the gas pump.

“If we were to get additional increases that sustained, would it shave some growth off the U.S. economy? Yes,” Ballew says.

“Would it therefore affect vehicle sales? It will on the margins. Will it affect (sales) mix? Probably.”

For the time being, auto makers are sticking to their sales and economic growth forecasts for the remainder of the year.

Meanwhile, auto makers and suppliers are providing relief assistance to rescue and recovery efforts. The American Red Cross received donations from GM ($400,000), Nissan ($500,000), Dana Corp. ($50,000) and Denso Corp. ($25,000). GM and Nissan, combined, also contributed 200 vehicles.

Toyota companies, including Toyota Motor Corp. and Toyota Motor North American Inc., have chipped in with $5 million.
with Christie Schweinsberg and Eric Mayne