Auto-dealers' stocks got a bump after the hurricanes - but that appears to be ending

The hurricanes that struck Texas and Florida were tragic and costly disasters. But they wrecked so many cars that they gave a boost to auto sales and both automaker and auto-dealer stocks.

The US industry had been waiting for something to move the sales needle, after months of year-over-year declines. September came in strong, and with October sales data coming in early November, many car companies expect the sales pace to head toward 17 million for 2017.

Morgan Stanley isn't so optimistic. In a sales note published on Monday ahead of the US carmakers reporting third-quarter earnings at the end of October, analysts Adam Jonas argues that shares of auto dealers could be in for a retreat. (His coverage ground includes names such as AutoNation and Penske Automotive Group, some of the country's mega-dealers.)

"At the height of the 'storm trade,' the dealer stocks were +22% v. August 25, 2017 (Hurricane Harvey)," he wrote. "The stocks have given back some of the gains (-7% from recent highs), but [sales pace] was strong in September, and investors may still be expecting positive revisions."

The impact of the hurricanes will still probably have a positive impact on the 2017 sales scorecard. Jonas reports that as many as 500,000 vehicles will need to be replaced in Texas, with another 100,000 in Florida.

Some analysts expected 2017 sales to finish up at about 16.5 million, down roughly a million from the record-setting 17.55 million vehicles sold in 2016. Not all of the vehicles lost in Texas and Florida will be new, but a reasonable percentage likely will be, so the industry can expect sales to come in at around 17 million for the third consecutive years, even as pessimism mounts for sales in 2018.