As Market Uncertainty Grows, Dealers Remain Pessimistic and Cautious

Cox Automotive Chief Economist Jonathan Smoke noted, “There is a lot of uncertainty in this market, leaving consumers and dealers alike unsure of the road ahead. On top of uncertainty about interest rates, we are heading into an election season, and this one is especially breeding more concern. In the auto business, uncertainty is the enemy – it negatively impacts sales, hurts consumer sentiment, and leaves auto dealers feeling troubled.”

Despite the market’s perceived weakness, the CADSI showed some promising signs in Q2. The profit index, for example, increased for the first time since Q3 2021. While still below the 50 threshold at 36, profit perceptions have stabilized. Additionally, both online and in-person customer traffic improved from Q1, with franchised and independent dealers reporting higher consumer traffic sentiment, though it remains weak.

“Overall, dealer sentiment is likely worse than actual market conditions,” added Smoke. “While profits are down from all-time highs, we still believe the dealer business is healthy. Retail vehicle sales have been fairly consistent so far this year, inventory has returned to reasonable levels, and we believe interest rates have likely hit a ceiling. With a good job market, the market is not collapsing, and we believe weak current market sentiment is more about uncertainty than actual performance.”

Costs and Price Pressure Continue to Rise
While market uncertainty may be hard to describe accurately, one reality that is not hard to quantify is rising costs. The cost index in Q2 is at a record high, matching the peak in Q2 2022. Both franchised and independent dealers agree that costs are increasing. The elevated cost index has persisted for more than two years. Similarly, price pressure is down slightly from Q1 but remains high with an index score of 65, up from 58 a year ago. This indicates that dealers feel pressure to lower prices while still facing challenges in offering the value consumers expect, as incentives remain below 2018 and 2019 levels.

Improving Sales and Inventory
The new-vehicle sales index improved for the second straight quarter with a Q2 reading of 53, indicating a positive market perception despite being lower than last year’s 58. Still, a score above 50 suggests that more dealers view the new-vehicle sales market as strong rather than weak.

New-vehicle inventory levels are also seen as growing, with a Q2 index of 69, down from a peak of 75 in Q1 but still higher than last year’s 60. This index score of 69 is the second-highest ever, indicating that a majority of dealers perceive their inventory as growing.

On the incentive front, the Q2 index rose to 34 from 28 a year ago, though it remains below pre-pandemic norms. With moderate incentives since 2021, dealers consistently describe their current OEM new-vehicle incentives as small.

Conversely, the used-vehicle sales index remains under the 50 threshold, indicating a weak market. Despite rising for the second straight quarter and reaching 42, matching last year’s score, the index score in Q2 was among the worst recorded since the index launched in 2018.

The used-vehicle inventory index declined in Q2, which is not uncommon for the spring survey. The index score of 42, while lower than Q1, is still higher than one year ago. However, it does suggest that dealers perceive used-vehicle inventory as declining rather than growing.

Franchised dealers, as is common in the quarterly survey, have a more positive view of the used-vehicle market than independent dealers. In Q2, the franchised dealers’ index score was 54 (one point higher than the new-vehicle market index), suggesting that they see the market as strong. On the other hand, independent dealers scored the current used-vehicle market at 38 – an improvement from last year and last quarter – but still indicating that a majority of independent dealers perceive the used-vehicle market as weak.

Electric Vehicle Sales Sentiment Remains Weak
Sentiment about electric vehicle (EV) sales fell to a new low in Q2. When asked about how EV sales compare to one year ago, the index score came in at 41, down from 42 in Q1. A score below 50 indicates that a majority of dealers describe EV sales as worse now than one year ago. The index has fallen each quarter since Q2 2023, when the score was 52.

Expectations for the EV market in the future improved in Q2, increasing from 36 to 39. Still, the index score of 39 suggests that most dealers think the EV market will be declining, not growing, three months from now. On the positive side, a majority of dealers (with an index score of 57) see the existing tax credits as having a positive impact on EV sales.

The Clouds of a Coming Election
When asked about factors holding back their business, auto dealers in Q2 focused on Interest Rates, the Economy, and Market Conditions, respectively, with minimal change from Q1 and one year ago. However, as the U.S. presidential election in November approaches, Political Climate continues to increase as a factor impacting business. In fact, while concerns about Interest Rates have come down slightly quarter over quarter, concerns over the Political Climate have increased. In the latest survey, 36% of dealers cite the Political Climate as a factor holding back business, up from 33% in Q1 and 29% one year ago. The Economy and Market Conditions also slightly increased quarter over quarter in Q2.

Smoke commented, “In many ways, the Political Climate is a surrogate for ‘uncertainty.’ Many dealers and consumers believe the election outcome will impact the economy and the auto market in some way – either good or bad – and that expectation of change is causing paralysis in the market and hurting sentiment.”

More than independents, franchised dealers feel that Political Climate is holding back business, at 41%, and it is now ranked No. 3 on the list of top 10 factors affecting business. Independent dealers are more concerned about Expenses (No. 4) and Credit Availability (No. 5). For independent dealers, Political Climate ranks No. 6, at 34%, up one percentage point from Q1.

Limited Inventory, the top factor holding back business two years ago, has dropped to No. 7 among all dealers, at 29%. For franchised dealers, Limited Inventory dropped to No. 9, while independent dealers still place it in the No. 7 spot.

Views of the U.S. economy in the latest survey remained mostly unchanged quarter over quarter and year over year. With an index score of 41, a majority of dealers see the U.S. economy as weak, not strong. The index is down one point from last quarter and down from 44 in Q2 2023. Franchised dealers’ view of the economy, at 46, has been consistent for three consecutive quarters. Independent dealers had a score of 40 in the latest report, unchanged from last quarter.

Cox Automotive Dealer Sentiment Index Methodology
Derived from a quarterly survey that Cox Automotive issues to a representative sample of franchised and independent auto dealers from around the country, the Dealer Sentiment Index measures dealer perceptions of current retail auto sales and sales expectations for the next three months as “strong,” “average,” or “weak.” The survey also asks dealers to rate new-car sales and used-car sales separately, along with various key drivers, including consumer traffic. Responses are used to calculate an index by which any number over 50 indicates that more dealers view conditions as strong rather than weak. The Q2 2024 CADSI is based on 1,026 U.S. auto dealer respondents, comprising 550 franchised dealers and 476 independents. The survey was conducted from April 23 to May 7, 2024.

Dealer responses were weighted by dealership type and sales volume to represent the national dealer population. For each aspect of the market surveyed, respondents are given an option related to strong/increasing, average/stable, or weak/decreasing, along with a “don’t know” opt-out. Indices are calculated by creating a mean score in which:

• Strong/increasing answers are assigned a value of 100.
• Average/stable answers are assigned a value of 50.
• Weak/declining selections are assigned a value of 0.

Respondents who select “don’t know” at a particular question are removed from the related index calculation. The total metrics reported have a +/- 3.06% margin of error.

Download the full results of the Q2 2024 Cox Automotive Dealer Sentiment Index.

About Cox Automotive
Cox Automotive is the world’s largest automotive services and technology provider. Fueled by the largest breadth of first-party data fed by 2.3 billion online interactions a year, Cox Automotive tailors leading solutions for car shoppers, auto manufacturers, dealers, lenders and fleets. The company has 29,000+ employees on five continents and a portfolio of industry-leading brands that include Autotrader^®, Kelley Blue Book^®, Manheim^®, vAuto^®, Dealertrack^®, NextGear Capital™, CentralDispatch^® and FleetNet America^®. Cox Automotive is a subsidiary of Cox Enterprises Inc., a privately owned, Atlanta-based company with $22 billion in annual revenue. Visit coxautoinc.com or connect via @CoxAutomotive on X, CoxAutoInc on Facebook or Cox-Automotive-Inc on LinkedIn.

SOURCE Cox Automotive