U.S. auto dealers maintained a stable level of confidence in the third quarter of 2025 despite facing declining profitability and growing concerns about electric vehicle sales, according to the latest Q3 2025 Cox Automotive Dealer Sentiment Index (CADSI).
The Q3 results show the current market index at 43, up one point from the second quarter, but still below the crucial 50 threshold. That number is the tipping point at which more dealers view the market as strong rather than weak. That average has not eclipsed 50 since it was 54 back in Q2 of 2022.
“With sales momentum mostly holding, dealers are not throwing in the towel on sentiment,” noted Jonathan Smoke, Chief Economist at Cox Automotive. “New-vehicle sales have come down from the surge in the spring but have remained relatively strong and better than the past few years.”
The CADSI is based on a survey of 891 franchised and independent dealers conducted from July 22 to August 4. While the overall number is important, there is also a bit of a divide between franchised and independent dealer results. While the overall index is at 43, franchised dealers were at 53, showing they’re a little more bullish, even if that number dropped three points from 56 in Q2. Meanwhile, independent dealers were at 39 in Q3, a two-point increase from last quarter.
Customer Traffic Drops and Inventory Builds
One of the most significant changes in the third quarter was a sharp decline in customer traffic following a spring surge. The customer traffic index fell from 37 to 33, with franchised dealers experiencing an even larger decrease from 50 to 43.
Simultaneously, new-vehicle inventory rose from 50 to 57, reversing declines seen in the first and second quarters. This inventory buildup goes hand in hand with a dip in the new-vehicle sales environment index, which fell from 62 to 58.
The combination of slower traffic and rising inventory has intensified price pressure on dealers. The price pressure index climbed from 57 to 61, the first increase in a year. Independent dealers reported facing more pressure to lower prices than their franchised counterparts.
Profitability Concerns Mount
Dealer profitability declined slightly in the quarter, with the overall profit index falling from 39 to 38. Independent dealers continued to report weaker profitability at 34 compared to franchised dealers at 49.
Adding to profitability concerns, the cost index held at 70, the highest score in the survey, indicating widespread worry over rising operating expenses. This combination of declining profits and elevated costs presents a major challenge for the rest of 2025.
Still, economic uncertainty continues to dominate dealer concerns, with 44 percent citing the economy as the top factor holding back their business—though this does represent a decrease from the second quarter. Interest rates followed closely at 43 percent, maintaining similar levels from the previous quarter.
Market conditions ranked third among dealer concerns at 36 percent, while political climate and tariff worries declined significantly in the third quarter. Mentions of political concerns dropped to 28 percent, and tariff-related worries fell to 16 percent.
Electric Vehicle Optimism Hits Record Low
The final piece in the sentiment puzzle was EVs. Despite strong electric vehicle sales in July, dealer expectations for future EV sales plummeted to 30, the lowest score since the survey began tracking this metric.
The record-low optimism is, of course, due to concern among dealers over the expiration of government-backed tax credits at the end of September. Dealers must now prepare for a market without the $7,500 federal tax credit that has helped ease the price difference between powertrains and drive electric vehicle adoption.
Market Outlook Shows Cautious Optimism
Looking ahead, the three-month market outlook index rose slightly to 46, significantly higher than year-ago levels but down from the first quarter peak of 58. Franchised dealers posted a more optimistic score of 55, while independent dealers’ outlook remained flat.
“While the labor market has softened, unemployment remains historically low, and, for the most part, tariffs have only been a glancing blow to consumer wallets so far,” said Smoke. “While 2025 has been a roller coaster for many, the market is still generally on track.”
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