Despite a strong sales finish to the first quarter of the year, dealer market sentiment has taken a slight dip according to the Q2 2025 Cox Automotive Dealer Sentiment Index (CADSI).
The current market index stands at 42, down from 44 in Q1. A score below 50 indicates that more dealers view the market as weak rather than strong. The market outlook index fell as well, from 58 to 45, reflecting worries about the months ahead.
Dealers cited the U.S. economy as their top concern, with 51 percent identifying it as a factor holding back business. This passed interest rates for the number one spot, even as 42 percent of dealers still listed interest rates as an issue. Market conditions and tariffs were also named as major challenges. Tariffs were up considerably since the Q1 survey took place before President Trump announced his tariff plan. Nearly half of dealers who view the current market as weak mentioned tariffs at some point.
“The market has been very unstable with the current political whiplash going on,” said an unnamed Chevrolet dealer who was surveyed. “Tariffs today. No tariffs tomorrow. No, wait. Tariffs are back on. We’re going to lower interest rates one day. The next day, maybe we should raise them instead.”
Mixed Results
While the average sentiment declined, it was not evenly split. Franchised dealers reported improved conditions, with their index rising from 54 to 56. Much of this has to do with the continued momentum in new vehicle sales. Franchised dealers can leverage their dual focus on new and used inventory to maintain a competitive edge.
Independent dealers, on the other hand, saw their index drop from 42 to 37, underscoring the challenges in the used vehicle market. They also saw a steep decline in market outlook as it dropped from 57 to 42 in just a few months. Franchised dealers outlook dipped as well, but not as aggressively, lowering from 61 to 56.
“Dealers have a front-line view of the U.S. auto market, which appears to be at an inflection point,” said Jonathan Smoke, Chief Economist at Cox Automotive. “The recent sales pace has been a positive, lifting current market sentiment higher for franchised dealers. But as we’ve said before, 2025 is going to be a roller coaster for this industry, and the market could be a lot more hair-raising in the months ahead.”
One bright spot in the Q2 CADSI report was that rise in customer traffic. The traffic index climbed to 37, up from 33 in Q1 and higher than year-ago levels. Franchised dealers saw the largest increase, with in-person visits jumping by 10 points. This surge indicates that despite economic uncertainties, consumers are still engaged and are visiting dealerships to explore their purchase options. However, it remains to be seen how much of this traffic will be maintained throughout the rest of 2025. Many customers were influenced by potential tariff price increases and moved up their purchase timelines to March or April of this year.
Profitability Gains and Tightening Inventory
For the first time in over a year, dealers reported improvements in profitability. The profit index climbed to 39, with franchised dealers leading the charge at 52, up from 41 in Q1. Independent dealers also experienced modest gains, reaching an index score of 35, up from 32 last quarter. This boost in profitability is a positive sign, driven by strong sales momentum and stabilizing gross margins.
“Scarcity is driving pricing power,” said a Toyota dealer. “And people are still buying cars.”
One of the challenges highlighted by the report is tightening inventory levels. While the increase in sales drove improved revenue and profit, it also affected the amount of vehicles available. The new vehicle inventory index dropped to 50, its lowest point since late 2022, while the used vehicle inventory index fell to 41. This tightening dynamic has reduced the pressure to lower vehicle prices, with the price pressure index dropping from 63 to 57.
EV Sentiment on the Decline
Even as the EV tax credit index reached a record high of 62, overall sentiment around EVs declined. The EV sales index dropped to 44, and future expectations fell to 37, the lowest level since 2021. This shift suggests that dealers acknowledge the potential benefits of EV incentives but are wary about EV adoption. This comes as adoption has flattened out over the last couple of years.
“Sadly, BEV technology has become a politically charged topic,” said an independent dealer. “Some folks accept the technology; however, many now fear and openly reject BEV due to limited support infrastructure (charging centers, etc.), fear of being ‘targeted’ (i.e., vandalized) – but most importantly, fear of plummeting value and inability to repair anything but the simplest of issues.”
With the country’s strongest EV transition standards, California’s EV mandate, currently undergoing a legal battle with Congress, it is hard to see exactly what the future holds for electrical vehicles.
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