Dealers are increasingly optimistic about the future now that the 2024 Presidential election is over, according to the Q4 2024 Cox Automotive Dealer Sentiment Index (CADSI).
The latest survey, conducted immediately following the national election in early November, measures dealers’ expectations for the auto retail market in the coming quarter, The index rose 12 points to 54 in Q4 from the previous quarter. One year ago, the index stood at just 41, one of the lowest readings in its history.
After the recent election, 35 percent of dealers surveyed reported the political climate in the U.S. is affecting their business. This is a decrease from the 44 percent of all dealers and 49 percent of franchised dealers recorded in the previous quarter. The current percentage is slightly higher than one year ago when it stood at 33 percent.
Economy Worries
But views of the U.S. economy remained unchanged (41), equal to the score in Q3 and two points higher than in Q4 2023. U.S. automobile dealers still see the economy as weak, a sentiment that has been consistent for the past two years due to elevated inflation and high auto loan rates.
The top factor holding back business is the economy, with 56 percent of dealers citing it as a significant concern. Despite a significant quarter-over-quarter drop, interest rates remain a close second at 52 percent and market conditions cited by 37 percent of dealers. Completing the top five, 33 percent of dealers identified expenses as a barrier holding back business.
Largest Surge in Three Years
Jonathan Smoke, chief economist at Cox Automotive, noted the index increase is the largest surge quarterly in the history of the data, and the best fourth quarter since 2021, which was the most profitable quarter in dealer history.
“The recent resolution of political uncertainty following the presidential election has cleared the path for a more optimistic outlook on future auto market conditions,” said Smoke in a statement with the reports released. “Coupled with the potential for supportive measures such as tax rebates and the possibility of lower interest rates, dealers are feeling more hopeful about the road ahead as we move into 2025.”
Despite the positive outlook, the current market index score of 42 indicates most dealers still view the current retail auto market as weak. This score is slightly better than one year ago but remains well below pre-pandemic norms and long-term averages.
Customer Traffic Concerns
Franchised dealers are more optimistic than used-only independent dealers, with an index score of 50. A majority of independent dealers indicate that the current market is weak, with a score of 39— but Cox officials noted this was an improvement compared to last quarter and last year.
Customer traffic continues to be seen as weak (31, down a point), driven by declining in-person visits, though digital traffic gained marginally, with the index score increasing to 40 from 39.
The profit index increased slightly increased one point to 35 in the fourth quarter. Both franchised and independent dealers noted higher profitability compared to Q3, but the index score remains well below levels seen in 2021 and 2022. The cost index improved as well, dropping six points to 71, which Cox analysts suggest pressure may be easing.
Inventory, Incentive Effects
The new-vehicle sales index improved to 54 from 51, suggesting a better sales environment. The new-vehicle inventory index remains high at 73, indicating growing inventory, just two points below the all-time high reached in the first three months of 2024.
The used-vehicle sales environment saw a slight improvement, moving a point to 44. Used-vehicle inventory levels increased as well, jumping to 45.
As inventory improves, particularly on the new-vehicle side, most dealers still consider the current level of automaker-backed incentives small. The incentive index score of 37 is unchanged from last quarter as it remains at the highest level since 2021. Price pressure fell slightly in Q4, from 66 to 63, but a majority of dealers continue to feel more pressure to lower prices.
A Look at EVs
Dealer optimism toward electric vehicle (EV) sales remains consistent at 43 overall. The outlook for EV sales fell further, with dealers suggesting the EV market would decline in the coming month, down two point to 35 from last quarter.
With an overall score of 60, dealers continue to suggest that national tax credits and incentives are having a positive effect on their EV sales. The tax credit index score in Q4 was 67 for franchised dealers, the highest score recorded since the question was added in Q1 2023.
“We are getting clear feedback that the tax credits are working in both the new and the used markets,” said Smoke. “The numbers have been moving higher and higher for franchises and are up substantially year over year. They have been pretty stable for independents all year but up year over year. This is something that could change fairly rapidly next year, so I think the diminishing outlook is directly tied to the at-risk status of the EV tax credits.”
