The Cox Automotive Dealer Sentiment Index (CADSI) remained stable in the second quarter despite dealer uncertainty in politics, market and economy. The Q2 score of 42 released June 10 indicates most U.S. auto dealers see the market as weak, three points lower than a year ago.
The second quarter historically shows a decline in market expectations for the next three months—and this year is no different. The market outlook index, which dropped seven points from last quarter to 44, was driven by a weaker-than-normal tax refund season and U.S. political and economic uneasiness, according to Cox Automotive Chief Economist Jonathan Smoke.
“There is a lot of uncertainty…leaving consumers and dealers alike unsure of the road ahead,” said Smoke in a press statement with the release of the index. “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.”
Politics Make Dealers Concerned
Diving deeper into those concerns, the upcoming U.S. Presidential election is increasingly a factor dealers are concerned about. In the latest survey, 36 percent of dealers cite the political climate as a factor holding back business, up from 33 percent in Q1 and 29 percent one year ago.
When asked about factors holding back their business, auto dealers in this quarter focused on interest rates (59 percent), the economy (57 percent), and market conditions (41 percent) that Cox officials described as minimal changing from the first three months this year and one year ago. The economy and market conditions slightly increased quarter over quarter.
“In many ways, the political climate is a surrogate for ‘uncertainty’,” Smoke commented. “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.”
Other Factors Cited by Dealers
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).
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.
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 three point from a year ago. 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.
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.
Noted Progress
The CADSI did show some progress. The profit index increased for the first time since Q3 2021 to 36, although still significantly below the 50 threshold. Additionally, both online and in-person customer traffic improved from Q1, with franchised and independent dealers reporting higher consumer traffic sentiment.
While profits are down from all-time highs, Smoke observed dealer sentiment is likely worse than actual market conditions as 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,” he said. “With a good job market, the market is not collapsing, and we believe weak current market sentiment is more about uncertainty than actual performance.”
New-Vehicle Sales
New-vehicle sales index improved to 53 for the second straight quarter indicating a positive market perception —a score above 50 suggests that more dealers view the new-vehicle sales market as strong rather than weak—despite being lower than last year’s 58.
Inventory levels for new-vehicle index for the April, May and June index registered at 69, down from a peak of 75 in Q1 but still higher than last year’s 60. Cox officials noted 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.
EV Market
Conversely, the used-vehicle sales index remains under the 50 threshold. Despite rising for the second straight quarter to 42, matching last year’s score, the index score in Q2 was among the worst recorded since the index launched in 2018.
Franchised dealers have a more positive view of the used-vehicle market than independent dealers. In Q2, the franchised dealers’ index score was 54 while independent dealers scored the current used-vehicle market at 38—an improvement from last year and last quarter.
Sentiment about electric vehicle (EV) sales fell to a new low in Q2, continuing to fall each quarter from a year ago. When asked about how EV sales compare to one year ago, the index score came in at 41, down one point from last quarter.
Conversely, expectations for the EV market in the future improved three points to 39 as a majority of dealers (with an index score of 57) see the existing tax credits as having a positive impact on EV sales.
