While improving, a national survey found the current market sentiment for auto dealers is still considered weak among this cohort.

The Cox Automotive Dealer Sentiment Index (CADSI) for the first three months of 2024 increased two percentage points to 42 compared to the fourth quarter of 2023—but well below the 50 as profitability continues to weigh most heavily on both franchised and independent dealers.

The survey’s current market index is largely driven by profitability, customer traffic and costs. At 33, the profitability index fell to its second-lowest score ever, behind only Q2 2020, at the height of the COVID-19 pandemic for the poll released March 13.

After peaking at 60 in 2021, the profitability index has continued to decrease as it hit a post-pandemic low for the second straight quarter in Q1, an indication that most dealers see profits as weak, according to Cox officials.

Franchised Dealers Hurt Most

Most notability, the profitability decline for franchised dealers has been cut in half since the first half of 2022, now sitting at 41— the lowest point in the survey’s history excluding Q2 2020.

Cox Automotive Chief Economist Jonathan Smoke observed the vehicle market in the U.S. is shifting from a seller’s market to a buyer’s market, and dealers are feeling the pinch of tighter margins and higher costs.

“After some highly profitable years for many dealers, 2024 will be a tough comparison,” stated Smoke in a press statement. “Dealer costs continue to grow and profitability per sale has dropped.”

Historical Low

The overall traffic and profits indexes both declined from the previous quarter. The profits index, at 37, is now at a new low point, excluding Q2 2020, when much of the U.S. economy was shut down.

For franchised dealers, the profits index sunk to 51, down seven points quarter-over-quarter. And the profits index for independent dealers at 32 marks the ninth consecutive quarter of a below-50.

The poll is based on 1,018 U.S. auto dealer respondents, comprising 546 franchised dealers and 472 independents, conducted from January 30 to February 13, 2024.

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. Strong/increasing answers are assigned a value of 100; Average/stable answers are assigned a value of 50; and a weak/declining selections are assigned a value of 0.

Spring Bounce

Despite many of the factors driving the current market index remaining subpar, the market outlook index improved significantly to 51 in Q1 from 41 last quarter. The market outlook index, which queries dealers about expectations for the vehicle market three months from now, historically enjoys a ‘spring bounce’ as automobile dealers look to the spring selling season.

The new-vehicles sales index improved a percentage point to 52, but down from 57 one year ago. Likewise, the used-vehicle sales index increased the same one percent to 40, but declining from 44 a year ago and well below the long-term index average of 50.

For franchised dealers, the used-vehicle sales index held steady near a record low of 51 in Q1. For independent dealers, the used-vehicle sales index increased by one point but remains well below longer-term averages.

Inventory Drives Optimism

Besides the seasonal bounce, what else is driving the increase in CADSI? Higher inventory levels, as the industry’s short-supply issues appear to be mostly in the rear-view mirror, particularly on the new-vehicle front.

The new-vehicle inventory index hit an all-time high of 75 in Q1, shifting dramatically over the past two years.

The 75 score  is up from 63 in Q1 2023 and 25 in Q1 2022, when low new-vehicle supply was among the most-cited factors holding back business.

Two Years Makes a Difference

Unlike new-vehicle supply, the index for used-vehicle inventory suggests a majority of dealers see used-vehicle inventory as declining. The index score of 45 is equal to last quarter and has improved from year-ago levels.

Franchised dealers are slightly more optimistic about used-vehicle inventory, with an index score of 53, suggesting more dealers see used-vehicle inventory levels as growing. Independent dealers, on the other hand, see used-vehicle inventory as declining.

“As we often see in our surveys, spring is bringing some optimism. But dealers are clearly indicating the U.S. auto market is very different than it was just two years ago,” said Smoke