Overall dealer sentiment in the U.S. improved slightly in Q2 2023, according to the quarterly Cox Automotive Dealer Sentiment Index released June 7. The current market index is now at 45, up from 43 in Q1 but still below the threshold of 50, indicating more dealers see the current auto market as weak than see the market as strong.
The Q2 report is the fourth consecutive with dealer sentiment below the 50 threshold. Both franchised and independent dealers feel the market in Q2 is stronger than in Q1, but the continued negative sentiment is likely being driven by weak economic conditions and stubbornly high interest rates.
The forward-looking market outlook index declined in Q2, falling from 52 to 47, suggesting a majority of auto dealers now feel the market in the next three months will be weak, not strong. The market outlook index in Q2 for franchised dealers increased 1 point, moving from 56 to 57, while the outlook index for independent dealers declined from 51 to 44. Independent dealers, who sell only used vehicles, have a more negative view of the market for the months ahead.
“Our latest dealer sentiment index clearly illustrates how the market has shifted in the past year,” noted Cox Automotive Chief Economist Jonathan Smoke. “The new-vehicle market’s most acute inventory issues are in the rearview mirror now. Dealers are now facing an uncertain economy and high loan rates that are keeping many would-be buyers on the sidelines.”
Auto dealers in the U.S. continue to view the U.S. economy as weak, not strong. One year ago, the current U.S. economy index score was 50, indicating dealers were mostly neutral in their views. Now, a majority of dealers view the economy as weak. The index score in Q2 is 44, up 1 point from the previous quarter. The survey indicates most dealers feel the costs of running their dealerships continue to be an issue, and high interest rates continue to be a drag on business.
Profits Continue to Decline as Price Pressures Build
According to the latest survey, dealership profits continue to slide after peaking in 2021. In Q2, the profit index dropped to 41, marking the seventh straight quarterly decline. On the upside, dealers indicate customer traffic, both in-person and online, was stronger in Q2 than in Q1. The customer traffic index score in Q2 of 37 was just 1 point below the six-year average.
Inflation, interest rates, costs of operation and the economy continue to weigh on dealers. Both groups also are feeling more pressure to lower prices to stimulate sales. The price pressure index declined slightly in Q2 to 58, but is up from 41 a year ago when interest rates were lower, inventory was tighter and most dealers felt less pressure to lower prices.
In the three years before the pandemic, the price pressure index averaged 64. The current score of 58 indicates price pressure has increased notably from last year but has not returned to pre-pandemic levels.
New-Vehicle Sales Environment Improves, While Used-Vehicle Sentiment Falls
The new-vehicle inventory index in Q2 is 60, down 3 points from Q1 but up significantly from the score of 25 one year ago. The new-vehicle sales environment in Q2 improved slightly from last quarter and, at 58, is up from 52 one year ago. OEM-backed incentive levels improved compared to Q1 as well, but franchised dealers still describe incentives as small. The new-vehicle incentive index in Q2 is 28, up from 21 one year ago, but down from 51 in Q2 2020, the highest score in the data set.
The used-vehicle sales environment, conversely, is viewed as poor by most automobile dealers in the U.S. At 42, the index score is down from 47 a year ago and near an all-time low. Only Q2 2020 was lower.
Independent dealers view the used-vehicle market as particularly weak; franchised dealers are more positive about the market. Both groups describe used-vehicle inventory levels as declining quarter-over-quarter.
Inventory Levels No Longer Top Factor Holding Back Business
When asked about factors holding back business, the Economy (55%) and Interest Rates (53%) are the top two factors cited by both franchised and independent dealers. The Economy and Interest Rates were also the top two in Q1, although the order has switched, with the Economy now in the top spot.
Limited Inventory was the leading factor one year ago and has now fallen to the third most-often mentioned factor, with 44% of dealers noting Limited Inventory as a top factor holding back business.
In Q2, Credit Availability for Consumers increased significantly quarter over quarter and year over year as a factor holding back business. Thirty percent of dealers indicated Credit Availability is a challenge in the Q2 survey, up from 26% in Q1 and only 17% in Q2 2022. Political Climate also significantly increased, although it ranks seventh on the list of top factors, behind Expenses, which was sixth.
EV Sales Improve for Independent Dealers, Fall for Franchised Dealers
Compared to one year ago, electric vehicle (EV) sales are seen as better, but only modestly. In fact, for franchised dealers, the EV sales index score this quarter at 54 is equal to the score from one year ago and down for a second consecutive quarter after peaking at 61 in Q4 2022. Independent dealers indicate EV sales are better than a year ago, but not convincingly so, improving by 1 point to 51.
When asked about future EV sales expectations (three months out), dealers’ views were mostly stable, with an index score of 51. The index scores for EV sales expectations for both franchised and independent dealers were at or below their lowest points in two years, when the EV market expectation question was added. Generally speaking, dealer sentiment about EV sales is mixed at best.
Cox Automotive Dealer Sentiment Index Methodology
The Q2 CADSI is based on 1,060 U.S. auto dealer respondents, comprising 568 franchised dealers and 492 independents. The survey was conducted from April 24 to May 7. Dealer responses were weighted by dealership type and sales volume to represent the national dealer population.
Source: Cox Automotive
