Americans are on pace to buy more new cars than at any point since 2019. The industry dodged a major crisis when it settled an auto workers strike – the first ever to hit all three major domestic automakers at once – before it drove up prices. You’d think there was room for car dealers to feel good about the future.
They don’t.
Cox Automotive’s latest Dealer Sentiment Index survey finds dealers more pessimistic than ever about some aspects of their business. The doubts come even though new cars have been growing more affordable for much of 2023. Qualifying for a new car loan is also becoming easier, though interest rates remain historically high.
About the Study
Cox Automotive is the parent company of Kelley Blue Book. Its researchers survey dealers quarterly. The results can be helpful for shoppers in gauging when to shop and how to negotiate. If you know the dealer across the table expects to sell every car with ease, you have limited negotiating power. If you know they’re nervous about their future, you may have more room to haggle.
Researchers surveyed 1,036 dealers – 561 from franchised networks and 475 from independent dealerships – about their expectations for the industry. Some of their answers in the fourth quarter hit new lows in the survey’s 4-year history.
Researchers convert dealer answers into numerical values. A score of 50 is neutral. Scores above 50 indicate optimism. Scores below 50 show doubts.
Dealers Pessimistic About Today
Asked about current market conditions, dealers rated them at 40 – down five points from the previous quarter and the lowest level since early in the COVID-19 pandemic.
Independent dealers, who lack the resources and advertising budgets of larger companies, typically give more pessimistic answers. But even franchised dealers rated the current market poorly.
Even More Pessimistic About Next Quarter
Asked what they expect their local market to look like in three months, franchised dealers gave it a 46 –- a record level of pessimism.
Independent dealers felt worse. They rated the future market at 40.
“The low scores in the latest survey indicate a challenging market with weak prospects,” says Cox Automotive Chief Economist Jonathan Smoke. “Many auto dealers are seeing their profits decline from record highs in 2021 and 2022, and they are feeling the pinch from high interest rates. Their expenses have gone up significantly, and the downward pressure on pricing has cut into their margins.”
Dealer sentiment about overall profitability has swung wildly in recent years.
The overall profits index hit an all-time high of 60 in Q3 2021 and has been sliding ever since. The overall profits index, at 37, is now at a new low point, excluding Q2 2020, when much of the U.S. economy was shut down.
Dealers Think They’re More Pessimistic Than Shoppers
Sixty-five percent of dealers cited interest rates as a reason for their pessimism, while 61% cited doubts about the overall economy.
Strangely, dealers think they’re more pessimistic about the economy than shoppers. Just 29% said they worry about consumer confidence.
Browse dealer reviews, or share about your experience at a dealership here.
