As Kamala Harris and Donald Trump prepare to face off in their first debate tonight, the dealership lot is not immune from politics effecting their business, according to the recently released Q3 2024 Cox Automotive Dealer Sentiment Index (CADSI).
The top three factors holding back dealers shifted slightly in the third quarter, with the economy ranking first, interest rates falling to second, and political climate making a significant jump up into the third-place position.
When asked, 44 percent of dealers noted political climate was a factor holding back business, up from 36 percent in second quarter and 27 percent one year ago. The 44 percent in Q3 is the highest percentage recorded for political climate since the factor was added in 2019. Franchised dealers are particularly concerned about how the political climate is impacting their business, with 49 percent noting it is a factor holding them back.
Market conditions and expenses rounded out the top five factors holding back business in Q3. Additionally, credit availability for consumers continues to be a notable factor holding back business, especially for independent dealers.
Sliding Down
The three issues are all playing a factor as dealerships continue to view the market as continuing a slide from last year.
The recently released CADSI shows the overall market sentiment index dropped in the 2024 third quarter to a score of 40, down from 42 in the last quarter and 45 from a year ago.
The numbers show the slide is coming from independent dealers. While franchised dealers’ sentiment actually increased by one point from last quarter to a score of 50, the independent dealers score of 37 was the second lowest in the survey’s history—the 17 recorded during the pandemic shutdown in second quarter 2020. Independent dealers showed a pessimistic view on almost every aspect of the market.
Market Outlook
The market outlook index—which asks dealers about market expectations three months from now—dropped further in Q3, falling to 42 from 44, and remains below the year-ago level of 45.
The score of 42 suggests a majority of U.S. auto dealers expect the auto market to weaken in the coming three months, not strengthen.
Franchised dealers, who are historically more optimistic in their market outlook index, had an index score of 49 in the latest survey, marking just the third time in survey history—dating back to 2018—that franchised dealers posted a market outlook index score below 50. For independent dealers, the market outlook score was 39 this quarter, down from 41 the previous quarter.
“For more than two years now, after reaching peak profits in 2021, U.S. automobile dealers have viewed the overall market as weak,” said Jonathan Smoke, chief economist at Cox Automotive in a statement released with the index. “The retail auto business today is working through a lot of uncertainty, with the coming national election front and center, and also expectations of shifting market dynamics. U.S. dealers are feeling the effects of these dynamics in the market today and their expectations for the future.”
Cost at Record High, Hurting Profits
The index recorded a new high for the cost of running their business quarter 77, indicating a majority of dealerships see their profitability as weak. The dealer profitability index score in Q3 was 34, lower than the score of 40 one year. The profitability index for franchised dealers held steady from the last quarter, at 43, exactly half of the peak score of 86 three years ago.
For independent dealers, the profitability index of 30 marked the lowest point since the pandemic, suggesting that a vast majority of independent dealers see profits as weak, not strong.
“Dealer profitability is one of the central measures in our quarterly survey, as it showcases the core strength of the business,” added Smoke. “And the profitability index has generally declined for three straight years, particularly for independent dealers. Most dealers feel their profitability picture is weak, and that is likely impacting many sentiment measures, dragging the overall survey scores lower.”
New Sales Stall
Despite inventory levels not being a concern, the sales environment remains muted as franchised dealers recording 51 for new-vehicle sales— down from 59 a year ago. The overall used-vehicle sales index (combined franchise and independent) was 43 in the third quarter, a level suggesting dealers view the market as poor.
Both franchised and independent dealers agree on the price pressure index, which is at 66. After hitting a low point during the inventory shortages of late 2021 and most of 2022, price pressure has now fully returned to the U.S. market and consistent with those from before the pandemic.
While sentiment about electric vehicle (EV) sales improved in following a low point in quarter two, a majority of dealers continue to report EV sales that are worse than one year ago. The overall score was 44 in the updated index, up from 41 in the second quarter, but lower than the score of 49 reported one year ago. Expectations for future EV sales fell to 37 from 39 in the previous quarter.
EV Market
To Cox officials, the score indicates that a majority of dealers feel their EV sales will decline in the months ahead. The future EV sales index scores for both franchised and independent dealers were lower quarter over quarter and year over year in Q3.
Despite a pessimistic view, a growing majority of dealers feel the government-supported EV sales incentives are having a positive impact on sales. A year ago, shortly after the Inflation Reduction Act incentives were confirmed, the EV tax credit index score was 53 – a score above 50 indicating a majority of dealers described the impact of the tax credit as positive. In the latest survey, the index score was 58, increasing for the fifth consecutive quarter.
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