A recent report by Cox Automotive showed a worrying decrease in the country’s auto dealer sentiment in Q4 2023. Based on the reports, this decay stems from the ongoing effects of high-interest rates and a shaky economy that have seemingly taken a toll on the automotive market.
The latest survey reveals multiple areas where dealer sentiment has plunged to new lows after showing reasonable stability in the previous two quarters. According to the report, the Q4 current market index sank to 40, slipping five points from the preceding quarter, reaching the lowest since Q2 2020. Independent and franchised dealers’ sentiment hovers below the midline, with franchisees experiencing this for the first time since Q2 2020.
Predictably, the 3-month market outlook index, matching a notable low of 41, predicts that more dealers foresee troubling times ahead. For franchised dealers, the outlook index plunged 12 points to 46, going below the 50 limit and reaching an unprecedented low. Even independent dealers registering a marginal one-point drop to 40 indicates that both scores and overall rating are considerably lower than pre-pandemic norms and historical patterns.
To read the full report: Q4 2023 Cox Automotive Dealer Sentiment Index.
The knife-edge state of the industry gets further underscored by declining traffic and profits, with the overall profits index landing at 37, a new low, excluding Q2 2020, and the new vehicle sales environment dropping from a period of four successful quarters. Despite being just above average at 51, more dealers view the sales environment as only barely positive. Even the used-vehicle sales environment, viewed as already unsteady by most dealers, sunk further below average at 39.
According to the report, Top Factors Holding Back the Business
- Interest Rates
- Economy
- Market Conditions
- Credit Availability for Consumers
- Limited Inventory
- Political Climate
- Expenses
- Consumer Confidence
- Competition
- Business Impacts from COVID-19/Coronavirus
According to John Colascione, President of Auto Buyers Market, a print and digital service promoting dealer inventory throughout the U.S., dealers are clearly struggling.
“I speak to a lot of our dealer customers, and the majority of dealers, both independent and franchise, seem to be struggling. I feel as the Cox Automotive report points out 10 factors affecting dealer sentiment, the overall issue is that their buyers do not have the spending power. The desire to purchase is there, but people just don’t have the money based on the fact that the interest rate is making their payments too high. They’re not bringing home enough money to counteract that – the gap is just too wide, so buyers have to resort to better deals and cheaper wheels, with many just resorting to private sellers to save on the difference.”
Though the Electric vehicles (EV) market saw significant enthusiasm a year ago, this has now waned. Sales of EVs have been marked worse by both franchised and independent dealers, at 48, with the change being particularly notable for the former. The future EV sales expectations index went down five points to 42, significantly lower than the previous year, with index scores reaching their lowest since Q2 2021.
As we plunge further into 2024, the future of the US auto industry hangs in the balance. High interest rates, economic instability, falling profits and, compounded by the waning enthusiasm for EVs, paint a gloomy picture for the industry. These issues, further aggravated by availability and accessibility issues, create a challenging environment for dealers. Only time will reveal how this industry adapts and navigates these uncertain waters.
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