Dealers say uncertain economy and high loan rates are keeping would-be buyers on the sidelines. - Rangga Aditya Armien, Pexels

Dealers say uncertain economy and high loan rates are keeping would-be buyers on the sidelines.

Rangga Aditya Armien, Pexels

Overall dealer sentiment in the U.S. improved slightly in the second quarter, according to the most recent Cox Automotive Dealer Sentiment Index. 

Cox reports that the current market index is 45, up from 43 in the first quarter but still below the threshold of 50 that indicates a stable-to-strong market.

The report is the fourth consecutive with dealer sentiment below the 50 threshold. 

Despite a stronger market for both franchised and independent dealers, negative sentiment lingers because of weak economic conditions and high interest rates, Cox reports.

In fact, dealers cited the economy and interest rates as the top two challenges holding back business. Limited inventory came in third, according to 44% of dealers.

Dealers also said limited credit availability for consumers is holding back business. Aout 30% of dealebrs said credit availability is a challenge. That's up from 26% in the first quarter and from 17% a year earlier.

“Our latest dealer sentiment index clearly illustrates how the market has shifted in the past year,” said 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' forward-looking market outlook index fell from 52 to 47, showing they expect a weak market to continue over the following three months.

The outlook index for independent dealers dropped from 51 to 44, while franchised dealers experienced a one point increase in their market outlook index, moving from 56 to 57, according to the research.

U.S. auto dealers still perceive the U.S. economy as weak. A year earlier, the U.S. economy index score stood at 50, suggesting that dealers held primarily neutral views. Cox Automotive research put the index score in the second quarter at 44, up one point quarter-over-quarter. According to the survey, most dealers are concerned about ongoing costs of operating their dealerships, and high interest rates are still impeding their business.

Dealership profits also continue to slide after peaking in 2021, Cox says. The profit index declined for the seventh straight quarter, dropping to 41.

But dealers have reported that customer traffic, both in-person and online, was stronger in the second quarter than the first. The customer traffic index score of 37 was just one point below the six-year average, Cox reported.

Franchise and independent dealers also reported feeling more pressure to decrease prices and stimulate sales. Despite a slight decline to 58, the price pressure index is still up from last year's 41, when low interest rates and tight inventories kept prices high. Cox reported that the score of 58 shows a significant increase in price pressure from last year, but it has not yet reached prepandemic levels.

The new-vehicle inventory index is 60, down 3 points quarter-over-quarter but up significantly from 25 a year earlier. The new-vehicle sales environment improved slightly from last quarter and, at 58, is up from 52 a year earlier. OEM-backed incentive levels improved, as well, but franchised dealers still describe incentives as small. The new-vehicle incentive index was 28, up from 21 a year earlier but down from 51 in the second quarter of 2020, the highest score in the data set.

Most auto dealers consider the market for used-car sales to be unfavorable. The index score is close to an all-time low, having dropped from 47 to 42 in the last year. Only the second quarter of 2020 was lower, Cox says.


Originally posted on Auto Dealer Today

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