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U.S. auto dealers generally positive on current market conditions

Majority of New-Car Dealers Agree: Import Tariffs are Bad for Business

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Article Highlights

  1. According to data from the Q3 2018 Cox Automotive Dealer Sentiment Index (CADSI) released today, U.S. automobile dealers are more positive than negative in describing the current market in the third quarter but are fearful that proposed auto tariffs could hurt profitability.
  2. Only 11 percent of dealers believe auto tariffs on imported vehicles and parts would have a positive impact on their business, while 38 percent anticipate a negative impact. Fifty-one percent of dealers believe tariffs would have no impact. Franchised auto dealers – new-car dealers – are more pessimistic, with 56 percent suggesting new auto tariffs would impact their business negatively. Of the franchised dealers who feel negatively toward tariffs, 66 percent believe consumers will face higher prices on all new vehicles, not solely imports, as the market adjusts.
  3. Current market sentiment remained positive in Q3 and equal to the Q2 reading of 51, indicating slightly more dealers feel the current market is strong rather than average or weak. A year ago, in the third quarter of 2017, the current market index was lower at 45.

ATLANTA, Sept. 10, 2018 – According to data from the Q3 2018 Cox Automotive Dealer Sentiment Index (CADSI) released today, U.S. automobile dealers are more positive than negative in describing the current market in the third quarter but are fearful that proposed auto tariffs could hurt profitability.

Only 11 percent of dealers believe auto tariffs on imported vehicles and parts would have a positive impact on their business, while 38 percent anticipate a negative impact. Fifty-one percent of dealers believe tariffs would have no impact. Franchised auto dealers – new-car dealers – are more pessimistic, with 56 percent suggesting new auto tariffs would impact their business negatively. Of the franchised dealers who feel negatively toward tariffs, 66 percent believe consumers will face higher prices on all new vehicles, not solely imports, as the market adjusts.

“Dealers continue to report strong market conditions in the third quarter, with few material changes in key performance indicators from the spring, when we reported record-high sentiment,”said Cox Automotive Chief Economist Jonathan Smoke. “While they are positive on today’s business, the new looming threat is the negative impact of proposed tariffs on imported autos and parts. And, for the first time, dealers indicate that limited inventory is the No. 1 obstacle holding back business.”

Derived from a survey Cox Automotive issues to a representative sample of franchised and independent auto dealers, the CADSI measures U.S. dealer perceptions of current retail auto sales and sales expectations for the next three months as “strong,” “average” or “weak.” The quarterly survey also asks dealers to rate new-car sales and used-car sales separately, with a variety of key drivers including consumer traffic and inventory levels. Responses are used to calculate an index where any number over 50 indicates that more dealers view conditions as strong rather than weak. In the Q3 2018 survey, Cox Automotive also explored dealer expectations on the impact of proposed auto import tariffs on business profitability.

You can download the full results of the Q3 2018 Cox Automotive Dealer Sentiment Index here: https://www.coxautoinc.com/news/cadsi-q318/

Optimism Remains Strong

Current market sentiment remained positive in Q3 and equal to the Q2 reading of 51, indicating slightly more dealers feel the current market is strong rather than average or weak. A year ago, in the third quarter of 2017, the current market index was lower at 45.

The index for the next three months is 57, indicating dealers expecting conditions to be strong in the future outnumber those who think conditions will be weak. While up slightly from last quarter’s score of 56, the future market index is up substantially from a year ago when the score was 52. This score indicates that auto dealers believe the market is strong and their optimism is not fading.

Perception of the new-car sales environment by franchised dealers remains positive as well, with the new-vehicle sales index increasing slightly to 60 from 59 between Q2 and Q3 2018. A year ago, the new-vehicle sales index was 57.

The used-vehicle sales index was also up slightly compared to Q2, increasing two points from 55 to 57.  The overall index score of 57 is equal to year-ago levels. Franchised dealers continue to be far more positive on used-vehicle sales than independent dealers. The used-vehicle sales index score for franchised dealers was 72 in Q3, unchanged compared to last quarter and up from 68 in Q3 2017. Independent dealers, on the other hand, had an index score of 52, up from 50 last quarter, but down from 53 last year.

Factors Holding Back Business

The top five factors holding back business across all dealers remained the same in Q3 as Q2, but relative positions changed. Limited inventory gained the top spot from No. 2 last quarter. Market conditions fell to the second most cited negative factor. Credit availability for consumers slid into a tie with competition for the third most cited negative factor. The percentage of dealers reporting competition increased substantially from 28 percent last quarter to 35 percent this quarter. Expenses remained in the fifth position, even though it too saw a significant increase in the percentage of dealers citing it at 29 percent from 25 percent last quarter.

Interest rates were barely a factor in Q3 2017, as only 7 percent of dealers cited interest rates as a factor holding back business, ranking it No. 12 out of 14 possible negative factors. The best available 60-month, new-auto loan rate according to Bankrate.com was 3.33 percent on average in August 2017. In the Q3 2018 survey results, interest rates were No. 6 on the negative factors list, as the percentage of dealers citing it more than doubled to 17 percent. Correspondingly, the best available 60-month, new-auto loan rate this August was 4.53 percent, 1.2 points higher than last year. 

Lack of Inventory Becomes a Concern

The new-vehicle inventory index decreased slightly from Q2 and is down substantially from 2017. The number still represents that most franchises describe inventory levels as above average, but growth continues to decelerate.

The used-vehicle inventory index also decreased slightly from last quarter, which represents a substantial decline from last year. The used-vehicle inventory index has been under 50 for consecutive quarters, which means used-vehicle inventory is declining. As noted earlier, limited inventory moved into the top spot as the factor most holding business.

The percentage of franchises citing limited inventory as a negative factor increased 12 percent points in the past year – to 28 percent. This increase is significant, as franchise dealers in general are less likely than independents to cite limited inventory as a factor holding back their business.

 Cox Automotive Dealer Sentiment Index Methodology

Data for the Cox Automotive Dealer Sentiment Index is gathered via online surveys. The Q3 results were based on 1,276 dealer respondents across the country from July 31 to August 13, 2018. Dealer responses were weighted by dealership type and volume of sales to be representative of the national dealer population.

About Cox Automotive

Cox Automotive Inc. makes buying, selling and owning cars easier for everyone. The global company’s 34,000-plus team members and family of brands, including Autotrader®, Clutch Technologies, Dealer.com®, Dealertrack®, Kelley Blue Book®, Manheim®, NextGear Capital®, VinSolutions®, vAuto® and Xtime®, are passionate about helping millions of car shoppers, 40,000 auto dealer clients across five countries and many others throughout the automotive industry thrive for generations to come. Cox Automotive is a subsidiary of Cox Enterprises Inc., a privately-owned, Atlanta-based company with revenues exceeding $20 billion. www.coxautoinc.com

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