Dealers are showing more optimism toward the market but remain cautious on the whole as normalizing car prices continue to sap profits.
According to Cox Automotive’s Dealer Sentiment Index, dealer confidence improved by two points, rising from Q4’s score of 40, the lowest since the start of the COVID-19 pandemic, to 42 in Q1. The number remains below Q3’s score of 45. Cox Automotive classifies sentiment scores below 50 as negative; every score since early 2020 has remained under that 50-point benchmark.
While inventory concerns have dominated dealer concerns for several years, supply chain disruptions largely subsided in 2023. The main factor preventing sentiments from making a more notable improvement is profit. Profit expectations fell to the second-lowest point on record in Q1, beaten only by Q2 2020. The previous second-worst score was set in Q4 2023, although sentiments have been cooling since hitting a peak in 2021.
However, while profit margins are well on their way back to pre-pandemic norms, expectations for sales improved from the previous period. Both the new and used vehicle sales indexes improved by one point from Q4, although sentiments remain below Q1 2023.
Ultimately, dealer sentiments are following expected patterns in the wake of more inventory and tightening profits and are likely to continue doing so in the coming months. “After some highly profitable years for many dealers, 2024 will be a tough comparison,” remarked Jonathan Smoke, chief economist at Cox Automotive. “Dealer costs continue to grow and profitability per sale has dropped. As we often see in our surveys, spring is bringing some optimism, but dealers are clearly indicating the U.S. auto market is very different than it was just two years ago.”
