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As dealer sentiment improves, inventory woes deepen

On Sept. 8, Cox Automotive released the Q3 2020 Cox Automotive Dealer Sentiment Index (CADSI). Information collected from dealers surveyed in late July through mid-August was used to determine how they view the conditions in the auto market – strong, neutral, or weak. The Dealer Sentiment Index has reached a record high this quarter, mainly on the back of a steep upward curve in the pandemic recovery.

Last quarter, the CADSI score was way below average at just 20 points out of possible 100. At that time, dealers were experiencing drastically reduced sales and an uncertain future. For the first time, the CADSI score reached 56 points in Q3.

Not only is it markedly better than three months ago, but dealer sentiment has improved by eight points over this time last year. Cox Automotive Chief Economist Jonathan Smoke said in the news release, ““Dealer sentiment improved dramatically in Q3 as the economy improved and dealers enjoyed strong sales. Improved traffic, less price pressure, and stronger profits lifted sentiment higher than a year ago.”

On average, the CADSI report indicates a stable view of the automotive retail industry over the next three months. With a score of 50, it appears dealers expect the market to remain very much the same as it did through the third quarter.

Factors Holding Back Dealer Business

Cox Automotive ranks the factors which dealers view as most detrimental to their business. For this quarter, the top five factors are:

  • Limited inventory, climbing from 26% to 60%.
  • Business impacts from COVID-19, dropping from 75% to 49%.
  • Market conditions, down to 40% from 49% in Q3.
  • Economy, declining more than 20 points to 39%.
  • And Political climate, mildly up from 22% to 27%.

On a positive note, dealers appear to be less concerned about selling and servicing cars in a pandemic and there are less fears about the economy at this time. Rocketing to the top of the list, though, is a concern about inventory.

Related: Auto inventory levels reach new lows amid strong August sales

Holes on the Lot

Unsurprisingly, both franchised new car and independent dealers are concerned about the lack of available inventory. On Sept 10, Cox Automotive data showed that new car inventory has fallen to 58 days’ supply and luxury models are down even further at 56 days’ supply. Land Rover reports just 19 days’ of supply while Lexus and BMW report 29 and 32 days respectively.

The CADSI index also shows that independent dealers are struggling with inventory challenges. Sentiment regarding used inventory mix has declined over the past two quarters, and auction prices steadily climb as wholesale units going through auction can’t meet the demand from auto retailers.

For dealers, sparse inventory is leading to slowing momentum as customer choice is now affected more than ever. Finding ways to make the lot look full is a challenge almost all dealerships face currently. It’s the lowest inventory has been since 2011.

On the other side of the coin, maintaining the gross profit margin has been easier for dealers. The average listing price increased in August 2020 to $38,293, and dealers aren’t feeling the pressure to lower their prices in negotiations.

Related: How dealers can drive leads when inventory slows down

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Jason Unrau
Jason Unrau
Jason Unrau is an automotive specialist with more than 15 years of experience at the dealership level. Focusing mainly on fixed operations and the service industry, Jason’s expertise is in enhancing the customer experience and promoting a healthy, profitable service department.

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