Car dealers positive, but less optimistic about next 3 months

Despite continued robust profits, franchised dealers polled by Cox Automotive this spring were a little less optimistic about the future than they were mid-winter, as overall dealer sentiment softened in part because of inflation, higher costs and still-tight inventory.

Franchised dealers’ expectations for their vehicle markets for the next three months fell from a score of 69 in the first quarter to a still-positive 64 in the second quarter, according to the latest Cox Automotive Dealer Sentiment Index results.

“The decline we’re observing with franchises here is not typical for this time of the year,” Cox Chief Economist Jonathan Smoke told Automotive News. Normally, franchisees’ three-month outlook holds steady heading into both spring and summer, Smoke said.

Cox surveyed 591 franchised and 555 independent dealers from Jan. 24 to Feb. 7 for the first-quarter index and 568 franchisees and 531 independents from April 25 to May 9 for the second-quarter study. In addition to asking dealers their outlook on the three months ahead, Cox asks about the past 90 days and identifies factors affecting dealers’ optimism or pessimism. Cox weighs responses by dealership type and sales volume to calculate a diffusion index. An index number greater than 50 indicates that dealers view conditions as positive.

Smoke noted that the current three-month outlook is “still a very good number.” Franchised dealers are still more optimistic heading into summer than they were in 2019 before the coronavirus pandemic started, he said.

However, used-only dealers’ view of the market three months out plummeted 13 points to a score of 50. That dragged the overall second-quarter index down to a score of 53 in that category, compared with 64 the quarter before.

Franchised dealers’ view of their current markets scored a robust 67, up a point from the quarter before and better than any three-month period before the third quarter of 2020. Still, the metric was down from a historic high of 77 a year earlier. The overall current market index dropped to 54 from 57, the fourth-straight quarterly decline in sentiment.

Smoke attributed the reduction among franchised dealers to uncertainty about the economy and vehicle sales environment, plus other conditions less within dealers’ control.

“I feel like some of our customers are ‘waiting to see what happens’ with the situation in Russia and with upcoming midterm elections,” a BMW dealer in the South told Cox. “Inflation also seems to have an impact on buying decisions. A lot of uncertainty right now.”

Several key survey metrics held steady.

Franchised dealers scored the U.S. economy at 57, the same as last quarter. They viewed the new- and used-vehicle sales environments as slightly improved over the prior quarter, with the new-vehicle environment earning a 52, up 2 points, and the used market meriting a 65, up 1 point.

“With no large [inventory] improvement in the coming months, I expect the demand to remain high,” a Midwest Chevrolet dealer told Cox.

Franchised dealers continued to report buoyant profits, scoring them at 82, a point higher than the 81 seen the two previous quarters. They continued to be pessimistic about new-vehicle inventory levels, scoring that category at the same 25 they did in the first quarter. Their view of used-vehicle inventory levels fell from a 45 to a 43. But in both cases, the scores were an improvement over the last three quarters of 2021.

“The manufacturers are starting to ship again,” a Northeast Jeep dealership told Cox. “Our in-transit numbers are growing. There are still some models that are in shorter supply.”

Though franchised dealers viewed the economy as a positive, they also indicated their costs were increasing. And a growing portion of dealers described the economy as a hindrance. Thirty-eight percent of dealers polled during the second quarter said the economy was holding back their business, up from 30 percent in the first quarter. That ranked the economy second among such factors, only lower than inventory concerns. Smoke called the gain significant.

“As you look at it purely for franchise dealers, it’s really about inventory and the economy overall,” Smoke said.

Source : Autonews.com

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