New car sales have accelerated in 2024, but the people who sell those cars aren’t faring any better. A survey of car dealers shows they’re depressed about the current market and worried about their future.
Cox Automotive’s latest Dealer Sentiment Index shows that auto dealers are pessimistic about the end of the second quarter of 2024.
About the survey
Cox Automotive is the parent company of Kelley Blue Book. The company’s researchers survey dealers quarterly. The results can be helpful to buyers when it comes to knowing the right time to buy and the right negotiating methods. If you know the dealer expects to sell you any car easily, you have limited negotiating power. If you know they’re nervous about their future, you may have more room to haggle.
The researchers surveyed 1,026 dealers – 550 from franchise networks and 476 from independent dealerships – about their expectations for the industry.
The traders’ answers are converted into numerical values by the researchers. A value of 50 is neutral. Values above 50 indicate optimism, values below 50 indicate doubt.
Retailer: It won’t get better
The average response from dealers in the second quarter survey was 42 – identical to the first quarter results and not far from their low of 40 at the beginning of the COVID-19 pandemic.
A year ago, the index was at 45, below the 50 threshold. The last time the current market sentiment was above 50, indicating a strong market, was in the second quarter of 2022.
Last quarter, dealers believed their situation would have improved by now. In the first quarter, their expectations for the second quarter were 51. Now they have reached longer-term pessimism. The expectations for the third quarter were only 44, which shows that dealers expect a summer of poor sales.
“There is a lot of uncertainty in this market, which is making both consumers and dealers unsure about what the future holds,” said Jonathan Smoke, chief economist at Cox Automotive. “In addition to the uncertainty about interest rates, we are heading into an election season, and this one in particular is causing further concern. In the auto industry, uncertainty is the enemy – it negatively impacts sales, hurts consumer sentiment and worries auto dealers.”
Traders are more negative about the market than the numbers suggest. They rated their current earnings at 36 – low, but the highest in nearly three years. The last time traders rated their earnings higher was in the third quarter of 2021.
Negotiating power
“Overall, trader sentiment is probably worse than actual market conditions,” Smoke notes.
With a few exceptions (we’re looking at you, Toyota and Honda), dealers have an oversupply of new cars for sale.
As unsold cars pile up, factories and dealers are trying to get rid of them with discounts. The incentives have increased through 2024 as the auto industry faces a relentless backlog of orders.
Retailers assume that this situation will not change any time soon. They gave their inventory levels an average score of 69 – the highest in the history of the survey.
Concerns: Interest rates, economy, politics in the election year
When asked what’s slowing their business, auto dealers in the second quarter focused on interest rates, the economy and market conditions – the same top three factors as last quarter and last year.
But with the US presidential election in November, the political climate is becoming more of a factor affecting business. In the latest survey, 36% of traders said the political climate was a factor hindering business, up from 33% in the first quarter and 29% a year ago.
Smoke commented, “In many ways, the political climate is a proxy for ‘uncertainty.’ Many dealers and consumers believe that the election outcome will affect the economy and the auto market in some way – either positively or negatively – and that expectation of change paralyzes the market and dampens sentiment.”