Dealer sentiments improved substantially over the previous quarter, driven by unexpectedly high sales and revenue.
Cox Automotive tracks retailer outlooks through its Dealer Sentiment Index, periodically measuring attitude changes over the car market’s performance. Dealers were mostly pessimistic heading into the first quarter, worrying over high-interest rates, affordability pressures and inventory shortages. But since last December, the car market has performed astonishingly well, with many trade groups and manufacturers reporting record-breaking quarterly revenue. As a result, while attitudes on the car business’s current state remain unchanged from pre-Q1, the index showed that storeowners are now far more confident in Q2.
Dealer sentiments over the incoming quarter’s performance improved by 12 points, shifting from a score of 41 to 52. The change is a dramatic reversal from the index’s previous results, although the score still lags behind the early-year optimism of 2022. “Despite high interest rates and stubborn inflation, the U.S. consumer continues to prop up the economy,” writes Johnathan Smoke, Cox Automotive’s chief economist. “Auto sales are slow by historical standards, but the sales pace has been improving in early 2023, giving dealers reason to feel somewhat optimistic about the year ahead.”
However, even though dealer sentiment is improving, some challenges caused by the COVID pandemic persisted into 2023, pushing certain sections of the index down. The cost index, which measures the price of retailer business operations, climbed three points to a score of 75, which Cox Automotive notes is just one point short of the current record, seen in early 2022. The Profit index was also negatively impacted, declining from 44 in Q4 to 42 in Q1. However, the numbers reveal a discrepancy between franchised and independent dealers, with the former scoring 63 points and the latter scoring 36.
Overall, dealers feel more at ease compared to previous quarters, although many still have anxieties over demand and income. Although dealer sentiments do not present an accurate reflection of the auto industry’s actual performance, they do indicate how broader economic conditions make retailing more or less difficult. It remains to be seen whether the car market continues to beat expectations in the new quarter or if persisting issues will cause yet another upset.