Auto Dealer Confidence Inches Higher in Q1

U.S. auto dealers are now slightly more optimistic about demand for new cars than they were in the fourth quarter of 2018, but the outlook for 2019 sales remains negative for the second consecutive quarter.

The conclusions are based on the Cox Automotive Dealer Sentiment survey and index for the first quarter of 2019 released Monday. The overall sentiment index from both franchise and independent dealers rose from 44 in the prior quarter to 48 for the first quarter but are down from 49 in the first quarter of 2018. An index score ranges from 0 to 100, and any number over 50 indicates that more dealers view conditions as strong rather than weak. When an index is below 50, overall sentiment is negative.

When asked what they expected the market in their areas to look like in three months, the overall index score rose sharply from 49 in the fourth quarter to 63, its highest level since the second quarter of last year. Last quarter’s index score was the first time the index had ever dropped below 50.

A profitability index score of 43 for franchise dealers was six points lower than in the prior quarter, while independent dealers raised their profitability score by one point to 36, likely indicating that consumers expect dealers to pick up the tab for higher interest costs and, on new cars, higher prices for steel and imports. The overall index score of 69 related to the cost of doing business shows costs rising, although the increases remain small and fewer dealers are feeling pressure from customers to reduce prices.

The index score for new car sales dropped from 57 in the prior quarter to 53, and the index score for new-car inventory rose from 59 to 60. Index scores for used-car sales and used-car inventory rose by two points to 53 and four points to 54, respectively.

When asked what is holding back their businesses, dealers overall cited market conditions (45%) as the main weight, followed by competition (37%) and credit availability for customers (33%). Rising interest rates dropped from second (38%) as a business issue in the fourth quarter to sixth (22%) in the first quarter.

Cox Automotive’s chief economist, Jonathan Smoke, sums it up:

We’ve seen a turnaround in dealer sentiment and the outlook for the future this quarter compared to the fourth quarter. However, gone is the euphoria we saw this time last year as views of new- and used-vehicle sales are lower. … As dealers look ahead, they have a less-than-positive view of growth in the future. We see the threat of tariffs potentially creating a pull-ahead effect in the near term, and then if tariffs are implemented, sales are expected to drop off dramatically.

Full survey results and details on the study’s methodology are available from Cox Automotive.