#USA #Atlanta #Cox Automotive #Q4 2024 #Dealer Sentiment

Renewed Optimism Among U.S. Auto Dealers Following Elections

Recent insights from the Q4 2024 Cox Automotive Dealer Sentiment Index (CADSI) paint a brighter future for U.S. auto dealers, who are showing renewed optimism in the market. This sentiment stems from the recent national elections that concluded in November. While current conditions still appear weak, dealers are hopeful for significant improvements in the coming months.

Chief economist at Cox Automotive, Jonathan Smoke, noted that the resolution of political uncertainties has positively influenced dealers' outlooks. He states, "The recent resolution of political uncertainty following the presidential election has cleared the path for a more optimistic outlook on future auto market conditions." This optimist view is reportedly bolstered by anticipated supportive measures like tax rebates and the potential for lower interest rates, which have further encouraged dealer positivity as we approach 2025.

According to the CADSI, the market outlook index, which gauges dealer expectations for the upcoming quarter, saw a remarkable increase to 54 in Q4 from 42 in Q3. This uplift indicates a significant shift in sentiment, suggesting that more dealers perceive the auto market will strengthen over the next three months. To put this in perspective, the index was merely at 41 just a year prior, representing one of the lowest readings historically.

"We saw a surge in the outlook, technically the largest surge we have had quarterly in the history of the data, taking us back to Q2 2022 levels," Smoke elaborated. "This is the best fourth quarter since 2021, which marked the most profitable quarter in dealer history."

Despite this positive trajectory, the current market conditions are still seen as weak, with an index score of 42. Many dealers report dissatisfaction with present retail market strength, although this score is slightly better than last year's figures and reflects improvements compared to the prior quarter. Notably, franchised dealers who sell both new and used vehicles display a greater sense of optimism with a score of 50, showcasing an even distribution between strong and weak market views. Conversely, independent dealers focusing solely on used cars scored a modest 39, though it is an improvement from previous quarters.

Profit Dynamics and Cost Challenges

The profit index showed a minor improvement from 34 to 35. While both franchised and independent dealers noted a rise in profitability, the score remains below levels seen in 2021 and 2022, indicating that profitability continues to be a challenge. On the cost front, there is a slight shift downward, with the cost index decreasing from 77 to 71, hinting at a possible easing of cost pressures.

Broadly regarding the U.S. economy, views remained static in Q4 with a score of 41, aligning with Q3 numbers and slightly higher than the previous year's figure. Dealers consistently perceive the economy as weak, which has been a longstanding sentiment fueled by high inflation and auto loan rates.

Sales Environment and Consumer Traffic

Evidently, the environment for new vehicle sales has improved, with the index moving from 51 to 54. Inventory levels for new vehicles remain high, clocking in at 73, indicating an increase in available stock. The used-vehicle segment also saw slight improvements, rising from 43 to 44. However, the customer traffic index fell from 32 to 31, principally due to reduced foot traffic to dealerships, although there was a slight increase in digital traffic.

Incentives and Price Pressures

As inventories grow, particularly for new vehicles, dealers largely consider the automaker-backed incentives to be minimal, reflected in an unchanged index score of 37. On the pricing front, price pressure subtly declined from 66 to 63, though most dealers still express a need to lower prices.

Electric Vehicle Market Sentiment

Interestingly, while optimism towards electric vehicle (EV) sales has remained steady overall, with an index score of 43, it reflects dealers' sentiments that today’s EU market is weaker than last year. With scores dropping, the outlook for EV sales lies at 35, indicating a decline in expectations.

Despite the cautious tone surrounding EV sales, remarks regarding national tax credits and incentives affirm their positive impact, especially on franchised dealers, where the tax credit index climbed to 67 in Q4.

Economic and Political Influences

The leading worry for dealers is still the economy, with 56% indicating it as a major concern, albeit improved from 62% last year. Furthermore, 52% of dealers are still apprehensive about interest rates, making them the second most cited concern. Political climate issues, reported by 35% of surveyed dealers, followed by concerns regarding expenses, have decreased significantly since previous quarters.

Overall, these findings from the Q4 2024 CADSI suggest that while there are uncertainties and challenges ahead, the general sentiment among U.S. auto dealers is progressively shifting towards optimism as we enter a new year, holding promise for a stronger auto market in the months to come.