Auto dealers in the United States continue to view the market as weak, with concerns about declining profitability, the political climate, rising costs, and economic uncertainty, according to automotive services provider Cox Automotive.
Independent dealers “expressed a very negative outlook” compared to the “slightly optimistic” outlook of franchise dealers, with their sentiment hitting the second-lowest score in the survey’s history.
Independent dealers held a “particularly pessimistic view on almost every aspect” of the auto market, the statement said.
“For more than two years now, after reaching peak profits in 2021, U.S. automobile dealers have viewed the overall market as weak,” Cox Automotive’s chief economist, Jonathan Smoke, said. “The retail auto business today is working through a lot of uncertainty, with the coming national election front and center, and also expectations of shifting market dynamics.”
Dealers were worried about costs, predicting business expenses to increase further, thus negatively affecting profitability. For independent dealers, the profitability index was at its lowest point since the COVID-19 pandemic.
Smoke pointed out that “the profitability index has generally declined for three straight years, particularly for independent dealers.”
The auto market outlook for the next three months has declined, suggesting that the majority of auto dealers expect a weakening in sales during this period. The market outlook index for franchise dealers was 49, marking the third time since 2018 that the level has fallen below 50.
Worries about political unrest and concerns about the economy rose in the third quarter among dealers, with interest rates continuing to remain a major issue. Forty-four percent of dealers cited political climate as a key reason holding back their businesses, the highest level since the metric was introduced in 2019.
“Rising inventory is the primary factor behind the profit decline and fewer vehicles are selling above the manufacturer’s suggested retail price (MSRP),” he said. “Thus far, only 13 percent of new vehicles have been sold above MSRP, which is down from 31.2 percent in August 2023.”
EV Sales Dampen
The majority of auto dealers also report that electric vehicle (EV) sales have dropped from a year ago, despite an improvement in third-quarter sales, according to Cox. Expectations for future EV sales have also declined, with the score dropping from 39 to 37.“The score indicates that a majority of dealers feel their EV sales will decline in the months ahead, not grow. The future EV sales index scores for both franchised and independent dealers were lower quarter over quarter and year over year in Q3,” Cox said.
“For one, we’re seeing rising concerns around EV capital costs due to lower prices being realized for used EVs,” he said. “Two, uncertainty around a number of elections this year has decreased visibility on potential changes to government policies affecting the EV industry.
“The third and final concern is around a shortage of rapid-charging stations. As EV penetration accelerates, rapid charging station infrastructure issues have emerged as a tangible problem.”
Several automakers have said that customer concerns about EV charging infrastructure and driving range were increasing, which could lead to many potential consumers having second thoughts about buying an electric vehicle, Yuzawa said.
A lack of public charging infrastructure was cited as the top reason for shifting away from EVs, with the total costs of EV ownership being another major factor.
