US AUTOMOTIVE dealers say that while economic conditions remain weak, the decisive national election result of November has led to them being increasingly optimistic about the future.
The Q4 2024 Cox Automotive Dealer Sentiment Index (CADSI) shows its market outlook index, which measures dealers’ expectations for the automotive retail market in the coming quarter, jumped to 54 in Q4 from 42 in Q3.
“This significant increase suggests that more dealers believe the auto market will be stronger in the next three months,” the Cox report on the CADSI said.
“One year ago, the index stood at just 41, one of the lowest readings in its history.” Cox Automotive’s chief economist Jonathon Smoke said: “The recent resolution of political uncertainty following the presidential election has cleared the path for a more optimistic outlook on future auto market conditions.
“Coupled with the potential for supportive measures such as tax rebates and the possibility of lower interest rates, dealers are feeling more hopeful about the road ahead as we move into 2025.”
Mr Smoke said the US had seen a surge in the outlook that was “technically the largest surge we have had quarterly in the history of the data, and it gets us back to Q2 2022 levels.”
“It is the best fourth quarter since 2021, which was the most profitable quarter in dealer history.” Despite the positive outlook, the current market index score of 42 indicates that a majority of dealers still view the current retail auto market as weak.
This score is slightly better than one year ago but remains well below pre-pandemic norms and long-term averages.
Cox said that franchised dealers, who sell both new and used automobiles, are more optimistic than used-only independent dealers, with an index score of 50.
“This score signals an equal number of dealers see the current market as strong and see it as weak,” Cox said.
“A majority of independent dealers indicate that the current market is weak, with a score of 39. However, this represents an improvement compared to last quarter and last year.”
The report accompanying the index showed that in Q4, the important profit index increased slightly, moving from 34 to 35.“Both franchised and independent dealers noted higher profitability compared to Q3, but the index score remains well below levels seen in 2021 and 2022,” it said.
“The cost index also improved, falling from 77 to 71, suggesting some pressure may be easing.
“Views of the US economy were mostly flat in Q4 at 41, equal to the score in Q3 and two points higher than in Q4 2023.
“US automobile dealers still see the economy as weak, a sentiment that has been consistent for the past two years due to elevated inflation and high auto loan rates.”
Looking at the data more closely, it showed that the new-vehicle sales index improved in Q4 from 51 to 54, suggesting a better sales environment.
The new-vehicle inventory index remains high at 73, indicating growing inventory, and the score of 73 is just two points below the all-time high reached in Q1 of this year.
The used-vehicle sales environment also saw a slight improvement, moving from 43 to 44. Used vehicle inventory levels increased as well, jumping from 40 to 45 in Q4.
But against this, it said that customer traffic in Q4 continues to be seen as weak. The Customer Traffic Index slipped from 32 to 31, driven by declining in-person visits, though digital traffic gained marginally, with the index score increasing from 39 to 40.
”As inventory improves, particularly on the new-vehicle side, most dealers still consider the current level of manufacturer-backed incentives small,” it said.“The incentive index score of 37 is unchanged from Q3 and remains at the highest level since Q2 2021.
“Price pressure fell slightly in Q4, from 66 to 63, but a majority of dealers continue to feel more pressure to lower prices.”
On the electric vehicle front, dealer optimism toward EV sales in Q4 was mostly unchanged from Q3 at 43 overall.
“The index scores suggest most dealers feel EV sales are worse now compared to one year ago,” Cox said.
“The outlook for EV sales fell further in Q4, with a majority of dealers suggesting the EV market would decline in the coming month, with a score of 35, down from 37 last quarter.
“With an overall score of 60, dealers continue to suggest that national tax credits and incentives are having a positive effect on their EV sales.”
The tax credit index score in Q4 was 67 for franchised dealers, the highest score recorded since the question was added in Q1 2023.
“We are getting clear feedback that the tax credits are working in both the new and the used markets,” said Mr Smoke.
“The numbers have been moving higher and higher for franchises and are up substantially year-on-year. They have been pretty stable for independents all year but up year over year.
“This is something that could change fairly rapidly next year, so I think the diminishing outlook is directly tied to the at-risk status of the EV tax credits.”Cox’s report also found that the top factor holding back business is the ‘Economy’, with 56 per cent of dealers citing it as a significant concern.
Despite a significant quarter-over-quarter drop, ‘Interest Rates’ remain a close second at 52 per cent. ‘Market Conditions’ was cited by 37 per cent of dealers.
After the recent election, 35 per cent of dealers surveyed in Q4 reported that the ‘Political Climate’ in the US is affecting their business. This is a significant decrease from the 44 per cent of all dealers and 49 per cent of franchised dealers recorded in the previous quarter.
The Q4 percentage is slightly higher than one year ago when it stood at 33 per cent. Completing the top five, 33 per cent of dealers identified ‘Expenses’ as a barrier holding back business.
The Cox Automotive Dealer Sentiment Index was derived from a quarterly survey that Cox Automotive issues to a representative sample of US franchise and independent automotive dealers.
The index measures dealer perceptions of current retail vehicle sales and sales expectations for the next three months as “strong,” “average,” or “weak.”
The survey also asks dealers to rate new-car sales and used-car sales separately, along with various key drivers, including consumer traffic.
Responses are used to calculate an index by which any number over 50 indicates that more dealers view conditions as strong rather than weak.
The Q4 2024 CADSI is based on 933 US auto dealer respondents, comprising 493 franchise dealers and 440 independents. The survey was conducted from November 6 to 18, 2024.
By Neil Dowling