Overall dealer sentiment in the U.S. held mostly steady in Q3 2023 compared to Q2, as high interest rates and economic concerns weigh heavily on the U.S. auto market, according to the Cox Automotive Dealer Sentiment Index (CADSI).
The Q3 current market index was 45, still below the threshold of 50, indicating that more dealers see the current auto market as weak than see the market as strong. After hitting an all-time high in Q2 2021 of 67, the current market index has been sliding downward. The Q3 report is the fifth consecutive quarter with dealer sentiment below the 50 threshold. Importantly, franchised dealers are far more positive about the current market than independent dealers, with a current market index score of 57, up one point from last quarter. For independent dealers, the current market index fell one point to 41.
The three-month market outlook index declined in Q3, falling from 47 to 45, indicating more dealers feel the market will be weak, not strong, in the months ahead. As with the current market index, franchised dealers were more optimistic about the outlook than independent dealers. The market outlook index in Q3 for franchised dealers increased 1 point, moving from 57 to 58; the outlook index for independent dealers declined from 44 to 41.
“The latest index indicates that persistently high interest rates and lingering concerns about the economy and market conditions are dampening overall dealer sentiment,” said Cox Automotive Chief Economist Jonathan Smoke. “Franchised dealer optimism is on the rise, whereas independents are less hopeful due to affordability issues that more acutely affect the used-vehicle market and their businesses.”
While a majority of dealers believe the market will be weak in the coming months, few factors in the latest survey changed significantly from Q2, indicating the U.S. auto market is relatively balanced and consistent from last quarter. The traffic index declined only slightly from last quarter and the profits index fell one point, from 41 to 40. The overall profits index hit an all-time high two years ago, at 60 in Q3 2021, and has been sliding ever since. The current profits index, at 40, is now at a post-pandemic low. For franchised dealers, profits are still well above pre-pandemic norms at 58. Not so with independent dealers. The profits index for independent dealers at 35 is near the lowest score ever, and well below long-term averages.
Interest Rates and the Economy Continue to Hold Back Dealerships
Interest rates, the overall economy and market conditions weigh heavily on dealers, according to the Q3 2023 CADSI. A majority of dealers see costs as growing, and as noted earlier, dealers agree profits continue to decline and are significantly lower than one year ago. The profit index scores are similar to pre-pandemic norms after reaching new highs in the second half of 2021 and remaining strong through early 2022.
New-Vehicle Sales Environment Improves, While Used-Vehicle Sentiment Falls
Backed by growing inventory levels, the new-vehicle sales environment in Q3 increased 1 point to 59. The above-50 score implies that more dealers see the sales environment as good. The index score is up from 51 a year ago and is now higher than many pre-pandemic measurements.
The used-vehicle sales environment, conversely, continues to be viewed as poor by most automobile dealers in the U.S. In Q3, the used-vehicle sales environment index score increased to 44, up from 42 but still below the 47 recorded a year ago. Independent dealers continue to view the used-vehicle sales environment as particularly poor, although the independent dealer index score increased 3 points to 40. Franchised dealers are more positive about the used-vehicle market, with a score of 58. Both scores are well below pre-pandemic levels.
Electric-Vehicle Sales Index Falls for Franchised and Independent Dealers
Compared to one year ago, electric vehicle (EV) sales are seen as worse for both franchised and independent dealers, though the change is not statistically significant. For franchised dealers, the EV sales index score this quarter was 54, down two points from one year ago and down for a third consecutive quarter after peaking at 61 in Q4 2022. Independent dealers indicate EV sales are slightly worse than a year ago.
When asked about future EV sales expectations (three months out), dealers’ views were declining, with an index score of 47. The index scores for EV sales expectations for both franchised and independent dealers were at their lowest points since Q2 2021, when the EV market expectation question was added.
“Dealers are realizing this is not going to be an easy road in the short term, especially for some brands,” notes Smoke. “However, the pressure dealers feel is from over-supply rather than a lack of demand. I see this as a natural speed bump and an expected part of growth. The No. 1 issue for consumers is price, and that’s a barrier even to considering an electric vehicle. As an economist, I can pretty confidently predict that surplus inventory and increased competition will eventually drive down prices, which will help with EV consideration and adoption.”
Interest Rates and Economy Top Factors Holding Back Business
Interest rates (61%), the economy (54%) and market conditions (41%) are the top factors holding back business, according to the Q3 CADSI. Limited Inventory (37%) has fallen to the fourth spot.
|Top Factors Holding Back|
|Overall Rank||Q3 2023|
|Interest Rates||1||61 %||35 %|
|Economy||2||54 %||53 %|
|Market Conditions||3||41 %||48 %|
|Limited Inventory||4||37 %||56 %|
|Credit Availability for Consumers||5||33 %||18 %|
In Q3, Credit Availability for Consumers (33%) increased significantly versus last year as a factor holding back business. Thirty-three percent of dealers indicated Credit Availability is a challenge in the Q3 survey, up from 30% in Q2 and only 18% in Q3 2022.
Cox Automotive Dealer Sentiment Index Methodology
The Q3 2023 CADSI is based on 983 U.S. auto dealer respondents, comprising 554 franchised dealers and 429 independents. The survey was conducted from July 24 to Aug. 8, 2023. Dealer responses were weighted by dealership type and sales volume to represent the national dealer population.
For each aspect of the market surveyed, respondents are given an option related to strong/increasing, average/stable, or weak/decreasing, along with a “don’t know” opt-out. Indices are calculated by creating a mean score in which:
- Strong/increasing answers are assigned a value of 100.
- Average/stable answers are assigned a value of 50.
- Weak/declining selections are assigned a value of 0.
Respondents who select “don’t know” at a particular question are removed from the related index calculation. The total metrics reported have a +/- 3.1% margin of error.
Download the full results of the Q3 2023 Cox Automotive Dealer Sentiment Index.