Auto dealers still don’t like the look of the current market for vehicles. But now there’s a hint of optimism about the near future.

The Cox Automotive Dealer Sentiment Index for the first quarter of 2024 shows dealers’ view of the market has improved only slightly, up to 42 (out of 100) from Q4 2023’s dismal score of 40 — the lowest since the beginning of the COVID pandemic in the spring of 2020.

But looking ahead, the score for what dealers are expecting three months from now took a giant leap from the record low 41 of the previous survey, up 10 points to 51. That’s just above the midpoint of 50, indicating more dealers believe the market will be strong than weak.

Cox analysts pointed out the Q1 survey typically shows a “spring bounce” as dealers look forward to the spring selling season.

The survey showed profitability, customer traffic and costs are dealers’ main concerns in the here and now. The overall profitability index of 33 is the second-lowest ever, behind only the pandemic shutdowns of Q2 2020. That score has dropped steadily since its peak of 60 in Q3 2021.

The decline has been especially precipitous among franchised dealers, whose profitability index fell 10 points in the past quarter to 41. That’s less than half of its 2021 high point of 86 and the first time since the pandemic that it’s been below the 50 threshold. The score for independents matched its post-pandemic low at 31.

“The vehicle market in the U.S. is shifting from a seller’s market to a buyer’s market, and dealers are feeling the pinch of tighter margins and higher costs,” Cox Automotive chief economist Jonathan Smoke said. “After some highly profitable years for many dealers, 2024 will be a tough comparison.

“Dealer costs continue to grow and profitability per sale has dropped. As we often see in our surveys, spring is bringing some optimism, but dealers are clearly indicating the U.S. auto market is very different than it was just two years ago.”

Sales environment still down

Dealers said the current sales environments for both new and used vehicles have improved over last quarter but are still down year over year. The new-vehicle sales index was up one point to 52, down from 57 one year ago. The used-vehicle index also rose one point, to 40, but is below the 44 posted in Q1 2023 and well below the long-term index average of 50.

Among franchised dealers, the used-vehicle sales index continued to hover at its post-pandemic low of 51, while the independents’ score was up a point at 36.

The new-vehicle inventory index reached an all-time high of 75 in Q1, soaring 13 points from the previous quarter and 50 points since Q1 2022, when low new-vehicle supply was among the most cited factors holding back business.

Used-vehicle supply, other the other hand, is still an issue, with a score of 45 indicating inventory is declining rather than growing. That seems to be more of a problem for independents, who gave it a score of 42, compared to 53 for franchised dealers.

Dealers as a whole are still less than optimistic about the overall U.S. economy, with the index of 42 – well below the 50 threshold – indicating weakness, though it was up from 39 in Q4. Independent dealers, whose score rose four points to 40, drove that increase.

Interest rates, the economy and market conditions remained the top three factors seen by dealers as holding back their business. But the percentage of dealers citing each decreased in Q1, with interested rates at 62% (down from 65%), the economy at 55% (down from 61%) and market conditions at 40% (down from 48%).

EV sales sink to record low

The majority of dealers said sales of electric vehicles are worse than they’ve been since that category was added to Cox Automotive’s index in Q2 2021.

The current index fell to a record low 42, down from 48 in the previous quarter and 50 a year ago. The three-month outlook for EV sales plummeted as well, falling six points to 36, also a record low. That’s down 17 points year-over-year, when dealers were optimistic EV sales were poised to take off.

“The drop in dealer sentiment related to electric vehicles is understandable when we look at where EVs stand on the adoption continuum – shifting from early-adopter buyers to mainstream,” Cox Automotive director of industry insights Stephanie Valdez Streaty said. “In 2024, the Cox Automotive team expects the industry to fully acknowledge the fact that the average consumer needs to be convinced on the merits of going electric, and many won’t be easily persuaded.

“The EV market is likely to see a rise in the number of models, incentives, discounting and advertising. However, selling more EVs will require more effort on the part of dealers.”

Methodology

The Q1 2024 Cox Automotive Dealer Sentiment Index is based on a survey of 1,018 U.S. auto dealer respondents, comprised of 546 franchised dealers and 472 independents. The survey was conducted from Jan. 30 to Feb. 13, 2024.

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 full results can be downloaded here.