Dealer sentiment improves—but interest rates and rising costs still cloud outlook

Dealer sentiment is improving, but overall confidence in the current market remains low. However, dealers are more optimistic about future market conditions.

The details: The Q1 2025 Cox Automotive Dealer Sentiment Index (CADSI)---drawn from a survey conducted in late January and early February (before tariffs were announced)---reveals that dealers’ view of the market increased two index points from Q4 2024 to Q1 2025, with franchise dealers having a more positive view on the current market.

• Dealer sentiment in the first quarter of 2025 was 44, up from 42 in Q4 of 2024 and below the threshold of 50, indicating that more dealers see the current market as weak rather than strong. 

• The index score among franchised dealers surveyed was 54, whereas independent dealers indicated the current market is weak, with a score of 42.

The good news: The market outlook index—which tends to be a solid indicator of how dealers see the market in the coming three months—improved in Q1, surging for the second straight quarter to 58, which is the highest score since 2022.  

Between the lines: In Q1 2025, the profit index dropped, meaning dealers expected earnings to take a hit, while the cost index stayed flat from Q4 2024.

• In other words, expenses didn’t decline, but revenue expectations did. 

• That gap—steady costs and shrinking margins—is a key reason why dealers remain wary of the current market.

Digging deeper: New vehicle sales expectations stayed steady at an index of 54 from Q4 2024 to Q1 2025, slightly above last year’s 52. Meanwhile, used vehicle sales optimism ticked up to 45 in Q1, marking a five-point improvement from a year ago.

The problems: Dealers view interest rates as the “leading factor” holding back business, with 52% noting it as a top concern. The economy ranked as the second most concerning factor in the business (45%), followed by market condition (36%), expenses (29%), and consumer confidence (26%). 

Why it matters: Dealer optimism about the market has likely shifted since Cox conducted its survey, given the uncertainty surrounding the tariffs. However, reports indicating that cooler inflation last month could prompt the Federal Reserve to resume cutting interest rates (a leading dealer concern) and drive more potential buyers to dealerships in the months to come.

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