Dealer sentiment weakens on political tensions, interest rates

Author

Colin Velez
June 11, 2024

Car dealers feel more pessimistic about the market than they did at the start of the year, citing concerns over interest rates and a looming presidential election.

Why this matters: Dealer sentiments give insight into the frontline experience of the car business, establishing where the major pain points lie and shedding light on areas of uncertainty.

Cox Automotive’s Q2 Dealer Sentiment Index study revealed the following shifts in how auto retailers perceive their business’ performance.

  • Overall sentiment is unchanged from Q1 but remains mostly negative

  • The market outlook index dropped seven points from Q1

  • With an index score of 52, franchised dealers continued to feel more optimistic about their prospects than independent retailers, who scored 41.

Why aren’t dealers more optimistic?

  • Interest rates: While it seemed like the Federal Reserve was poised to cut interest rates as early as this summer, it now appears that it will take several more months of positive inflation trends before any adjustments are made. The delay is likely what caused the percentage of dealers who listed interest rates as a top concern to jump from 53% in 2023 to 59% in 2024.

  • Political climate: It’s no surprise that as the election draws closer, dealers feel more and more worried about how the outcome will affect their businesses. Thirty-six percent of retailers cited the political climate as a top concern weighing on their outlook, compared to just 29% last year. 

Not everything was bleak in Cox Automotive’s report however.

  • Both franchised and independent dealers reported higher online and in-store traffic compared to Q1. 

  • Sentiments around profits also saw slight improvements, reversing course after roughly two straight years of declines.

  • Expectations for growth in the EV market, while still weak, also improved for the first time in several quarters, jumping to an index score of 39 compared to 36 in Q1.

Bottom line: It’s important to remember that “pessimistic” scores don’t reflect how dealers actually feel about their business’ overall health, but rather whether they expect the market to be easier or more challenging in the months ahead. That being said, tracking changes in sentiments is still incredibly important for obtaining a deeper understanding of the market than simple sales numbers can provide.

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