ATLANTA, March 9, 2022 /PRNewswire/ -- Facing a slow start
to the year, and with concerns over inflation and the economy,
automobile dealer sentiment softened in Q1, marking the third
consecutive quarter-over-quarter decline in current market
sentiment. Still, at 57, the current market index remains above the
positive threshold in the latest Cox Automotive Dealer Sentiment
Index (CADSI).
Cox Automotive Dealer Sentiment Index finds auto dealers remain
positive while facing inflation and economic challenges.
The index reading of 57 indicates that more U.S. automobile
dealers feel the current market is strong compared to the number
who feel the current market is weak. The key drivers of sentiment
saw marginal shifts in Q1. The 3-month, forward-looking market
outlook index rose modestly – reflecting the typical spring bounce
– and, at 64, is above the 59 recorded in Q1 2021. The overall
profit index saw a small decline to 54, down from 57 last quarter,
but remains well above any point before the COVID-19 pandemic. The
price pressure index, likewise, increased slightly in Q1 but
remains historically low, indicating fewer dealers feel pressure to
lower their prices.
"As we enter the spring market, we can see the small green
shoots of optimism from the U.S. auto dealers," said Cox Automotive
Chief Economist Jonathan Smoke.
"Most dealers have weathered the storm well, and we suspect there
is hope the pandemic may finally be waning. Views of the economy
weakened modestly, but dealer profits are historically strong and
demand remains robust. Those are good signs for the industry."
The Q1 2022 CADSI research was in market from January 24 to February 7, just past the height of
the omicron variant. Importantly, though, the research was done
before the Russian invasion of Ukraine, and before gasoline prices in the
U.S. moved into record territory. Even before the situation
worsened, the U.S. economy index score dropped from 52 in Q4 2021
to 49 in Q1, indicating more dealers felt the economy was weak
compared to those who thought it was strong. The score of 49,
however, is higher than it was a year ago in Q1 2021 when the index
score was 44.
"The tragic situation in Ukraine, of course, adds a level of
uncertainty to the U.S. economy that will impact the U.S. consumer.
Higher gas prices, a struggling stock market, inflation, and the
potential for more supply chain disruptions – these factors will
slow any anticipated market recovery and may impact dealer
sentiment in Q2. Right now, though, it's too soon to know how long
the situation will last or how bad it will get," added Smoke.
Inventory and Sales
One positive sign in the latest
CADSI report is a notable jump in the new-vehicle inventory index
for franchised dealers. While still historically low at 25, the
index increased by 11 points and marked the highest score since the
first quarter of 2021. The index for the new-vehicle inventory mix
also increased quarter over quarter.
"Inventory issues have been the biggest concern for dealers for
more than six months now," added Smoke. "In our latest study,
inventory remains a top priority, but the initial signs of a
recovery are there. And that is a positive for the market."
On the used-vehicle side, the inventory index jumped up in Q1
2022 as well, reaching 36, the highest score in the past 12 months.
The used-vehicle inventory mix index improved also. However, all
index scores associated with inventory remain well below the 50
threshold, indicating dealers are still facing inventory
challenges.
The view of new-vehicle sales improved for the first time in two
quarters, increasing from 45 to exactly 50, meaning dealers were
evenly mixed on their opinions of new-vehicle sales. One year ago,
the index score was 61, meaning more dealers saw the market as
good. The new-vehicle incentives index dropped by one point quarter
over quarter, to 23, the lowest level since the question was added
to the CADSI in Q3 2019. The incentive index measures if OEM
incentives are large (above 50) or small (below 50).
The used-vehicle sales index, on the other hand, fell one index
point to 52. For franchised dealers, the used-vehicle sales index
has now dropped for three straight quarters and is below year-ago
levels. There was no change in the used-vehicle sales index for
independent dealers, which held steady quarter over quarter at 48,
meaning more independent dealers see the market as poor than see it
as good.
Springtime Optimism?
The market outlook for the next
three months increased to 64 in Q1 2022, up from 60 in Q4. The
score indicates that most dealers feel that the outlook for the
next three months is positive, which reflects the springtime
optimism routinely seen in the report. In fact, the Q1 outlook is
higher than it was one year ago – ahead of a year of record profits
– and at the highest point since Q1 2020, before the pandemic
began. The quarter-over-quarter increase, however, was driven
mostly by independent dealers; the franchised dealer outlook was,
in fact, flat quarter over quarter at 69. Still, the market outlook
index score of 69 for franchised dealers is above pre-pandemic
levels.
While profits remain historically strong, particularly for
franchised dealers, tight inventory and no quick fix in the making
are likely weighing on dealers. Overall, Limited Inventory
continues to be the top factor holding back business according to
the Q1 2022 CADSI. The factors saw little change from last quarter,
with the top four factors unchanged from Q4 2021 – Limited
Inventory, Market Conditions, Economy and COVID-19 impacts. In Q1
2022, Political Climate dropped out of the top five, replaced by
Expenses.
Dealers Face Rising Costs and Staffing Issues
In Q1
2022, the cost index – specifically the cost of running a
dealership – was at the highest level since the survey began in
2017. After reaching a record low in Q2 2020 of 51, at the height
of the pandemic, the cost index has been steadily increasing. One
factor contributing to rising costs may be staffing. The staffing
index, at 46, improved slightly from Q4, but generally remains
below pre-pandemic levels. With a score below 50, it indicates more
dealers feel their staff is declining rather than growing.
As a factor holding back business, more dealers noted Staff
Turnover was an issue in Q1 2022 than in the same timeframe last
year. In fact, 11% of dealers point to Staff Turnover as a factor
holding back business in Q1, compared to only 7% in Q1 2021 and 8%
in Q1 2020. In terms of staffing issues, service is the top area of
concern, particularly for franchised dealers, followed by
sales.
Cox Automotive Dealer Sentiment Index Methodology
The
Q1 2022 CADSI is based on 1,146 U.S. auto dealer respondents,
comprising 591 franchised dealers and 555 independents. The survey
was conducted from January 24 to February 7,
2022. Dealer responses were weighted by dealership type and
volume of sales to be representative of the national dealer
population. For each aspect of the market surveyed, respondents are
given an option that relates 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 margin of error of +/- 2.9 percent.
Download the full results of the Q1 2022 Cox Automotive
Dealer Sentiment Index.
About Cox Automotive
Cox Automotive Inc. makes buying,
selling, owning and using vehicles easier for everyone. The global
company's more than 27,000 team members and family of brands,
including Autotrader®, Dealer.com®, Dealertrack®, Kelley Blue
Book®, Manheim®, NextGear Capital®, VinSolutions®, vAuto® and
Xtime®, are passionate about helping millions of car shoppers,
40,000 auto dealer clients across five continents and many others
throughout the automotive industry thrive for generations to come.
Cox Automotive is a subsidiary of Cox Enterprises Inc., a
privately-owned, Atlanta-based
company with annual revenues of nearly $20
billion. www.coxautoinc.com
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