Survey: Auto Dealers Continue Losing Faith in the Market

A recent Cox Automotive poll has shown that U.S. dealers are becoming less optimistic about the upcoming sales period. Top reasons included the economy, high interest rates, and an uncertain political climate. That said, it probably doesn’t take an in-depth study to realize there’s something off about today’s product mix and financing options when the most common question I receive from friends about automobiles pertains to why they all seem to cost so much these days. But it's nice to have the extra data.

Cox's Dealer Sentiment Index survey connected with 536 franchised dealers between July 23rd and August 7th to get their take on how the market would fare through the next quarter. The trend was negative, with the future market receiving a score of 40. That’s down from 42 in the previous quarter and 45 from the same quarter from last year.

The study noted that, while franchised dealers have historically been more optimistic in their market outlook index, they were trending below a score of 50 — which is considered the threshold for whether dealers see a strong or weak sales outlook. For independent dealers, the market outlook score for Q3 was 39, down from 41 in Q2.

No matter how you slice it the prognosis is not looking great.

“For more than two years now, after reaching peak profits in 2021, U.S. automobile dealers have viewed the overall market as weak,” stated Jonathan Smoke, chief economist at Cox Automotive. “The retail auto business today is working through a lot of uncertainty, with the coming national election front and center, and also expectations of shifting market dynamics. U.S. dealers are feeling the effects of these dynamics in the market today and their expectations for the future.”

Political elections being relevant has everything to do with assumptions about the economy, the future of all-electric vehicles, and how regulations will progress. The Biden administration has been a major proponent of EV, subsidizing them, and enforcing strict emissions laws, with the assumption that a Harris victory in 2024 would continue the trend. However, the Trump administration has said it wants to focus on deregulation and create a more mixed/affordable vehicle market, without getting too specific about what that would entail.

Consumers and automakers alike would be impacted by either outcome, with some buyers likely waiting to see how things shake out. But it takes a while for a change in leadership to make tangible impacts on the industry. Trump's previous efforts to deregulate the market and lower fueling requirements were blocked by lawsuits from Blue States. Biden's EV agenda has likewise fallen far sort of its targets, despite massive amounts of money being funneled into the relevant industries.

Elections are hardly the only factor impacting the automotive market. Inflation has negatively impacted the middle class’ ability to purchase things and effectively accelerated the upward transfer of wealth. This has changed buying habits for a majority of the U.S. population — though the trend isn’t limited to North America.

Cox also noted that market conditions and expenses were likewise relevant factors. However, those are both fairly broad and nonspecific items with plenty of overlap in other categories. Without getting into the why of things, we could probably chalk them up to the fact that many models are seeing $1,500 factory price increases this year after a multi-year period where vehicles were already becoming more expensive. This arguably wouldn’t be something viewed as sustainable during a stint where other goods and services went down in price. But we all know that hasn’t been the case, with practically every essential item (e.g. housing, food, transportation, energy) becoming more decidedly more expensive. Worse still, wages aren’t keeping pace and arguably haven’t since roughly 1979 based on data from the Congressional Budget Office.

Consumers are really feeling the pinch these days and automakers are asking for more money. Your author recently attended a drive event for the 2025 Volkswagen Jetta and GLI, with the company really trying to drive home the point that it’s growing aware of price sensitivities on the market. That’s something you don’t normally hear from these events, which are typically about dazzling the media with new features. But I’d wager that it’s about to become much more commonplace when it comes to mainstream products.

If you’re wondering who to blame for expensive cars, there are a lot of good places to point your finger. You might even need to direct a digit back at yourself. Consumer willingness to take on increasing amounts of debt to get into new vehicles is a major factor. But many automakers have likewise dumped affordable models from their lineup to chase down vehicles offering higher profit margins. Some of that is down to corporate greed. However, U.S. regulations have effectively incentivized manufacturers to build increasingly large (and thereby more expensive) automobiles as a way to circumvent stringent emissions rules.

Billions upon billions of dollars were likewise dumped into developing all-electric vehicles that the industry is having a tough time making money on. Losses need to be recouped and businesses do everything in their power to do what it takes to maintain profits and their share price. Global regulations have similarly forced the inclusion of additional safety measures and more technology inside of vehicles, further impacting the price of new models.

Dealers can also take some blame for raising prices after 2020. Even without manufacturers upping MSRPs, many dealers leveraged lean production and spartan lots into major price markups. This actually continued after production stabilized and was made possible by extending vehicle loans, which ultimately resulted in already expensive vehicles costing even more over time as interest rates climbed. But the bottom appears to be dropping out.

From Cox Automotive:

Both franchised and independent dealers agree on the price pressure index, which is at 66, suggesting that all dealers feel more pressure to lower prices. After hitting a low point during the inventory shortages of late 2021 and most of 2022, price pressure has now fully returned to the U.S. market. The price pressure scores in 2024 have been consistent with those from before the pandemic.

While sentiment about electric vehicle (EV) sales improved in Q3 following a low point in Q2, a majority of dealers continue to report EV sales that are worse than one year ago. The overall score in Q3 was 44, up from 41 in Q2, but lower than the score of 49 reported one year ago. Expectations for future EV sales, however, fell in Q3, dropping to 37 from 39. The score indicates that a majority of dealers feel their EV sales will decline in the months ahead, not grow. The future EV sales index scores for both franchised and independent dealers were lower quarter over quarter and year over year in Q3.

Despite the above, Cox claimed that a growing majority of dealers felt the government-backed EV sales incentives were having a positive impact on sales. That would make sense since it’s effectively free money for both the industry and the person buying the credited electric vehicle. However, it remains an overall burden on taxpayers and may be having negative effects on the economy as a whole. Several years of accelerated government spending has undoubtedly contributed to the inflation we’ve been experiencing — and, ultimately, this is all about money.

However, there may be other factors at play. Consumer sentiment toward today’s vehicles are mixed at best, with the biggest factor being infotainment systems and modern technologies. Some customers may be waiting to see what the market offers up in a few years. But it’s hard to quantify whether or not this is a major component as to why the average age of vehicles on the road continues to rise. It seems more plausible that affordability plays a much larger role. If anything, those avoiding newer vehicles are just increasing demand on the used market — which has also seen elevated pricing in recent years.

Regardless, with the outlook for dealer profitability on the decline and the cost of doing business going up, automotive retailers are going to need to get creative to move product. While we’ve seen a lot of consolidation among franchised dealers, the larger entities have been doing rather well in recent years. But the smaller storefronts haven’t and it looks like that’s about to become more widespread.

“Dealer profitability is one of the central measures in our quarterly survey, as it showcases the core strength of the business,” noted Smoke. “And the profitability index has generally declined for three straight years, particularly for independent dealers. Most dealers feel their profitability picture is weak, and that is likely impacting many sentiment measures, dragging the overall survey scores lower.”

[Image: Gretchen Gunda Enger/Shutterstock]

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