Independent and franchise dealerships across the U.S. have mixed views on the current landscape of the market as inflation continues trending upward and supply shortages are slow to improve.
The Q3 2022 Cox Automotive Dealer Sentiment Index — which gathered data from 1,040 franchised and independent dealers across the nation through online surveys — declined sequentially for the fifth consecutive quarter to 49, a decrease of five percentage points compared with Q2 and down 13 percentage points year over year. The index peaked at 67 in Q2 2021. A reading on the index above 50 indicates dealers view market conditions as “strong” while a reading below 50 indicates dealers view the market as “weak,” according to Cox Auto.
Independent dealers scored 45 on the index, indicating a “weak” view of the current market for vehicles in the areas they operate, according to Cox Auto. Franchised dealers, on the other hand, scored 62 in a reflection of a positive view of the market.
Franchised and independent dealers typically share differing sentiments toward market conditions, Jonathan Smoke, chief economist at Cox Automotive, told Auto Finance News.
“Franchised dealers as a whole are saying the market is still strong,” Smoke said. “They still have an optimistic outlook since both new- and used-vehicle sales are strong in their mind, and it is connected to the fact they tend to sell to higher income and higher credit quality consumers who have less pressure and who are the key consumers still buying in this vehicle market.”
Diminishing consumer confidence
Financial pressure and diminishing consumer confidence make it a difficult time to buy a vehicle, Smoke said. Vehicle affordability continued to decline in July, with the number of median weeks of income to purchase a new vehicle clocking in at 42.2, marking a record high for the Cox Automotive and Moody’s Analytics Vehicle Affordability Index. Meanwhile, the average price of a new vehicle reached a record $48,182 in July, according to Kelley Blue Book.
“It’s challenging in the U.S. market because we still have high levels of prices,” Smoke said. “When you add interest rates that are at the highest level for auto loans in 15 years, it becomes unworkable [for some consumers].”
Additionally, franchised dealers describe profits over the last three months as “strong” while independent dealers view profits as “weak,” according to the index.
“Not all dealers are seeing a challenging market, but all dealers are being negatively impacted by the fact that rates are higher and inflation is higher,” Smoke said.
Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 26-28 at the Wynn Las Vegas. To learn more about the 2022 event and register, visit www.AutoFinanceSummit.com.