Cox Automotive analysts said declining optimism in the firm’s Dealer Sentiment Index can be tied to threats of higher tariffs, slower traffic, and declining profitability.
Photo courtesy Cox Automotive
ATLANTA — U.S. auto dealers became more negative than positive in describing the current market in the fourth quarter, according to the latest Cox Automotive Dealer Sentiment Index. The current market index fell to 44, down from 51 in the third quarter.
Expectations for the next quarter also declined, moving into negative territory for the first time in the survey’s history. The index reading came in at 49, indicating dealers expecting conditions to be weak in the future outnumber those who think conditions will be strong.
“The fourth quarter represented a notable negative turn in overall dealer sentiment and their outlook for the future,” said Cox Automotive Chief Economist Jonathan Smoke. “The big negative swing in expectations that was significantly lower than last quarter and the same time last year is especially alarming.”
The downward shift in the fourth quarter marks a negative end to a rollercoaster year for dealer sentiment. Even though the U.S. auto market started off the year weak, auto dealers were euphoric in the first quarter with very high expectations of a strong spring enabled by the passage of tax reform.
They got their strong market in the second quarter, but expectations cooled as higher interest rates and tighter inventory levels started to increase pressure on the industry, particularly for independent dealers. The market remained strong in the third quarter, but dealer optimism declined again. Their sentiments were impacted by fear of higher prices from tariffs and the stark reality of lower inventories, Smoke said, and as 2018 comes to a close, optimism has turned to pessimism.
“Slowing customer traffic, growing pressure to reduce prices, and declining profitability aligned with a view of the market that retreated from strong to weak in the aggregate index,” added Smoke. “Dealers remain worried about the negative impact of proposed tariffs leading to higher prices, but they are also now seeing a less robust used-vehicle market, which is also notably weaker than last year.”
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