The optimism felt by U.S. car dealers at the beginning of the year has shifted in the last quarter due to rising interest rates, declining profits, and worries around the proposed auto tariffs.
Dealers had strong expectations in Q1 but have become more pessimistic since then when describing the current market in Q4, according to a Q4 2018 Cox Automotive Dealer Sentiment Index (CADSI).
“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 current market index is now 44, down from 51 in Q3. Many U.S. car dealers also anticipate weak market conditions in the future. Higher interest rates, tighter inventory levels, and a fear of higher prices from tariffs have all contributed to the pessimism many dealers feel now.
“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,” said 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.”
The used vehicle inventory index dropped below 50 for the past three quarters.
One positive note is the new-car sales environment. Many franchised car dealers retain a positive perception since the index decreased by only 3 points from 60 in Q3 and Q4 of 2018.
