By on December 13, 2021

Car dealers have been polled for the fourth-quarter Cox Automotive Dealer Sentiment Index (CADSI) and they’re still incredibly optimistic, despite losing some of their earlier confidence that new-vehicle sales would be relatively healthy.

The dealer optimism – especially among franchised entities – seems to be wholly tied to profitability here. New vehicle sales dropped in 2019 and absolutely cratered in 2020 due to the nation’s response to the pandemic. In spite of there being plenty of talking heads in the news media telling you not to stress about the economy, inflation has created pricing increases across the board and automobiles are at the tippy top of that list. With inventories remaining relatively lean due to production slowdowns, staggering dealer markups have become the norm. Basically, stores just seem happy that they can charge more per car while they’re in short supply. But they’re also starting to have concerns about the long-term viability of the market and are are feeling the pinch of rising operating costs. 

The growth that was projected for 2021 isn’t shaping up as claimed. Unless December turns out to be a record breaking sales period, America’s vehicle sales for the year could actually be lower than the previous two. Officially, Cox stated that the current dealer sentiment is slightly less positive than in the third quarter (2021) for both franchised and independent dealers but remains well above average. The market is still able yield retailers more than would have been possible during a period of stable production, however the profit index still declined a bit from the record highs set in the previous quarter.

From Cox:

The new-vehicle sales index fell to 45 [out of a possible 100] in Q4 – below the 50 threshold for only the second time since the survey was launched in 2017 – indicating that more dealers view new-vehicle sales as poor as opposed to good. Meanwhile, the used-vehicle sales index declined for the second straight quarter, but stayed above the 50 threshold at 53, indicating more dealers view used-vehicle sales as good as opposed to poor.

The key drivers of sentiment saw marginal shifts in Q4. The 3-month market outlook index was flat compared to the prior quarter. With a Q4 reading of 60, it represents that more dealers see the market in the next 3 months as strong than see it as weak. The overall profits index saw a modest decline compared to the prior quarter with a reading of 57, reflecting that dealers feel that profits are strong, although not as strong as the previous quarter. The price pressure index saw a statistically significant decrease, falling below last quarter’s reading to a record low 32. This Q4 reading indicates fewer dealers feel pressure to lower their prices.

If you want to see just how wild pricing can get when fewer shops feel pressure to lower their rates, we’ve covered the issue more than once this year. Those of you who are currently shopping for a new or used automobile need not bother, however, as you’re likely to be under an immense amount of psychological strain already.

“Dealer sentiment again saw modest declines in the fourth quarter as sales remain challenged by the ongoing inventory crunch,” said Cox Automotive Chief Economist Jonathan Smoke. “However, strong pricing power kept profits at near-record levels, especially for franchised dealers. Dealers view the economy as strong heading into the winter and are much more optimistic about the spring compared to their views a year ago. The biggest worry for dealers beyond inventory is the impact of rising costs.”

Of course, while those franchised dealers are cleaning up, smaller shops are finding it substantially more difficult to maintain their inventories and benefit from having consumers held largely at the mercy of the market. This has resulted in many taking factory buyouts or selling their locations to competitors with larger networks.

However pretty much everyone told Cox that they thought vehicle inventories were exceptionally poor, with many likewise admitting that was the magic bullet that helped improve profits. The outlet’s new-vehicle inventory index of 14 saw a tepid 1-point increase from last quarter. Though it remains suppressed by 34 points compared to Q4 2020 as the perception gap widened:

Used-vehicle inventory improved by 1 point for franchised dealers in Q4, but the overall used-vehicle inventory index saw a modest quarter-over-quarter decline, decreasing 2 points to 29. The gap between franchised and independent perceptions of used-vehicle inventory grew to 10 points from 5 points last quarter.

The new-vehicle sales index fell to 45 in Q4, indicating that more dealers view sales as poor as opposed to good. The view of new-vehicle sales was down marginally from last quarter and down significantly compared to the fourth quarter of last year. This sentiment reflects the reality of dealers seeing month after month of declining sales in the second half of 2021.

Operating costs are also up, with an overwhelming majority of dealers chiming in to yield the highest index score (for the category) in CADSI history at 71. This was primarily attributed to needing to spend more on buying and/or reconditioning wholesale vehicles. However shops also said labor and more general operating costs has also been rising.

While the survey isn’t necessarily indicative of the entire American market, CADSI is a fairly robust tool for calculating the general vibe dealerships have on various issues. For Q4 Cox had 1,123 U.S. dealer respondents 595 franchised entities and 528 independent stores. Dealer responses are weighted by dealership type and volume of sales to be representative of the national dealer population. For each aspect of the market surveyed, those providing answers 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 out of a possible 100 – with higher number representing the strong/increasing side of things and low figures representing a weak/decreasing sentiment.

[Image: LM Photos/Shutterstock]

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35 Comments on “Study Shows Auto Dealer Sentiment Still Ridiculously Positive...”


  • avatar
    28-Cars-Later

    “America’s vehicle sales for the year could actually be lower than the previous two. ”

    It will likely decline and continue to decline possibly finding a bottom in 2023 or 2024.

    • 0 avatar
      ToolGuy

      Voice of Bill Lumbergh:
      “Um, yeah, I’m gonna have to go ahead and disagree with you there…”

      Voice of Troy McClure:
      “Yes – our Top Man says we are Very Close to a solution on this!”

      https://www.msn.com/en-us/news/politics/inflation-pinch-challenges-biden-agenda-but-president-says-worst-will-soon-pass/ar-AARHiqg
      ______

      Still, he referred to the current inflationary surge as a “real bump in the road.’’

      ‘’I think you’ll see it change sooner, quicker, more rapidly than most people think. Every other aspect of the economy is racing ahead. It’s doing incredibly well,’’ Biden said.
      ______

      Bonus: President Teaches Calculus
      ‘’Developments in the weeks after these data were collected last month show that price and cost increase are slowing, although not as quickly as we’d like,’’ Biden said Friday.

      Translation of “increase are slowing”: While slope is positive, second derivative is negative! (increasing at a decreasing rate, Oorah)

      [TL;DR: Still Increasing]

      Read on in that article to see why the Biden-⁠Harris Administration is the True Victim here (“I understand why the White House is frustrated…”)

  • avatar
    Syke

    Keep in mind that there is nobody more shortsighted than an automobile dealer. Their usual thought of the future is the end of the month. Their idea of long term thinking is the end of the quarter. They prefer to have nothing on the floor that doesn’t rapidly sell TODAY, and as soon as a new best seller rears it’s head they’re screaming that their factory didn’t have its own version in their showrooms last week. Even though they weren’t interested in it in the slightest last week, until the sales reports came out.

    It’s going to be funny watching the turnaround in interest once EV’s hit 25% in sales.

  • avatar
    ajla

    It’s all fun and games unless rates go up and lending standards tighten.

  • avatar
    SCE to AUX

    The dealers will eventually be squeezed out by direct sales from their respective mfrs. Some mfrs are already experimenting with it.

    Most of the vehicles the dealers handle are used, anyway, whether it’s in sales, service, or warranty work.

    • 0 avatar
      28-Cars-Later

      Doubtful, dealers have franchise laws as well as case law in many states.

      • 0 avatar
        Lou_BC

        I’ve read that more sales will go electronic. That may mean dealers will be wormed out of the equation. The first step would be “right to repair” laws. As long as you bring your vehicle to a licenced technician, you should be able to get warranty work done by anyone qualified. The next step would obviously to allow people to buy a vehicle from ANY qualified outlet whether that be direct buy, dealership, or licenced broker.

        • 0 avatar
          28-Cars-Later

          I am still doubtful for the US, dealers are an entrenched business practice and as much as they suck I doubt the mfg sales are going to undercut them.

          • 0 avatar
            Lou_BC

            @28-Cars-Later – I do think that car companies prefer dealers since it frees them from the hassles of public interaction. As Jack Baruth stated a long time ago, dealers are the actual customers of the car companies.

          • 0 avatar
            28-Cars-Later

            I agree, though the smaller marques may fair better without them. The issue for them becomes, where can it be serviced?

          • 0 avatar

            “The issue for them becomes, where can it be serviced?”

            Where iPhones are serviced? BEV is an iPhone on wheels. 5G I hope.

      • 0 avatar
        SCE to AUX

        Franchise laws will disappear when the mfrs want them to.

        Mfrs will eventually realize their margins would be greater without the dealers standing between them and the customer. EVs make it even harder to be profitable.

        Cadillac’s recent offer to its dealers to bail out is an indication that the brand won’t miss the dealers who left.

        Online ordering and at-home delivery is a thing now, and the mfrs will begin to wonder what value-add the dealers offer in the sales process. Variable, negotiated pricing isn’t one of them. Tesla, Carvana, and other fixed-price outlets are doing just fine.

        Tesla has “stores”, at which you can test drive a car, and turn in a trade. Demo cars end up for sale in Tesla’s inventory, just as they would at a traditional dealer.

        Many people don’t see any value in new car dealers, and the dealers don’t realize how endangered a species they really are.

        • 0 avatar
          ToolGuy

          “Many people don’t see any value in new car dealers, and the dealers don’t realize how endangered a species they really are.”

          a) I suspect you are right
          b) Where will people go for good coffee?

          Bonus: If your livelihood is tied to a legacy dealer or OEM, now is a good time to run a lifeboat drill.

        • 0 avatar
          28-Cars-Later

          Cogent points except those on Cadillac, I argued in 2014 it needed to shed dealers. Its trials and tribulations go back decades, they do not relate to current trends.

        • 0 avatar

          Other MFG’s don’t want to spend the cash on showrooms and service centers. Costs are too high. Tesla only managed to do that thanks to huge funding. I assume some deal will be struck to allow the MFGS to sell direct utilizing existing dealer infrastructure, from a cost and value standpoint it makes the most sense. Also Tesla is hard to follow when you get to the lower end of the market where financing and trade ins get really complex, I don;t think OEM’s want to deal with alot of that.

  • avatar

    Let’s Go Mary!

  • avatar
    teddyc73

    Wow, not just positive but “ridiculously” positive. That’s pretty darn positive.

  • avatar
    Jeff S

    @Lou_BC–You might see dealers shrink the size of their lots with less inventory. Dealers will have to do more electronic sales and go to electronic ordering for their customers. The cost of real estate alone especially in major metropolitan areas makes having huge dealership showrooms and lots very expensive. I would rather order a vehicle and get what I want especially if I have to pay MSRP. I had to go into the dealership to order my Maverick even though I completed my build and submitted it on Ford’s website. Last week I got a build date for the week of Feb 14 and my VIN to track my vehicles build and shipping which will arrive at my dealer sometime in March.

    The only thing is if the manufacturers and dealers rely on ordering the wait time will have to be much shorter or many customers will not want to wait.

  • avatar
    Crosley

    I imagine if you’re in an industry where the customer will just take anything you have, not haggle on the price, and pay over MSRP, you’d feel pretty good about things.

    It’s just not going to last forever.

    • 0 avatar
      JMII

      +1

      I am always amazed when people fully admit they bought a model or trim or color they didn’t want because it was the only thing on their local lot at the time. This would be like buying the wrong size shoes because the store didn’t have your size. Who does that?

      I don’t think its being picky but if I know an option or color is available there is no way I’m committing to years of expensive payments on some compromised choice. While production is very constrained currently vehicles are mass produced items thus there is no reason to not get exactly what you desire.

  • avatar

    Dealer franchise laws are very hard to change. Even when automakers want them too dealers have enormous local pull in state politics thanks to hefty donations and fairly large employment numbers. If it was a federal change I would agree but on the state level my guess is it would be very hard.
    What most likley will result is a hybrid solution where some states will allow in MFG owned stores but only if there are not within some contracted distance of a franchise. Look at what happened in the tech space you can buy most anything direct or thru authorized resellers. I imagine you will see something similar on the dealer level. Mfg will still want dealers for service as well as Inventory storage and handling trades. My guess is they will sell online thru the MFG website and the dealer will get paid fees to store prep and deliver the car plus a cut for sales price. Dealers may change but their not going to disappear.

    • 0 avatar
      SCE to AUX

      Tesla’s newest factory is in Texas, as well as its relocated headquarters – ironically in a state with franchise laws that prevent direct sales.

      How long until Texas allows direct sales?

      The dealer functions you describe are all performed at a Tesla store. The only difference is that the store is owned by Tesla, and operated by its employees, but without the mushy middleman costs.

      • 0 avatar

        Tesla has had serious problems with service backlogs in the past because of their model, it can work it’s just very expensive to get the coverage that the old school automakers currently enjoy.
        I have worked for dealers distributors and manufacturers of various products in sales. There are many things to like about having dealers versus direct. Direct has more profit potential but a lot more costs incurred as well. All things equal I much preferred to have dealers dealing with all the customers, in the end with the increased costs it was shockingly close to the direct sale profit level. With scale I assume that would get better but maybe not enough to make it worth it. Look at it this way There is a reason Apple still has retail partners as well as their own stores.

        I think for share holders it would be hard to justify the billons it would require to setup a in house dealer network when you already have one out there. Like I said I think the best move is for them to in house online sales utilizing existing dealer locations. Some day decades from now that might not be the case, but if I was a 50 year old dealer principal I don’t think I would be all that worried about my retirement.

        • 0 avatar
          FreedMike

          “I think for share holders it would be hard to justify the billons it would require to setup a in house dealer network when you already have one out there.”

          If they see the long term upside, then they might see the light. And there is DEFINITELY upside.

  • avatar
    Jeff S

    @mopar4wd–Agree that dealers will not disappear. A hybrid solution where a customer could order on a manufacturers website with the dealer will getting paid fees to store prep and deliver the car plus a cut for sales price would be a good compromise. The dealer could reduce the amount of space they need which is very costly in urban and big suburban areas. The only fly in the ointment would be the time it takes to make and deliver the vehicle which would need to be shortened to no more than a couple of months otherwise most will get impatient and buy from a dealer that has inventory on hand. Yes I realize the current long lag times in manufacturing are due to Covid-19 and the shortages caused by it but long term people will not be willing to wait 6 months to more than a year for the manufacture and delivery of a new vehicle.

  • avatar
    kcflyer

    I’d be happy for new car dealers to disappear along with right to repair becoming the law of the land. Then let honest, skilled repair shops rise to the top and be allowed to do warrantee covered work. Based on my recent seller interaction with Carvana I would welcome the opportunity to buy a new car in a similar manner. I’d even buy used this way since they allow a return policy that seems reasonable.

  • avatar

    Dealers provided two very important buffers for the Makers…
    They can be persuaded to eat over-runs of production…when someone guesses wrong, that factory can’t be just stopped…the line runs. The dealers will get sales-banked, or told you need 10 dogs for each hot item.

    Dealers also buffer when the factory makes a mistake. We’ve all suffered one or another problem with production, be it shoddy part or poor engineering. When a repair goes badly, it’s Ripoff Ford, not Fomoco that gets the problem.

    For all the whining, it’s a marriage…

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