Political confusion and a worsening pandemic clouded dealer sentiment gauged by Cox Automotive’s quarterly Dealer Sentiment Index survey.
Dealers reported slightly lower optimism on Cox’s fourth-quarter poll, conducted Nov. 4 to 15 as coronavirus cases surged and the outcome of the presidential election hung in the balance. Cox Automotive Chief Economist Jonathan Smoke said the time it took to ratify the results likely added to franchised dealers’ anxieties.
“We were probably getting the absolute most extreme concerns,” Smoke said. “We might not see such a view if we were to [survey dealers] today.”
Though dealer sentiment worsened slightly compared with the third quarter, it was nowhere near the plunge the index recorded during the spring, when it hit 20, at the onset of the pandemic and at the height of shelter-in-place orders.
Cox surveyed 1,077 dealers — 584 franchised and 493 independent — in the fourth quarter, asking for their perception of the previous 90 days and their outlook for the next three months. Cox identifies key factors affecting optimism or pessimism and weighs responses by dealership type and sales volume to calculate a diffusion index. An index number higher than 50 indicates that dealers view conditions as positive.
Dealers overall rated current conditions at 49, down from 56 in the third quarter. The score was 61 for franchised dealers — strong albeit down from a buoyant view in the third quarter, at 68. Dealers overall rated the next three months at 48, though franchised dealers scored 58. For franchised dealers, that was better than the year-earlier score of 54 but down from 60 in the third quarter.
Franchised dealers were optimistic about customer traffic and profits — in fact, their assessment of profits for the last 90 days shot up to a score of 70 — the highest recorded for that category in study history.
“It’s clearly been in an environment where profits have been perfectly engineered,” Smoke said, noting pent-up customer demand at a time that automaker production shutdowns limited inventory. “One of the concerns for the future is, can we ever quite see this set of conditions for dealers repeated ever again?”
A downturn in index scores is typical heading into the winter. But during the first presidential election year covered by the survey, dealers seemed particularly wary of an administration change. When assessing the top factors holding business back, the political climate shot into the top slot for franchised dealers, up from fifth last quarter.
The election had not been decided when some dealers gave their responses. The uncertainty harmed sales, according to a franchised dealer in the Midwest who was wary about a win for President-elect Joe Biden.
“Under Trump sales will continue to grow,” the dealer said. “Under Biden I feel there will be uncertainty and could stall growth and even possibly a drop in sales.”
A franchised dealer in the South said: “If Biden is confirmed, I expect a drop in our sales as our client base is wealthy, which means they will be subject to threatened tax increases.”
While strong demand is helping optimism, sourcing inventory is a concern. Some dealers worried that the pricing benefits of low inventory will sour without actual vehicles to sell.
“People are wanting to buy cars,” a franchised dealer said. “We are — or would be — breaking records every month if we had inventory.”