December 14, 2018

Automotive Dealers Outlook Changes for 2019

The outlook for the automobile dealership industry appears to be growing dimmer as 2019 approaches. This downturn comes on the heels of a relatively positive outlook during Q3. According to the Cox Automotive Dealer Sentiment Index (CADSI), there are rising concerns about the level of used car inventory, the impact of rising interest rates and overall weakening market conditions. The results of the survey were considered significant because the expectations for Q1 2019 dipped into negative territory which is the first time in the survey’s history. While the survey reflects the current outlook of dealers, which can change, it does provide interesting insight into the issues and challenges dealerships can expect to face through the end of 2018 and into 2019. To help clients, prospects and others understand the results and possible impact on their business, Wilson Lewis has provided a summary of key findings below.

Survey Participants

The findings presented in CADSI are collected from both franchise and independent auto dealers via an online survey. The Q4 survey is based on responses from 1,124 dealers in various locations across the nation. All responses are weighted by dealership type and volume of sales to reflect the national dealership population. (When a rating drops below 50 it is negative and above 50 are positive based on the rating system used.) Survey responses were collected between October 24^th and November 6^th, 2018.

Key Survey Findings

• Market Conditions – The survey wanted to uncover current market conditions for vehicles where dealerships conduct business. According to the survey, franchise dealers rated current market conditions at 51 and independent dealers rated current conditions at 42. It appears that independent auto dealers have a more negative outlook than franchise dealers, but the overall sentiment is certainly trending towards negative.
• Used Vehicle Inventory – To understand the used car market, the survey asked dealers to describe their current used car inventory levels. According to the survey, franchise dealers rated inventory levels at 54, whereas independent dealers rated it at 46. It appears that used car inventory levels are lower now than the same time last year when the combined rating was 54 highlighting the reduction.
• Profit – Essential to maintaining a healthy business, the survey wanted to understand the profitability levels of dealerships. According to the survey, franchise dealers rated profitability at 49 which is consistent with the results from the Q3 survey. Independent dealers rated profitability at 35 which is down 3 points from the Q3 survey.
• Top Business Challenges for Independent Dealers – The survey wanted to identify the top business challenges that independent dealerships are facing or expect to face in Q4 and beyond. According to the survey, 45% indicated weakening market conditions, 41% cited credit availability for customers, 39% cited limited inventory, 32% cited competition and 29% cited expenses. Honorable mentions included too much retail inventory, staff turnover, regulations as well as tariffs on imported vehicles and parts.
• Top Business Challenges for Franchise Dealers – The identified challenges for franchise dealers were slightly different. According to the survey, 43% cited weakening marketing conditions as a top challenge, 38% cited increasing interest rates, 36% cited competition, 24% cited staff turnover and 23% cited limited credit availability for customers. Honorable mentions included regulations, too much retail inventory and credit availability for the business.

Contact Us

It’s clear that auto dealerships have a dimmer outlook heading into the end of the year in 2018 compared to past years. The survey provides interesting insight for auto dealers to analyze in order to determine the extent their business has been or will be impacted. If you have questions about the survey findings or need assistance with a tax, audit or accounting issue, Wilson Lewis can help. For additional information please call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.