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Dealers offering various sales options have the best chance of success.

Dealers Brace for Inflation, High Costs, Tight Inventory

Cox's latest survey spotlights dealers' concerns. Experts recommend they remember consumers don't want a “'one- size- fits- all”' sales approach.

U.S. auto sales remain brisk, but dealers are concerned that inflation, high costs and tight inventory will curtail sales and profits, according to the latest Cox Automotive Dealer Sentiment Index.

Cox analysts note the cost index for Q2 2022, specifically for operating a dealership, was at its highest level since the survey began in 2017. The economy is the second-leading factor impacting dealer business at 46%, up from 37% in Q1, Cox reports. Market conditions, expenses and political climate closely follow.

"There was a lot of focus around the cost of running a dealership," Lori Wittman, president-Cox Retail Solutions group, tells Wards. "The (positive) we saw from franchised dealers is, they told us they are making very good money. We continue to be overwhelmed by the resiliency of this group…They are watching the bottom line and want to make (their dealerships) more efficient…What was a little surprising was that there wasn't much feedback around online car buying."

Dealers tell Cox their top concerns include a possible recession and a dip in consumer confidence. The 3-month, forward-looking market outlook index sharply dropped from the previous quarter and, at 53, is well below the 63 recorded in Q2 2021. The economy index increased slightly in Q2 to 50, up from 49 in the prior quarter or 2022. With the index now at 50, dealers are right at the positive threshold in judging the economy as strong.

"U.S. auto dealers are certainly feeling the pressure of inflation and tight inventory," says Cox Automotive Chief Economist Jonathan Smoke. "Franchised dealers continue to be very profitable, but the steep drop in the market outlook index indicates dealers are less enthused about the future. While all dealers are impacted by higher costs of doing business, the profit story is also different for independent dealers, as used vehicles have started depreciating again."

Cox recommends their dealer clients closely monitor their shoppers' sales preferences and consider solutions that make their dealerships more efficient.

"It's important to recognize consumers want all different kinds of (sales) options. It's not one-size-fits-all," says Wittman. "One thing we are focusing on now is how to make sure every path to purchase for a consumer, whatever path they want, whether they want to do it all online or (a hybrid model), we provide dealers with all the options.”

That's especially important since the new-vehicle inventory mix index for franchised dealers only increased two points from Q1. It is now at 25, a historically low number and an eight-percentage-point year-over-year decrease, reports Cox.

The used-vehicle inventory index dropped in Q2 2022 to 35. That is down one point from the previous quarter but up 14 points year-over-year.

Limited inventory ranks as the top factor holding back dealer business in Q2, just as it did the previous quarter.

"Today's market continues to be framed by constrained new-vehicle inventory," says Smoke. "Low new-vehicle inventory and the associated low level of incentives and lack of discounting have priced many would-be buyers out of the market and into the used-vehicle market. Others may be delaying purchases, waiting for supply to improve, but supply has yet to see much change."  


TAGS: Retail
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