US auto dealers' view of the current automotive market remains negative and is mostly unchanged from Q4 2019, according to the Q1 2020 Cox Automotive Dealer Sentiment Index (CADSI) released on Monday (9 March). 

At an index score of 49, the rating was slightly more positive than last quarter but the increase from Q4's 47 was not statistically significant.

Year over year, the current market index was up by only one point, which was not statistically significant and remained below 50, indicating more dealers view conditions as weak rather than strong.

The survey was taken in late January and early February, during the senate impeachment trial of President Trump but before the spreading economic worries – and stock market volatility – fueled by concerns over COVID-19 [aka coronavirus].

As the CADSI has consistently demonstrated, the current market sentiment skews more positive for franchised dealers compared to independent dealers, who sell only used vehicles. The gap expanded this quarter after narrowing in Q4, with franchised dealers becoming more positive about current market conditions – increasing from 51 in Q4 to 55 in Q1 – while independents remained negative at 47, up only one point from Q4.

"The start of 2020 seems to have favoured franchised dealers over independents," said Cox Automotive chief economist Jonathan Smoke.

"All dealers are optimistic about the spring, but the strong start of the year has made franchised dealers the most optimistic we have seen since the beginning of 2018."

Both franchised and independent dealers showed strong quarter over quarter increases in optimism for the next three months – a typical spring bounce but no substantial change year over year.

The view of new vehicle sales was up slightly compared to last year and stable compared to last quarter. The new vehicle sales index remained above 50, indicating a good market. Franchises, however, continue to see the used market as stronger than the new market.

Views of the top factors holding back business vary dramatically by type of dealer. For franchises, market conditions remained the top concern, and the percentage of franchised dealers citing it as a factor holding back their business decreased only slightly to 34%.

Competition remained in the No. 2 position at 32%, beating out weather at 23%. Political climate continues to climb the factor ranking for franchises and was No. 4 at 23%. Lack of consumer incentives for OEMs made its debut in the top five factors for franchised dealers, increasing from 15% last quarter to 21% in Q1.

Scores regarding dealer perception of the political climate holding back their business increased overall, as the political climate factor increased to 19% moving up two spots from last quarter to become the sixth most important factor. Franchised dealers consider the political climate to be consistent with last quarter's as a No. 3 factor, while independents' concern over political climate moved to seventh from eighth last quarter.

For dealers who deem the market to be weak over the next three months, concerns primarily revolve around the election and political climate. Commented one dealer in the survey, "It's an election year and there's an impeachment trial going on [at the time of survey]. Political uncertainty always affects the market."

Lack of consumer incentives from OEMs also rose from No. 10 to No. 5 quarter over quarter as a factor holding back the business. In Q1, franchises' perception of OEM incentives is 47, dropping slightly from last quarter and remained below the 50 threshold, which means the majority of franchised dealers consider OEM incentives to be small or ineffective. For dealers who considered OEM incentives small, they mentioned restrictiveness and as well as concerns about OEM stair-step programs. "There are specific programmes that used to be available for the consumer that are now restricted heavily," noted one dealer.

Data for the index is gathered via online surveys.