Valery Sharifulin
Source: www.insideradio.com, March 2022
There are signs of optimism among auto dealers, and that could in time lead to more normalized advertising levels in the coming weeks and months for one of radio’s largest categories. The latest Cox Automotive Dealer Sentiment Index indicates that more U.S. automobile dealerships feel the current market is strong compared to the number who feel the current market is weak.
“As we enter the spring market, we can see the small green shoots of optimism from the U.S. auto dealers,” said Cox Automotive Chief Economist Jonathan Smoke. “Most dealers have weathered the storm well, and we suspect there is hope the pandemic may finally be waning. Views of the economy weakened modestly, but dealer profits are historically strong and demand remains robust. Those are good signs for the industry.”
Cox Automotive’s three-month, forward-looking market outlook index rose modestly – reflecting the typical spring bounce. At 64, the index is above the 59 recorded a year ago. Cox’s price pressure index increased slightly in Q1 but remains historically low, indicating fewer dealers feel pressure to lower prices.
The Q1 research was in market from Jan. 24 to Feb. 7 as the omicron variant peak faded. But it was also conducted before the Russian invasion of Ukraine, and before gasoline prices hit record highs. Even before the situation worsened, the U.S. economy index score dropped from 52 in Q4 2021 to 49 in Q1, indicating more dealers felt the economy was weak compared to those who thought it was strong. The score of 49, however, is higher than it was a year ago in Q1 2021 when the index score was 44.
“Higher gas prices, a struggling stock market, inflation, and the potential for more supply chain disruptions – these factors will slow any anticipated market recovery and may impact dealer sentiment in Q2,” said Smoke. “Right now, though, it’s too soon to know how long the situation will last or how bad it will get.”
Inventory Levels Growing
Inventory levels have impacted dealer advertising during the past two years. But Cox Automotive says there was a “notable jump” in the new-vehicle inventory index for franchised dealers in its latest survey. While still historically low at 25, the index had its the highest score since a year ago. The index also increased quarter over quarter.
“Inventory issues have been the biggest concern for dealers for more than six months now,” said Smoke. “In our latest study, inventory remains a top priority, but the initial signs of a recovery are there. And that is a positive for the market.”
On the used-vehicle side, the inventory index jumped to its highest score in the past 12 months. The used-vehicle inventory mix index also improved. However, all index scores indicate dealers are still facing inventory challenges.
Vehicle Prices Decline Again
The average price of a new vehicle sale decreased to $46,085 in February after reaching a record high in December, according to new data released by Kelley Blue Book. Prices fell 0.5% ($253) month-over-month due to fewer luxury vehicles being sold in February, but prices remain elevated compared to one year ago, up 11.4% ($4,719) from February 2021.
There were also fewer deals to be had. Kelley Blue Book says dealer incentives dropped to a record low in February, averaging only 3.6% of the average transaction price. That meant consumers continued to pay well above MSRP for a new vehicle for a ninth consecutive month. And because incentives are typically what drive local radio ad buys, it also means that the category will be challenging for sales reps.
Improving Spring Outlook
Because of the Cox Automotive survey’s timing – before war broke out and gas prices soared – it offers what are qualified results. Yet the data did show that most dealers feel that the outlook for the next three months is positive, which reflects the springtime optimism routinely seen in the report. In fact, the Q1 outlook is higher than it was one year ago – ahead of a year of record profits – and at the highest point since Q1 2020, before the pandemic began.
Overall, limited inventory continues to be the top factor holding back business, according to dealers surveyed. Other factors include market conditions, the economy, and COVID-19 impact.
