Cox survey: Dealers are upbeat on spring sales

As they reached mid-winter, U.S. dealers answering a quarterly Cox Automotive survey looked forward to a robust spring selling season and were taking on additional employees and investing in technology to further drive sales.

But if the survey had been administered just weeks later, as coronavirus concerns spooked Wall Street and threatened consumer confidence, overall scores in the latest Cox Automotive Dealer Sentiment Index survey likely would have tumbled, Cox Chief Economist Jonathan Smoke said.

The survey measures dealer optimism on a quarterly basis. Franchised dealers participating in the first- quarter 2020 survey, conducted Jan. 27 through Feb. 10, were buoyed by the strong start to the year, making them "the most optimistic we have seen since the beginning of 2018," Smoke said.Used-vehicle sales remained a bright spot, though economic and political uncertainty weighed on dealers' minds. The survey overlapped with the conclusion of President Donald Trump's impeachment trial.

Some economic concerns came to pass as February ended with U.S. stocks plunging. If the survey would have been taken "fresh off the carnage of the stock market declines," dealer sentiment scores would be "directionally lower, if not statistically significantly lower," Smoke told Automotive News last week.

Some analysts expect coronavirus concerns will hinder new-vehicle sales. Even so, Smoke said many dealers around the country don't believe it will have a big impact.

"My experience with dealers has been that they tend to be a little bit more that the glass is still half full rather than half empty," Smoke said, "and so I feel like they may be still relatively optimistic about the year."

While the Federal Reserve's decision last week to make an emergency half-point cut in interest rates could bolster new-vehicle sales, Cox predicts the immediate impact will be minor and that the move was designed to lower any risk that the coronavirus would trigger a recession.

Perennial dealer concerns — market conditions and competition from other stores — topped the list of factors franchised dealers said were holding back business. The political climate tied with weather concerns for third on that list.

Though dealers said they were hiring to boost sales performance, they also noted that the cost of additional employees is weighing on profits. Hiring costs, higher wages and managing turnover were frequent complaints among dealers' responses.

"Labor costs are growing — hard to find good help, especially entry-level labor," said a BMW dealer in the Midwest. "Had to increase hourly wages to attract better applicants."

Other factors dinging dealer sentiment in the first quarter included weather concerns and complicated automaker incentive programs.

The survey, which gauges dealers' perceptions of the past 90 days and expectations for the next three months, identifies key factors affecting retailers' optimism or pessimism.

The latest survey had 1,084 dealer respondents — 606 franchised dealers and 478 independents.

Responses are weighted by dealership type and sales volume and used to calculate what Cox calls a diffusion index, in which a number greater than 50 indicates that dealers view conditions as positive.

Franchised dealers measured the current market as positive, with a score of 55. They judged the market 90 days in the future even better, with a score of 66. That reflects optimism about a good spring selling season, with tax returns expected to fuel sales.

Sentiment about used-vehicle sales was especially strong.

Franchised dealers scored used-vehicle sales 72, a full 25 points above independent dealers. That gap, according to Cox, is the largest ever recorded.

Best-in-class franchised dealerships are selling as many used vehicles as new vehicles — or even more, Smoke said.

"There's no question that if you were to survey franchised dealers and ask them what their business priorities are, the used department would land in the top three," he said. "My guess is, it will land in No. 1."