“Franchised dealer optimism is on the rise, whereas independents are less hopeful due to affordability issues that more acutely affect the used-vehicle market and their businesses,” Cox Automotive Chief Economist Jonathan Smoke said in a statement.
Franchised dealers rated their inventory a 63, an improvement from the 60 last quarter and far beyond the 31 score in the third quarter of 2022. But dealers didn’t think the increased supply would negatively impact their profitability, which they viewed more favorably than before the pandemic.
“The market is beginning to be flooded with extra inventory, but prices and financing rates remain through the roof,” a Ford dealer in the South told Cox.
Last year, 63 percent of franchised dealers saw inventory as a hindrance to their business during the third quarter, the top challenge experienced by retailers. By the second quarter this year, it had dropped to third place and was an issue for only 42 percent of dealers. This quarter, inventory posed an issue for just 33 percent of dealers, a significant quarter-over-quarter decline, Cox said.
Dealership inventory increased enough that a lack of automaker incentives emerged as a top five challenge this quarter. Cited by 26 percent of dealers, insufficient incentives tied with political climate as the fourth-greatest challenge for the industry.
“New vehicles have little to no programs and limited special financing,” a Nissan dealer told Cox.
EV inventory appears to have grown to the point of being a nuisance for at least some dealerships. Franchised dealers told Cox during the third quarter that they see their present and future EV markets as positive. However, the score of 56 when asked to predict the EV market in three months was the lowest rating Cox had seen in the more than two years it had posed that question.
“The buzz about electric vehicles is over,” a Ford dealer in the West told Cox. “Now, they are like everything else. We have to beg people to buy them.”
A Kia dealer in the South recalled selling EVs for $7,000 more than sticker a year ago but now is “discounting thousands below and still [not] moving them consistently.”
However, Cox observed EV sales growth occurring, Smoke said.
“Some people have described it as a demand problem, and I don’t think that’s really accurate,” he told Automotive News. “It’s really an oversupply problem.”
Supply was expanding exponentially, but demand was growing linearly, Smoke said.
“The dealers are feeling that pressure,” he said.
But he thought the EV challenges were a necessary evil. Oversupply means prices will fall, and “the No. 1 issue for consumers is the price,” he said.
Price drops will improve adoption and stimulate the growth of charging networks.
“So it’s the beginning of a long journey,” he said.
Interest rates were the No. 1 problem experienced by franchised dealerships during the third quarter, identified by 65 percent of retailers, up from 61 percent a quarter earlier. The economy remained in second place among dealer burdens, but it was cited by 43 percent of dealers instead of the 49 percent during the second quarter.
“Interest rates and bleak outlook for consumers makes them less prone to spending money,” a Toyota dealer in the Northeast told Cox.