In a quarter that showed a “notable negative turn in overall dealer sentiment,” even the used-car side of the dealership is seeing a bit less optimism these days, according to the Q4 2018 Cox Automotive Dealer Sentiment Index released this week.

“The fourth quarter represented a notable negative turn in overall dealer sentiment and their outlook for the future,” Cox Automotive chief economist Jonathan Smoke said in a news release. “The big negative swing in expectations that was significantly lower than last quarter and the same time last year is especially alarming.”

Not only did the overall current market index fall from 51 to in the third quarter to 44 in the third quarter, one metric marked a first in the report’s history: expectations for the next quarter were in negative territory (49). That reading means “dealer expecting conditions to be weak in the future outnumber those who think conditions will be strong,” the company in the report.

Overall dealer sentiment has been on what Cox Automotive described as a “roller coaster year.” What once was an optimistic dealer body has grown pessimistic, the company said. 

“Slowing customer traffic, growing pressure to reduce prices, and declining profitability aligned with a view of the market that retreated from strong to weak in the aggregate index,”  Smoke said. “Dealers remain worried about the negative impact of proposed tariffs leading to higher prices, but they are also now seeing a less robust used-vehicle market, which is also notably weaker than last year.”

Used-car metrics

As far as the metrics specific to pre-owned, dealers were asked to describe the current used-car sales environment. The index reading for franchised dealers was 68, compared to 72 in the third quarter and 67 a year ago.

For independents, it was 46, down from 52 in Q3 and 51 in Q4 2017.

The overall score was 51, compared to 55 in Q4 2017 and 57 last quarter.

Asked to describe current used-car inventory levels, franchised dealers were at 54, down from 55 a year ago and up from 52 in Q3.

Independents were at 46, even with the previous quarter and down from 53 a year ago.

The overall score of 48 was even with Q3 and down from 53 a year ago.

Tariff impacts

Drilling down into an economic issue, dealers were also asked this one and given a list of choices: “What, if any, positive impacts would imposing tariffs on imported vehicles and parts have on your business? Please select all that apply.”

Forty-six percent thought there would be increased traffic for used vehicles, compared to 44 percent who said the same in Q3.

Thirty-six percent thought there would be an increased margin on all used vehicles as the market adjusts, compared to 27 percent who felt that way last quarter.

As far as negative impacts, 61 percent thought it would lead to higher prices on all used vehicles, against 60 percent in Q3.

Twenty-eight percent thought it would lead to lower (or delayed) used-vehicle sales, versus 23 percent who said the same in Q3.

In terms of overall impact of import tariffs on cars/parts (should they be imposed) to their profitability next quarter, 10 percent of dealers thought it would have a positive impact, 51 percent forecasted no impact and 39 percent said it would be negative.