Car Dealers Pessimistic as Consumers Cut Big-Ticket Spending

Car dealers are closing 2022 in a gloomy mood as U.S. consumers shun big-ticket purchases.

A new survey by Cox Automotive Dealers finds that U.S. auto dealer sentiment in the first quarter of the year is at its lowest level since the start of the COVID pandemic.

The survey — which used interviews with 1,034 car dealers — showed the dealer sentiment index at 43, lower than the threshold of 50, an indication that more dealers see the market for cars as weak than those who see it as strong.

“Dealers are normally optimistic, so the drop in the 3-month outlook to a new low in our survey history is particularly noteworthy,” said Johnathan Smoke, chief economist at Cox.

“As the year began, dealers were telling us about one obvious problem: inventory. Now, as 2022 comes to a close, it’s all about the economy and interest rates.”

Inventories remain at record lows, the survey said, but have improvised during this quarter and are up sharply from last year.

But while dealer sentiment about inventories has risen dramatically, their view of “new-vehicle sales improved only slightly, increasing from 51 to 52, meaning dealers remain marginally more optimistic about the current new-vehicle sales environment,” the report said.

The Cox survey arrived amid reports this week that used car vendor Carvana could be headed for bankruptcy. The company’s most recent earnings announcement showed that inflation and economic headwinds had led to an 8% drop in retail units sold, with revenue declining by 3%. The company’s management cited “affordability headwinds.”

Sentiment among consumers isn’t much rosier these days, as PYMNTS research has found, with Americans across all income levels expecting the current economic instability to last at least until spring 2024.

That means the behavior that drives big-ticket item purchases will likely go on pause, as inflation forces lower-income consumers to turn to credit cards and flexible financing, while also dipping into their savings.

“Americans are resilient,” PYMNTS wrote last month, “but borrowing costs are growing, which has driven a shift in focus from items like large appliances and cars to the simple necessities of daily life.”