Dealer Optimism Wanes but Confidence Remains

Independent auto dealers backed off from their unprecedented high levels of optimism early in the year but their outlook remains positive, according to the National Independent Automobile Dealers Association’s Business Confidence Survey for the second quarter of 2017.

The survey of NIADA members is conducted each quarter in partnership with Equifax to gauge the viewpoint of used vehicle dealers regarding general economic conditions and business concerns.

The results, of the Q2 survey of 150 independent dealers showed the huge spike of confidence reflected in the first quarter survey has been tempered considerably. Dealers’ expectations for economic growth dropped to 49 percent from 63 percent in the first quarter, and expectations for sales (56 percent, down from 70 percent) and customer traffic (44 percent, down from 71 percent) growth also fell significantly.

Still, economic confidence far exceeded its highest level of 2016, the expectation for sales growth matched its 2016 peak and optimism about the cost of doing business improved from Q1, as did dealers’ plans to invest in expanding their operations.

Some of that is due to wholesale inventory acquisition costs coming down-record off-lease and fleet unit returns into the auction arena are beginning to depress wholesale prices.

The primary economic and auto industry drivers of this outlook include lack of growth in the economy overall, with Q1 gross domestic product growth coming in at 1.2 percent. And in a sign that economic growth could soften ahead, borrowing by small U.S. firms dropped to a six-month low in April.

Delays in tax and regulatory relief legislation have also impacted small business sentiment going forward. Expectations for early wins around those high-impact small business initiatives have not been met.

There were positive economic developments in Q2. Americans ramped up their spending 0.4 percent in April, offering fresh evidence the economy was rebounding in spring after a lackluster winter, and the Q2 GDP was forecast to grow by 3.8 percent.

However, Equifax’s credit trends report showed auto loan and lease originations were down 8.6 percent in terms of accounts and 6 percent in balances over the same period last year. That is in line with projections of the auto market starting to flatten and/or slightly decline as the second half of 2017 begins.

It appears NIADA members expect business to weaken coming off the peak spring season. Much will depend on success of the current administration and Congress in implementing favorable tax/regulatory relief legislation, interest rates staying at record low levels and consumers migrating to the used market as new car prices continue to hit record highs.

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