DP's Office

NIADA: Cost of Doing Business Up, Finance Availability Down

May 08, 2018

ARLINGTON, Texas — The economic and corresponding retail sales growth expectations of independent auto dealers were a bit more subdued in 2018 than a year before, according to the National Independent Automobile Dealers Association (NIADA)'s business confidence survey for the first quarter.

According to results, 42% of the respondents expect economic conditions to improve in the quarter ahead, down from 63% in the first quarter 2017 survey. Retail sales growth expectations also fell to 50% from 70% a year ago and 67% in the previous quarter.

In addition, the percentage of dealers who expected an increase in their cost of doing business rose from 57% in the fourth quarter of 2017 to 66%, despite the tax reform bill passed in November.

Optimism for increased cash flow and availability of auto finance resources also fell, with cash flow down 21% and finance availability down 34% from the previous year.

That was due in part to a sharp pullback in auto finance company investment in the subprime paper market segment, with a handful of independent auto finance companies having left the market completely.

In fact, dealers cited less access to finance sources as well as tighter restrictions to qualify buyers for financing (29% each) as the top reasons why it's been difficult to secure loans for customers.

Expectations of more consumer traffic dropped to just 41% from 71% in last year’s first quarter after a negligible 0.02% year-over-year increase in consumer retail sales in 2918’s opening quarter.

“That could be the result of a delay in tax refunds, prompting households to put off spending early in the year,” the association stated. “However, tax withholding was reduced to account for the new tax cuts, which might lead to more spending down the road.”

The expectation of rising expenses also showed up in dealers' perception of the single most important problem facing their business: 22% said it was the increased cost of doing business, more than any other issue. Concern over the lack of auto finance resources rose from single digits throughout the past year to 12%.

“The overall picture shows NIADA members expected business to stay steady with no major uptick in customer traffic or corresponding sales heading into the mid-year of 2018,” the NIADA stated in its press release announcing the survey’s results. “Two major factors are likely to dictate the outcome of this quarter: The availability of auto finance resources and consumers potentially opening their pocketbooks as they see the benefits of the new tax law on their household budgets.”

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