Erin Keating on Why Dealer Confidence Is Rising Despite Growing Concerns

Dealer confidence is improving, but uncertainty continues to shape the outlook for the automotive retail industry. In this episode, Erin Keating, Executive Analyst at Cox Automotive, breaks down the findings from the Q2 2026 Cox Automotive Dealer Sentiment Index and explains why dealers are feeling more optimistic about current conditions while growing increasingly cautious about the months ahead.

Keating explores the economic pressures impacting dealer profitability, the widening confidence gap between franchise and independent dealers, and the growing importance of fixed operations as a profit driver. She also shares insights into evolving EV sentiment, rising fuel costs, and how political and regulatory uncertainty is making long-term planning more difficult for dealers across the country.

Key discussion points:

• What the Q2 2026 Dealer Sentiment Index reveals about dealer confidence
• Why fuel and energy costs have become a top concern for dealers
• The growing divide between franchise and independent dealerships
• How fixed operations are becoming a critical source of profitability
• Why independent dealers are showing stronger confidence in used EVs
• The impact of political uncertainty, tariffs, and economic volatility on dealer planning

Keating provides a data-driven look at the challenges and opportunities shaping the road ahead for automotive retailers.

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Transcript

Dealer Sentiment Snapshot

Jim Fitzpatrick 0:07

Welcome to Inside Automotive with Jim Fitzpatrick. Dealer confidence may be improving a little according to the latest Cox Automotive Dealer Sentiment Index, but there's still plenty of uncertainty hanging over the market. Joining us now is Aaron Keating. You've seen her here before on CBT News to break down the latest report and what dealers should really take away from the data. So thank you so much, Aaron, for joining us on the show once again.

Erin Keating 0:32

Of course. Always happy to be here with you, Jim.

Jim Fitzpatrick 0:34

Sure. So uh the report uh shows dealer sentiment improving for the second straight quarter, but at the same time, confidence uh in in the months ahead dropped pretty sharply. Uh, what do you think dealers are are seeing right now that's uh making them more cautious about the back half of the year?

Economy Anxiety And Cost Pressures

Erin Keating 0:53

I mean, overwhelmingly, it's the economy. It's the number one um reason they say that's holding back uh the factors of their business, you know, and political climate actually for the franchise dealers. I thought that was pretty interesting. That actually moved up above interest rates as far as something that they feel is holding back their business. But without a doubt, when you look through all of the verbatims, the words that came up actually the most fuel and energy costs. So it's affecting their perspective on what the consumers can do, it's affecting their perspective on what their cost structure looks like. The economy is what's really um holding

Franchise Versus Independent Reality

Erin Keating 1:26

them back.

Jim Fitzpatrick 1:26

Yeah. Um when you look at franchise dealers versus independence, the gap in confidence seems pretty dramatic. Are independent dealers simply getting squeezed harder right now? And and are we seeing a bigger uh structural shift happening in the market?

Erin Keating 1:41

Yeah, I think you know, it's interesting when I was looking at the data, I was I kept that K-shaped, you know, model that we keep talking about for the consumer in mind. And it's it's almost like it's appearing, you know, with dealer uh franchise versus independent. I mean, the independents, you know, of obviously they they tend to deal with more price-sensitive customers. So they're probably getting battered, you know, every day with their customers being really worried about the economy. But also used car inventory is pretty tight for the independent um dealers. You know, franchise dealers are saying that they actually have decent used car sales and decent acquisition. But the independent um folks are just really, you know, struggling to find the right inventory and they're dealing with customers that are more price sensitive.

Jim Fitzpatrick 2:22

Yes, I've heard that uh from a number of people in the industry where now dealers have made it uh every really since COVID have made it uh their their you know their job to say, look, we're gonna get as many trades as we can, but we're also buying cars off the road. Um many dealerships have even said we're paying our salespeople to reach out to customers that have cars. We'll pay the salesperson to acquire that vehicle. Service lanes now have turned into service slash acquisition lanes. Um so I could see where that would put a squeeze on you know on the independence because these cars are not going to auction. In addition, a number of dealers that I've I've spoken to have said if a car you know is a four-year-old car and it's got a hundred thousand miles on it, we st we will retail that car. Oh, yeah. Typically they were going to the auction to be sold at independence.

Erin Keating 3:08

Uh no question. And when we know we're still coming off that low point of used car inventory to begin with. Um and so a hundred percent, it's acquisition, acquisition, acquisition is like the name of the game right now. And being able to get the right inventory where you are is super important. So it's no wonder that the used car dealers are feeling that this is a real, you know, constraint for them.

Jim Fitzpatrick 3:30

Yeah,

Fixed Ops Becomes The Profit Anchor

Jim Fitzpatrick 3:31

for sure. Um, the report mentions rising expenses, tighter margins, and affordability pressure, which we're all dealing with. At some point, dealers can't just keep absorbing these costs. What are you hearing from dealers about how they're adopting uh from an operational standpoint?

Erin Keating 3:47

I mean, we certainly hear that fixed operations is also the name of the game this year. I mean, it's always been a big profit engine for dealers. What was really interesting is that the dealers who felt like their fixed operations were getting better were really across the board very happy with their people. A lot of them referred to having new management or just really excellent team that were helping to drive that profitability engine for them. And as far as we can see that that's just that's one of the key areas where if they need to offset the costs with revenue that's coming in the back door, they need to get that uh service business back. They have been losing it to independent shops for quite some time. And that's the place to really grow the profit engine because honestly, I don't think a lot of people feel that there's a lot of places where they can cut costs, especially with inflation and the fuel and energy costs going higher and higher.

Jim Fitzpatrick 4:33

That's true. That's true, no

Used EVs Gain Momentum

Jim Fitzpatrick 4:35

question. EV sentiment was interesting because for the first time in a while, it sounds like that uh at least it's there's some signs of stabilization. Are dealers finally starting to figure out the EB EV business, or is this move temporary?

Erin Keating 4:50

Yeah, I mean, I think certainly we're hearing a lot more about people being interested in EVs because of the fuel and gas prices going up. What was interesting, more importantly, was that used or the independent dealers were the ones who are more optimistic about EVs than end or than franchise dealers, which seems strange because of course franchise dealers have all that support from OEMs, but it's really a story about the used EVs that are available on the market. I mean, just like we were talking about acquisitions so difficult, but what's really easy to get out there right now are used EVs. It's what's coming in the door, it's what's you know, good messaging to get people into fuel efficient cars. And price-wise, they're doing really well in very, you know, more recent vehicles. So the used uh dealer lots are really doing well being able to bring used EVs into the market. So I thought that was a really interesting shift in in sentiment.

Jim Fitzpatrick 5:36

Yeah, yeah, for sure. That it it it is interesting to see how we're we're dealing with EVs uh in the industry now. And uh now with the price of gas, it's uh all of a sudden it it's it's certainly a major yes, certainly a major consideration for consumers.

Erin Keating 5:51

Right. Absolutely. I mean, you know, again, in the in the real, you know, outside of the sentiment index, we certainly see that shopping behavior has increased for EVs. I still struggle to think someone's gonna come off the line and and take on an $800 payment a month just to switch powertrains, but uh absolutely people that are in market right now are for sure saying, you know, let's look at a couple different directions. And we know that hybrids are going gangbusters right now. So we know that fuel efficiency is definitely top of mind.

Jim Fitzpatrick 6:15

That's

Politics Tariffs And Volatility

Jim Fitzpatrick 6:16

right. Political climate has uh become one of the top concerns holding back business. Uh how much of a dealer sentiment right now is being driven by actual market conditions versus uncertainty about what could happen uh, you know, next economically or politically? I mean it the the country seems to be so divided on so many major issues right now. Has that got people uh holding back or concerned?

Erin Keating 6:42

Yeah, I think that's one of the big drivers because you know everyone looks around the economy and says, oh my gosh, the stock market keeps going, the wealth effect is still there, and in new vehicles especially, we know that's holding up the new vehicle market. Uh but for sure everyone is just on their tippy toes waiting to find out what's gonna happen tomorrow. Just this past week, we got new announcements of the USMCA requirements that that the administration wants to push. We heard about 301 tariffs coming into play yesterday. We know that the Iran war is on, off, gonna get settled this weekend, now it's next weekend. I mean, this type of volatility just isn't good for any strategic decision making. And what's interesting to me is that a lot of the dealers were really in support of this administration. So to see more and more of them actually saying, you know what, this is actually starting to get a little bit scary or a little bit tough, I think that speaks volumes to how volatile it really feels to business owners.

Jim Fitzpatrick 7:31

I I agree, I agree. We even we're now seeing some of the big podcasters in the country that were uh started out to your point as Trump supporters and uh big on the Trump administration, and now they're turning around going, eh, not so fast. We're changing our mind on this.

Erin Keating 7:48

Yeah, I mean it's yeah, it's it's not so much all each decision, it's that it's all of them and consistently, you know, making especially if you're a business owner and we know our dealers are, I mean, this is their lifeline, this is their really successful businesses that are incredibly resilient, but this is testing resilience, you know.

Jim Fitzpatrick 8:06

It is, it is, there's no question about it.

Service Lane Push And Wrap Up

Jim Fitzpatrick 8:08

And um, to your point earlier about service being, you know, front and center again, uh, you know, the uh the uh fair-haired child, if you will, now among the dealer community, where it's like, okay, these people are holding on to their cars, which means they're gonna need servicing, which means uh more profits and potential of profits back there. Um it is interesting to see how the dealers shift to fixed ops when needed, you know. And not all of them. I know I'm paying with a broad brush, so hold your tet hold your emails, folks.

Erin Keating 8:37

But uh, yeah, yeah, it's crazy.

Jim Fitzpatrick 8:40

It's crazy.

Erin Keating 8:42

Ford has a new campaign out about you know pushing folks to the service lane. So it's like it's the dealers said it first, and now the automakers are like, oh yeah, we should probably push people to your service lane, right?

Jim Fitzpatrick 8:51

Yeah, it's it's amazing how that all of a sudden um you know, whenever we need to, we go to fixed stops and go, okay, get us out of this situation. You know, sales are a little off right now. We love you, uh service uh service department, you know? Yeah, it's crazy. Exactly right. Crazy. Aaron Keating, executive analyst at Cox Automotive. Thank you so much for joining us on the show. It's always great uh catching up with you and uh providing this information to our viewers. So thanks so much.

Erin Keating 9:15

Great to see you too, Jim. Thanks each.