Auto dealers’ outlook on the market improved in the first quarter, but profit pressure replaced inventory worries as conditions have shifted in the consumer’s favor.

Cox Automotive’s Dealer Sentiment Index rose by just two points to 42, far short of its 50 threshold. The profitability slice of the index fell to 33 in the quarter, the second-lowest level of the index’s history after peaking at 60 in 2021.

Cox Chief Economist Jonathan Smoke said dealers are experiencing the pain of tighter margins and higher costs.

“Dealer costs continue to grow and profitability per sale has dropped,” he said in a press release. “As we often see in our surveys, spring is bringing some optimism, but dealers are clearly indicating the U.S. auto market is very different than it was just two years ago.”

Still, the market outlook index, which measures expectations for the following quarter, rose sharply from 41 to 51. That index usually gets a boost from the spring selling season, Cox said.

But dealers indicate that both new- and used-vehicle sales conditions have declined from a year earlier. And quarter-over-quarter traffic and profits indexes are down.

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