Based on a recent industry survey of auto dealership executives located throughout the U.S., approximately 31% of respondents said they still rely only on gut instinct to manage their dealership’s vehicle inventory. This represents almost one third of dealer executives who fall into this bucket. It is no wonder that the same survey also showed that the majority (36.9%) said they continue to struggle with managing inventory for both new and used vehicles.

With so much technology now available for dealership executives, are you still relying on gut instinct to make critical decisions for your dealership?

Who is using AI in auto?

In an era where technological advancements are completely changing entire industries at an unprecedented pace, auto dealerships are feeling the pressures to change. Many auto retailers have either embraced, or are seriously looking at implementing, some sort of integration of advanced analytics, artificial intelligence (AI), and/or predictive modeling (PM) into core business processes. Particularly, the utilization of AI in inventory management and pricing strategies is chartering a new age of efficiency and competitiveness in today’s industry.

But it’s not clear-cut across the board, and it’s important to drill down into some specific areas of recent research to get a better sense of where these gaps remain in 2024.

Traditionally, managing inventory in auto dealerships has been a labor-intensive task, often prone to errors and inefficiencies. However, with the advent of AI technologies, dealerships now have the tools to revolutionize their inventory management practices. AI-powered systems can analyze vast amounts of data in real-time, enabling dealerships to optimize their inventory levels, anticipate demand trends, and streamline their procurement processes.

While 38.7% of respondents are currently leveraging the capabilities of AI/ML or predictive modelling data to manage inventory and adjust pricing levels, another 36% are not, which reveals the increasing need for industry solutions to predict market factors that drive VIN-specific outcomes in real-time.

Understanding what AI can do for dealers

This is important because today’s VIN risk mitigation platforms are helping dealers not only forecast inventory risks and implement corrective actions at the VIN level to reduce the time vehicles spend on lots, but also helping them earn higher profit margins and enhance competitive market performance.

Additionally, the largest number of respondents (44.1%) said they don’t feel confident in the current results they are receiving from current investments when understanding their largest inventory marketing pain point. VIN platforms now automatically allocate marketing resources to offset aging and markdowns, ultimately improving dealer performance and profits. Combined with AI-assisted chatbots, dealers can leverage this technology to realize comprehensive, market and competitive data for every vehicle on their lot.

This is important as it helps to recognize how this level of information can enhance the customer experience and increases the likelihood of closing a sale, while also allowing dealerships to establish a pricing strategy that aligns with customer expectations and loyalty. 

AI-powered VIN-specific pricing algorithms and platforms offer a more sophisticated approach to pricing optimization, taking into account a wide range of variables such as supply and demand, competitor pricing, consumer demographics, days’ supply and incentive fluctuations, and even macroeconomic trends. By analyzing this wealth of data, AI systems can determine the optimal price point for each vehicle in real-time, maximizing revenue while maintaining competitiveness in the market.

Beyond improving operational efficiency and profitability, the integration of AI into inventory management and pricing strategies has significant implications for the customer experience. By ensuring that dealerships stock the vehicles that customers want, when they want them, AI helps to enhance customer satisfaction and loyalty. What’s more, the real-time pricing adjustments, taking incentives into consideration, will ensure the customer is getting a fair, competitive offer, without the dealer having to compromise unnecessary profit inside the sales manager’s office.

These recent survey results tell us that auto dealers can no longer rely on manual methods, industry experience, and overall ‘gut instinct’ to manage inventory and determine pricing. By leveraging the power of AI through predictive analytics, auto dealers can anticipate demand fluctuations, enabling them to adjust inventory levels proactively.

About The Author: Len Short is the executive chairman of Lotlinx, who offers the only inventory platform that enables dealers to automatically adapt to market dynamics, mitigating inventory risk through VIN-specific strategies. For more information, visit www.lotlinx.com.

1: Lotlinx 2024 Auto Retail Inventory Pulse study; March 2024.