How To Build an Unstoppable Dealership in a Bad Economy

How To Build an Unstoppable Dealership in a Bad Economy

Dealers’ challenges seemed to flip overnight. Here’s how they can use this period to get ahead of the curve.

Auto dealers are coming through a historical period of profitability due to a flipped demand-supply situation over the last 18 months. Last year, they had to just open the doors and people would be lining up for the cars they had in stock, ready to pay them the price the dealers wanted.

However, the situation flipped almost overnight. Let’s look at some of the challenges auto dealers face today and how they can use this period to get ahead of the curve.

CHALLENGES FACING AUTO DEALERS DURING BAD ECONOMIC TIMES

Increasing inventories: The chip-shortage-fueled inventory crunch is in the rearview mirror, and most OEMs are returning to pre-COVID levels. According to Cox Automotive’s mid-2023 review, inventory is up 74% since a year back, many brands are back to pre-COVID levels, and some brands have four months of inventory days’ supply.

Increasing interest rates: Interest rates have gone up 5X compared to a year back and are creating severe affordability challenges for car buyers. The impact is at all levels, with the sub-prime tier the most impacted. (Source: Cox Automotive Mid-2023 review)

Price pressures: The result of higher inventory and affordability challenges for buyers is that the price and profit pressures are increasing. According to Cox Automotive, most of the big brands are discounting. The incentives are double that from a year back on average, with some brand discounts going 5X what they did last year.

Hiring and staffing: The other macroeconomic indicator impacting the auto dealer industry is the unemployment rate. Unemployment remains at historic low levels, and inflation is still high. It is making the job of hiring dealership employees more difficult and expensive.

The result of all of this is rising floor plan costs.

The situation will likely worsen as the new inventory situation for all manufacturers improves, including the Japanese brands and new EV inventories hitting the market. The interest rate hike may not be over, and there is a threat of economic recession. The fall, winter and spring may get even rougher.

HOW CAN DEALERS WEATHER THE STORM?

So, what can dealers do to weather the storm? The solution is simple — use technology as the backbone to look at your entire operations with the MOM lens: Measure everything, Optimize everything and Maximize everything.

Measure everything: Establish Key Performance Indicators (KPIs) for each area, measure them in real-time and look at the trends. For example, if you are measuring your marketing spend, evaluate cost per lead, cost per sale and leads per provider.

Optimize everything: Once the KPIs are established, the next step is continually driving efficiencies. What part of the sales or service process can be automated and done more efficiently? 

Maximize everything: Next comes the upside opportunity. How can you do things that you are not able to do today? Can you align your sales process to the extended buyer cycle? The good news is that the technology is available to do just that.

HOW CAN DEALERS THRIVE IN A BAD ECONOMY?

The three key components that enable the dealer to apply the MOM lens are Data, AI (artificial intelligence) and Automation. They are dealers’ best friends in these challenging times.

Data: Data-driven has been a buzzword for dealerships for a while now, but are dealers truly using the data’s full potential? So much data is available for each aspect of the auto dealer business — DMS, CRM, service, inventory and external data. Data enables you to establish the KPIs mentioned above. When you stitch that data together and apply data science and machine learning, which we loosely call AI, it powers the optimizations and maximization of dealership operations.

AI: AI is surging in popularity, but it’s still early days for auto dealers. Steve Greenfield and Automotive Ventures forecast that AI has reached an inflection point and adoption will increase in 2023. The current climate will act as an accelerant. We all heard about the buzz of ChatGPT and generative AI. While low-hanging fruits like website chat are the targets, the more significant benefits will come as dealers use it to optimize core dealership processes and get a lift for the business. For example, can generative AI take over my lead follow-ups and generate messages that align with the buyer and influence the buyer’s journey?

Process automation: Process automation ranks lower in Greenfield’s and Automotive Ventures’ top 10 predictions, but if AI is getting broader adoption, process automation needs to go hand in hand. For example, if you use AI to generate a 360-degree view of your customer with 180 attributes, putting it back for a human to take action, it would fail. You need that AI plugged into your dealership processes to get a true lift for the business.

There is a silver lining to the dark clouds on the horizon. Like COVID helped dealers jump leaps and bounds in their digital transformation efforts, the current challenging times can help them get more technology and automation to run their business more efficiently and become more customer-focused. 


Vikrant Pathak is the co-founder and CEO of myautoIQ. For more information, visit MyAutoIQ.com.

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