It’s a good time to be a car buyer. The hurricane-replacement bump aside, new car sales are softening after seven years of growth since the Great Recession, and dealers are offering the biggest discounts in years. Market conditions are the main culprit, and leading economists and car executives alike say that demand has peaked.
How can automotive dealers buck this trend and make it their competitors’ problem? How do you ensure your organization is as sharp and as smart as possible when it comes to inventory and pricing? Is your system seamlessly integrated so that all key decision makers are operating on the same conclusions?
You can accomplish this by grabbing more than your fair share of the pie leveraging artificial intelligence, and your own data. To increase revenue without increasing risk, automotive companies will need to implement the following tactics, all leveraging advanced analytics.
1) Smart Procurement of Inventory. It’s vital for automotive companies to have a data-driven, automated, and proactive understanding of which cars are selling where. Certain vehicles are more popular in different areas, as automotive executives know. However, companies should leverage the data that they have available to determine just how popular certain inventory segments are. For example, white pickup trucks selling well in Texas. If dealers purchase more trucks than the local market will support, they’ll be stuck selling those trucks at deep discounts for lower and lower profitable rates. However, seeing those trends in real-time will help to offset excess capacity.
2) Smart Targeting. Automotive companies need to gather a deeper understanding of their audience, largely by segmenting purchasing habits among various criteria, including demographics, location, online search / social activity and more. Leveraging data, automotive companies can identify in-market buyers, and understand where and when someone is ready to purchase a vehicle.
3) Smart Pricing and Incentive Usage. Pricing is obviously important. However, the benefit of predictive analytics is that automotive companies can more accurately forecast and market the right cars (and the right bundle of F&I products) to the right buyers, at the right price. This takes the pressure off competing with other dealers based on vehicle price alone, and it will ultimately incentivize more consumers to purchase cars, or F&I products and therefore revenue.
In the article titled, “3 Quick tips for CEOs interested in artificial intelligence,” which is featured in Chief Executive Magazine, Chief Science Officer Jon Higbie of Revenue Analytics highlights that artificial intelligence has disrupted industries already, automotive being one of them, and CEOs can get the most out of their companies’ data. He states in an example, that a C-suite executive of one of the largest auto dealer groups in the nation with over 100 dealerships nationwide wanted to transform the car-buying experience from a painful, multi-hour, day-long ordeal into an easy and exciting experience for the customer. A dynamic solution was developed leveraging AI, which enabled the automotive dealer group to analyze vehicle trade-ins, purchases and driving habits of customers, and then it recommended two to three specific ancillary products to car buyers. Before the solution was in place, the finance & insurance manager would offer 15 different products to their customers. Now, the solution recommends two to three products that are tailored to the customer, which increased products bought per transaction, and overall margins.
The automotive dealer group results achieved an increase in finance & insurance profits of 7 percent, over 6 percent improved ancillary product penetration, and 60 minutes in reduced time to complete a transaction on the lot. Thanks to the power of AI, the firm saw tens of millions of dollars in profit gains.
As seen in the above example, most companies have a goal to maximize revenue and margins. The best way to do that is by leveraging artificial intelligence, and optimizing inventory and price, while targeting the right buyer. There are a lot of great tools available to make this a reality. It’s important to ensure your solution, though, is being used in support of a tailored sales and revenue strategy that makes sense for your company and which can help predict where the market is going, so you can meet it there.
What is undeniable in the automotive industry is that supply is currently outpacing demand, which means it’s time to be smarter and more precise than the competition. Not every company has to suffer in a market downturn – those who use the right tools at the right time will come out ahead.