AI in Auto Retail

Artificial intelligence is driving auto retail forward. The next generation of software tools is being powered by data, enabling dealerships to optimize inventories and personalize promotions.

But where are dealers with the technology? CDK Global conducted a national marketing research study to find out, granting an inside view into the dealership AI journey,

It marked the second time CDK has asked dealers to share how they use AI, how it has benefited their business, and the challenges they believe it can solve. In the first, in 2021, 68% of dealers leveraging AI reported seeing a positive result from its use. That rose to 76% in a survey this year. Among the dealers just dipping their toes into the AI waters, the new research found 60% also expect positive outcomes from the efforts.

“Dealers shared AI has helped them convert sales leads, book regularly scheduled service appointments, acquire and manage inventory, and provide service and parts updates,” says Emily Hernandez, data and intelligence product marketer at CDK Global.

Devin Daly said he finds CDK’s results on par with what he’s seen as CEO and founder of Impel, an AI provider that works with about 5,000 dealerships in 53 countries.

“Dealers are at varying stages of AI implementation,” he says. “Early adopters have used AI for some time. In the last six months, the hype and buzz surrounding ChatGPT and OpenAI caused even laggard dealers to develop an AI strategy.”

Daly suggests most dealers are trying the technology in only some areas. “They have a very narrow use case where they are using it for lead response or for voice AI. For example, when service customers call in, 60% of them hear an AI voice instead of being sent to voicemail.”

As CEO and co-founder of AI-powered customer data and experience platform Fullpath, Aharon Horwitz says he sees dealers as “cautiously optimistic” about AI’s potential. He says they’re excited about ChatGPT and OpenAI tools but restrained. “Dealers are very interested in seeing how these tools can help them be more effective at engaging customers and empowering their sales and service teams to improve the customer experience.”

Hernandez agrees that work remains. CDK’s research shows 10% of respondents still remain unaware of AI’s possible applications today.

Daly also finds that statistic on the money. He says the industry is at the tip of the AI iceberg. “I believe there will be an AI revolution in automotive retail as dealers become less capital-intensive and more AI- and technology-enabled.”

What is AI?

AI is “technology that mimics the way people use their brains to reason and make decisions,” CDK reported in “What Automotive Dealers Think About Artificial Intelligence.” It explains that machine learning and natural language processing are types of AI technology.

The white paper cited Amazon as a well-known example of how the tools function. The online retail giant uses machine learning to make product recommendations via an algorithm that considers the customer’s past choices in products or services, styles they liked, and what other customers with similar tastes bought. The algorithm helps Amazon learn more about customers to provide personalized shopping experiences and maintain high customer retention.

In its latest survey, CDK discovered that 67% of dealers use AI to identify and target qualified leads in similar ways. “By analyzing the data, they can see who has a higher propensity to buy a vehicle within their customer base,” Hernandez says. “Dealers identify qualified leads and make vehicle recommendations to transition those leads and convert them into sales.”

Hernandez notes dealers have discovered—just like Amazon did—that using AI can enhance the customer experience and personalize it.

Areas for Improvement

AI can help dealers clear roadblocks to efficiency and good customer service, Hernandez says.

CDK asked survey respondents to identify key challenges at their dealerships, and about 57% named managing employees and skill shortages and preventing employee burnout as top concerns. Acquiring and managing inventory were close behind, given pandemic-era supply constraints.

Here’s a breakdown:

• 32% of respondents identified providing service and parts updates as a challenge. But among just fixed operations managers, 54% consider it a key concern.
• 49% of sales and F&I leaders identified managing inventory levels as a concern.
• 44% expressed concern with converting sales leads.
• 17% struggled with building opportunities for phone calls.
• 15% pointed to booking regularly scheduled service appointments.

In every area of concern, AI can help, Hernandez says.

Resolving Employment Challenges

Dealerships can operate more efficiently and effectively by optimizing employee skill sets and automating rote tasks with AI technology, according to Horwitz.

“AI is really valuable when you use it to optimize productivity and improve efficiency,” Daly says. “That’s really important today because of continued headwinds and unpredictability in the supply chain, margin pressures, rising OEM costs, and more. Dealers need a greater ability to scale to deliver the optimal customer experience.”

The tendency here is to hire more people, he says, but Daly suggests that dealerships can use AI to adjust their workforces to suit business needs instead of overstaffing.

“A CEO of a large public dealer group once said, ‘You should never lose a customer,’” Daly says. “That means you should retain them from the first time you interact with them through the seven or eight vehicles they buy over their lifetime. AI automation can aid with that. Optimizing customer lifetime value at scale is critical to long-term sustained success and profitability, and can really insulate against market fluctuations.”

AI also can prevent staff burnout, he says. Dealership employees can struggle to respond to leads, which typically come in overnight. That puts pressure on them to respond during the workday when they are busy with other tasks, and the added stress leads to high turnover. “AI can plug in, set appointments, and respond to sales inquiries, emails, and texts 24 hours a day to allow salespeople to focus on building relationships,” he says.

Inventory Management

Embracing AI can help automotive retailers address the ever-growing problem of available and on-time inventory, Hernandez says. Consumer expectations, business models, competition, and vehicle technologies are evolving and creating challenges for inventory requirements, putting pressure on parts inventory management, sales and F&I leaders, she says.

“Dealers have had difficulty providing the correct amount of stock at the correct time. They have embraced the concept of just-in-time inventory,” and analyzing the market, determining appropriate inventory levels, then figuring out which vehicles to stock takes time they may lack.

“AI can do that through machine learning, which analyzes historical information to identify problems and create solutions,” Hernandez says. “Maybe the dealer had over-purchased inventory and had stale inventory on the lot for too long. Perhaps the dealer isn’t turning vehicles as fast as he wants. Machine learning can evaluate this information to understand and forecast market demand, and specifically show which vehicles to purchase and how many. It optimizes the entire process and creates a more efficient workflow for employees.”

AI-powered solutions can predict inventory demand and proactively assess requirements by scanning the market for desired vehicles. This, in turn, can boost dealership and online sales, the CDK report says.

Dealers also can use AI to acquire vehicles, according to Daly.

“They might use AI to respond to Kelley Blue Book cash-offer leads or to proactively mine the dealership customer database to identify those who might have a trade-in. They can target those people to acquire their vehicles, which is a massive focus today, given the supply chain and margin pressures of vehicles bought at auction.”

He says dealers can set up criteria for used vehicles within their AI software, and AI can mine their dealer management system and service records for vehicles that fit the bill.

The technology can also help dealers maximize opportunities with customers.

“AI can reach out when it spots someone who declines vehicle service,” Daly says. “It might generate an email that says, ‘We saw you declined $2,000 worth of service. This is an issue we recommend getting fixed. But since you didn’t, are you interested in selling your vehicle?’ We also see dealers using AI to get vehicles their customers want or that the dealership needs.”

AI can also help dealers maintain inventories and replenish parts supplies when stock gets low. Hernandez says it estimates demand and forecasts future inventory needs to ensure parts are available when cars come in for service.

Attracting Customers

The competitive automotive retail industry puts dealers on a constant quest for novel ways to attract customers, and Hernandez says AI can help there, too.

“Dealers can use data and customer profiles in AI solutions to target new customers and improve their marketing efforts and ROI,” CDK’s report says. “It can identify in stock vehicles and estimate new payments to send your prospect more timely and relevant messages while minimizing over-marketing trends.”

AI technology also can pinpoint the best types of advertising to use. It can analyze ad campaigns and compare them against key performance indicators to measure success. “Maybe the KPI is clicks per rate. Or SEO,” Hernandez says. “AI can analyze how the advertising performed over time by measuring against these KPIs. Then it can serve up a personalized recommendation to help dealers accurately reach their audience.”

When leads come in, AI can help by sending customers targeted messages that showcase vehicles they’re interested in. Once a customer is in the dealership, it can recommend accessory and F&I bundles specific to him or her.

“You’re now able to be more proactive,” Hernandez says. “You have the insights in hand without taking the time to get your hands dirty in the data.”

Optimized Service

Using natural language processing also can enable dealerships to respond better to customer calls, leading to more sales and service appointments, CDK says.

AI can positively impact all aspects of a fixed-ops department, says Hernandez, from expediting service scheduling to assessing customer concerns or service needs, potentially helping dealers increase revenue and customer satisfaction while saving time and money.

“A virtual assistant can manage the intake process, complete the discovery phase, then route the customer to the correct department,” she says. “When they reach that department, the discovery process is complete, and employees are empowered to treat that customer in a timely and respectful manner, directly addressing their concerns and completing the service they asked for.”

AI technology can be applied as a website chatbot that schedules service appointments or as a voice on the phone.

Given service technicians are in short supply – Market Source says the U.S. needs 76,000 more by 2026 just to keep up with current demand – and technician churn is an issue exacerbated by rapidly changing vehicle technology – AI can produce predictive maintenance models that get vehicles in for repair before they break down.

For instance, if a specific Toyota model keeps coming in for a certain repair, the AI model could reach out to customers to schedule that repair when the vehicle comes in for routine service.

“This occurs not because you have an experienced technician saying it needs to happen, but because an AI algorithm predicts the service will be needed,” Hernandez says. “The dealership can contact the customer and say, ‘Your vehicle will need this repair within the next six months. Do you want me to take care of this now, so you don’t have to come in later?’ Being proactive creates trust, open transparency, and helps customers value your services.”

Need for Education

The CDKs survey found that 10% of dealers are still unsure about AI is and its capabilities, showing more education is needed, Hernandez says.

“The magic is not in AI alone, but when it’s combined with the customer data platform to allow you to personalize your offerings and make them relevant to the customer. The only way to do that is to have the right starting set of context and data.”

CDK, Fullpath and Impel all offer thought-leadership resources on the subject, as do many academic institutions and associations. “Education is something that must be prioritized,” Hernandez says. “Dealers do not need to be data scientists. We can help them with an AI roadmap. But they need to know the benefits of AI and the areas where they need to improve.”

The day is coming when AI is a part of everyday life, they say. “The best strategy to prepare for that reality is for dealers to slowly onboard AI,” Horwitz says, “to dip their toes in the water and get comfortable, and start understanding how the technology works.”

ABOUT THE AUTHOR: Ronnie Wendt is an editor at Auto Dealer Today.

 

Originally posted on Auto Dealer Today