AI/ML: A Dealership’s Secret Weapon

The volatility of sales prices in the used car segment since 2020 can make dealers feel as if they are riding a rollercoaster. The industry has seen record high used vehicle prices that sometimes soared over manufacturer’s suggested retail price before dropping by the double digits.

The Manheim Used Vehicle Value Index fell to 199.2 in the first 15 days of April, about 14% below the full month of April 2023. In fact, Cox Automotive said it was the first time the Manheim Index Rating dropped below 200 since March 2021.

While used-vehicle prices are sending dealers on a rocky ride, new-vehicle prices remain stable at close to record highs, though that stability follows tumultuous price volatility in previous years.

The shifts require dealerships to carefully watch the market, as forecasting new and used car prices proves difficult, says Stephen Batten, chief revenue officer at  automotive technology company Predian, which offers an artificial intelligence- and machine learning-powered inventory management program.

Dealers usually base their inventory purchases and pricing decisions on historical data. But that strategy, he says, can go haywire during rapid changes or market chaos.

“I have talked to dealers who tell me they are losing $45,000 to $50,000 a month on their used-car operations because they are under water on their vehicles. They may have hit the nail on the head with recon when they bought the vehicle, but then the entire market dropped, and the retail market fell.”

To stay competitive, dealers should have a thorough grasp of their performance and capacity to monitor crucial metrics that contribute to success. Batten says a better avenue to manage and price inventories amid market volatility is AI and machine learning.

Powerful Tools

“Artificial intelligence and machine learning will revolutionize how dealers manage their inventory,” says Predian CEO Mike McGlade.

Despite the power of the tools, Merritt Critcher, the company’s head of product development, says most dealers aren't using the technologies with their core systems.

“It’s used mostly on the marketing side,” he explains, instead of with dealer, inventory and customer retail management systems.

Critcher, who has decades of experience in inventory management at Dealertrack, DealerSocket and Solera, says the real potential of the developing technologies lies in modern dealerships’ core systems. “This technology will help dealers process data, display data and make decisions really fast.”

However, many dealers are hesitant, citing concerns such as uncertainty and the belief that the tools will replace people.­­

“We have to remind dealers that these systems perform human tasks but do them very fast,” Critcher says. “A human could theoretically spend weeks and weeks trying to figure out what AI/ML can do in seconds.”

He emphasizes that using tools for those functions doesn't remove humans from the equation but gives them the freedom to address other necessary aspects of the business.

Pricing Inventory

Predian wants to give dealers a boost into the AI/ML world by providing tools it says can help them make better merchandising decisions through enhanced predictive analytics and business intelligence, according to Batten.

The company says its tools help dealers determine the right inventory to stock and where to price it by analyzing historical sales data, market trends and customer behavior. That, he says, prevents overstocking, reduces carrying costs and minimizes risk.

However, he says most dealers use basic math to price vehicles. They compare the prices and features of similar nearby cars to set prices for their own cars. But, he says, that process can be error prone.

“By using AI/ML, they can consider more data that goes into pricing decisions to set realistic prices.”

Predian's inventory management system uses AI and machine learning in three separate areas to help dealerships with pricing choices:

• Merchandising - Here, the tool enables dealers to perform AI-guided photo capture and background removal, as well as AI-created vehicle identification number descriptions to develop high-quality, consistent and compelling content for every vehicle in inventory.

"Dealers need three things for every car they post on their website: photos, price and descriptions," Batten says. “That’s the bar to get a car online.

Dealerships can experience major delays when waiting for photos or descriptions to be completed, and waiting as long as weeks to post a car online can cost dealerships money, he adds.

“AI/ML lets us do all three things in seconds,” he says.

Batten says few dealers utilize a software application to capture and upload pictures to their websites, many reporting that it takes a day or two to complete the task. The majority rely on a photo vendor service for images.

Predian’s tool simplifies that process, he says. During image capture, the software utilizes TensorFlow machine-learning models to guide dealers in consistently photographing vehicles from optimum angles. When entering vehicles into inventory, the software’s AI/ML capabilities aid in creating vehicle descriptions, which Batten says is vital. He says other approaches yield descriptions that are essentially identical. “Our system delivers a richer description about the actual car.”

Dealers can also use the TensorFlow model to customize photo-taking. “If they want 40 pictures of every car, they can enter that into their predefined shot list,” he says. “If their regular photographer can't make it, someone can use their cellphone and still get awesome photos.”

The dealership can advertise the description on multiple websites like cars.com, AutoTrader, CarGurus, and others, he says.

The system also enables dealers to develop personalized openers and closers for their stores, the recap of the dealership and contact information appearing above or below the VIN-level description on the website.

Utilizing an AI tool ensures sites show a compelling marketing message for every vehicle, Batten says.

“When someone visits their website and searches for SUVs, for example, they will see high-quality photos of all SUVs in inventory, and every shot will line up the same because the system helped them,” he says. “It’s an amazing tool that helps dealers save money and get their cars online faster because anyone can do the merchandising piece.”

Using AI to add videos and 360-degre walk-arounds can further beef up vehicle descriptions.

The tool also measures the effectiveness of marketing and advertising, allowing fast assessment of ad campaign performance, including the cost per lead and customer acquisition.

• Predictive Analytics. Effective inventory management directly contributes to a dealership’s success. Having too much inventory can tie up capital and increase carrying costs, while having too little can lead to missed sales opportunities.

Dealers can use AI/ML to drive insights that help them make informed decisions about the future market by using advanced data modeling at the VIN level. The tool enables evaluation of sales volume, average transaction value, gross profit per vehicle and gross profit margin at the dealership and among competing dealerships. The benefit is a better understanding of the prices they can command, Critcher says.

The company says the tool helps dealers identify slow-moving vehicles, improve inventory, and figure out how to make more money selling cars.

For example, Predian’s ValueVision uses predictive analytics to show a dealer how the retail price will evolve and incorporates the data into inventory management strategy and pricing, while its SmartTurn estimates turn time based on the set market price. That gives dealers the most information to make the right decision at the right time, according to Batten.

"With ValueVision, we can show dealers how the retail market has been over the last six months so they know the monthly retail price of a specific vehicle," he says. “With AI/ML technology, they can predict with a high probability of accuracy where this vehicle’s price is going to be 30, 60 or 90 days out.”

For example, if a dealership has a 60-day hard turn on its inventory, dealers can determine the vehicle’s price 60 days out. “They will know all this before they purchase that vehicle from auction or from a trade in,” Batten says. “We are really highlighting on the retail side where the prices are, where they have been, and where they will be in the future.”

• Business Intelligence. Dealers can take advantage of the opportunity to merge and evaluate data based on key factors that impact their store's performance. AI/ML give dealers access to the historical wholesale price and predicted pricing for 30, 60 and 90 days.

Predian provides an inventory management system that uses AI to help dealers price inventory. With the help of a large language model, the software also enables dealers to ask questions and evaluate vehicle performance to help them make intelligent stocking choices.

Its tool integrates with the dealership’s dealer and inventory management systems by pulling data from the market. Dealers can now access the Manheim Market Report through the system for wholesale data on a vehicle's past and future pricing to aid in pricing and appraisals.

The tool’s machine-learning capabilities can help them communicate with the system and inquire about specific information, such as a list of the fastest-selling vehicles in a 25-mile radius of a store. Or they can ask the system to rank vehicles sold the previous week by gross profit and fastest turn rate.

“This helps them source vehicles, pulling in those that sell the fastest or are performing the best,” Batten says. “By examining this cross section of data sets, a dealer can access information that would have previously required extensive data analysis,”

Also, Batten says business intelligence is accessible in real time. “It helps you gain insights that you never thought were possible through traditional reporting systems.”

The company says dealerships can rely on AL/ML business intelligence to buy the right vehicles, sell them quickly and profitably, and avoid financial losses within 60 days of a purchase.

“Every dealership has a strategy, and every car has an exit strategy,” he says. “Dealerships have an overarching strategy where they have hard turns and profit targets, but sometimes they have to deviate from that strategy when they get a unique piece of inventory on their lot. They need to be able to make quick decisions around what the future holds for that piece of inventory. Do I hold on beyond the 60-day turn, or do I drop it to 30? This is something a business intelligence system powered by ML/AI can help with.”

Vann Dodge Chrysler Jeep RAM in Vineland, N.J. has seen benefits from using Predian technology. It had been wrestling with slower turn rates than expected, which was impacting profitability. Vann says the AI/ML tools have helped a lot.

“With an excellent workflow and all the market insight at your fingertips, Predian has quickly helped us improve our turn rate tremendously,” says General Manager Mike Barse says.

Getting Started

Predian provides dealer support teams to help integrate its technology into a dealership's core systems and following a two-day training and onboarding.

“We import the vehicles and make sure our system accesses their sold records and historicals,” Critcher says. “Those things feed our systems. We get all the other connections in place, and then we train their team. It doesn’t take long for them to understand the system.”

Dealers use a dashboard to get an overview of their inventories, including underpriced and overpriced items, as well as items awaiting pricing.

“Dealers can then drill down and get as deep as they want on any piece of inventory,” Critcher says.

Tools prices range from $699 to $2,299 based on inventory size and desired merchandising features.

Ronnie Wendt is an editor at Auto Dealer Today.