Dealership Data Mining

From the second half of 2021 through the beginning of 2023, the auto industry experienced much volatility. Used-vehicle inventory experienced its lowest level to date in January at 1.5 million, but now, only six months later, it’s at its highest in more than two years at 1.8 million. Additionally, new-vehicle prices have continued to set records, June’s average at $51,514, but inventory has been leveling out post-COVID, and dealers are finding it harder to sell then ever before, says Nick Dionne, chief product officer for ZeroSum.

“These shifts have brought a lot of uncertainty to the market, with a chance this hard-to-sell environment may continue for the foreseeable future.” he says. His company leverages machine learning and real-time data, it says for more efficiency than humans on their own.

“Auto dealers are having to relearn the industry. A lot of steadfast things they were used to during the COVID rush are longer true,” Dionne says. “Their profit centers changed dramatically several times, both during and after COVID-19, especially for single-rooftop operations. There were less cars on lot during COVID, and consumers were lined up to buy them. That is no longer the case, so dealers are now having to face actually marketing their inventory to available customers, something they didn’t have to do for almost three years.”

While used or certified-preowned vehicles may have been the primary profit center for the past year, the market is switching back to new inventory, Dionne says. Used-vehicle inventory reached its highest level in June, with the lowest level in January. Used-car inventory hasn’t been at this point since January 2021.

Dionne says today’s market is closer to how it functioned in 2018 and 2019. Pre-COVID, turn rates on new vehicles were at about 30%. In May, turn rates were at 60%, far below the 90% the industry saw during January 2022, but much better overall than what dealers were used to a few years ago. However, that situation can be challenging, as the current conditions are putting pressure back on dealerships to market their vehicles more efficiently. The best way to do that is with inventory-based marketing, advertising what is actually on-lot to the active shoppers in the area.

Paradigm Shift

The way small family-owned dealerships operate changed significantly during the pandemic years. Now those dealers must re-evaluate how to best use data and information to stay competitive, Dionne says.

“The sales cycle for the past two years significantly depleted customer brand loyalty. During the height of the pandemic, consumers were taking advantage of 0% interest rates and were snapping up brand-new cars. The inventory was so low (800,000 in September 2021), that consumers were taking whatever was available.  Now, with inventory evening out but prices and interest rates higher than ever, dealers are going to need to do things differently. They need an understanding of marketing and how to leverage data on behalf of their business.”

Failure to do so may jeopardize their turn rates and overall profits. “Cars are just sitting on lots because there is far more inventory than buyers. Dealerships have to know who is looking for that vehicle and need to plan how to get these active shoppers to come in person,” Dionne says.

“Competitively, that puts noncorporate, single-rooftop dealerships in a tight spot, where they will need to amplify the use of data and technology. The trick for dealers is to automate what they can while still tapping into their experience and gut feelings to leverage individual relationships and their understanding of the marketplace.”

Increased EV Demand

While conventional wisdom may have suggested electric vehicles would be priced out of reach for many consumers, even with governments pushing for their adoption, that market is also changing. Tesla has discounted some models as much as 20% this year.

“Incentives from government to buy qualifying EVs with up to $7,500 in tax credits, on top of a 20% discount from one of the top brands in the country, will bring Tesla models within reach of average consumers,” Dionne says. “The luxury EV market will be interesting to watch this year. Tesla got a significant head start on its competitors, and as of June, the company accounted for 60.8% of new EV registrations. As long as the firm keeps incentivizing people to grab its vehicles, it will be difficult for the rest of the luxury EV market to catch Tesla models this year.”

Marketing Trends

To stay competitive, a data-focused marketing plan becomes essential, according to Dionne.

“The amount of data and information swirling around the industry is close to perfect. We know a lot about people shopping for cars, the financial implications of those vehicles, inventory levels, and even manufacturing logistics,” he says. “When all that data is put together, dealers have an extremely efficient way to market the exact vehicles they have on hand, whether new or used.

“Marketing will be different to the more traditional things which have worked in the last decade or so with unremarkable and unmeasurable results. Marketing is done at the VIN level now. Dealers must be specific about the actual vehicles on their lots and the advantages they offer in specific markets.”

In the past, marketing involved 80-20 thinking, he says. For example, if most Chevrolet sales came in Silverado models, a dealership would allocate 80% of its marketing plan, floorplan, expenses and more to that brand. Yet, today, the Silverado comes with several trims and packages.

“A person in the market for a $74,000 vehicle well-equipped with luxury and technology options isn’t the same person looking for a commercial vehicle they can beat up on a farm. Yet the same dealership sells both units,” he says.

“Traditionally, a dealership would have encouraged people to, ‘Come in and get your Silverado.’ Today, that message should be, ‘We have 10 vehicles on our lot right now,’ The question becomes how quickly will the vehicle turn, and will they be easy or difficult to move? How much traffic to a website and through marketing is needed to turn those specific vehicles?

“With that in mind, should a dealership focus on paid search, social media, radio or television to generate the traffic needed?” he says, “because the data is so good today, we can be that specific in the automotive space.”

The New Marketing Team

With a plethora of advertising options available today, single-rooftop dealers need someone on staff with the knowledge and skill to extract information so it can be used to a competitive advantage. Or they could partner with people who can put the data and tools to use.

“It is my experience that dealers are not well-prepared to employ that type of focused marketing,” Dionne says. “Instead, they could use a managed service to help make sense of data and technology options that would work best in their market.”

Companies like ZeroSum have dealer-focused account teams that forge one-to-one relationships with dealerships to become an extension of their marketing teams, he says.  

“Pulling registration data has been the gold standard of success and measurement for many years. But it takes too long to collect and aggregate that information. For example, dealers use data from December to make marketing decisions in mid-February. When VIN-level marketing is needed, that’s inefficient.

“What we do with inventory data dramatically helps to identify a dealership’s market share in real time for that make and model. We can compare it to their market competitors and to a nationwide benchmark. Then we determine how to best use that data to evaluate threats and weaknesses at the dealership level, and use technology to get those vehicles into the minds and hearts of consumers.”

Ronnie Wendt is an editor at F&I and Showroom.

Originally posted on F&I and Showroom