The automotive industry is constantly changing. When it changes, it presents brand new varied, wide, and complex risks for car dealerships: market fluctuations, new regulations, reputation threats, and cybersecurity issues.
To protect profits, dealerships must adapt fast and proactively manage potential crises on the lot and in the inventory. Honoring risk management in car dealerships helps teams identify and address risks for stability and company-wide success. But it’s even better when it’s custom-made for your dealership.
What Are Your Risks?
- Inventory loss
- Accidents on the lot
- Theft and vandalism
- Cybersecurity threats
- Lawsuits from buyers
- Environmental exposure
- Property damage
- Automobile risk
- Economic downturns
- Turbulent consumer behavior
5 Risk Management Strategies
1. Stop Cyber Attacks in Their Tracks
Around 15,000 auto dealerships in North America had to learn a hard lesson from last June’s CDK Global Cyberattack: stronger cybersecurity should take the top of the priority list.
The ransomware attack disrupted systems for almost three weeks, bricking computers and leaving dealerships unable to sell cars or offer certain services. The operational issues are estimated to cost $1 billion in total damages. But in this month’s turn of events, CDK Global settled an antitrust lawsuit amounting to over $100 million in dealership payouts.
To avoid falling victim to similar attacks, dealerships should take several preventative measures.
First, dial in on cybersecurity training for internal staff.
As an attorney representing affected dealers, Leonard Bellavia noted, “It shows how dealers can collaborate and collectively seek redress on a nationwide scale,” using the power of unity to push risk management.
Regular training helps employees recognize phishing attempts and suspicious activities that could jeopardize sensitive data. Maintaining an updated and thorough digital infrastructure can also mitigate these risks.
As soon as your staff is well-trained, be proactive by performing all three of these:
- employing advanced security systems
- conducting regular security audits
- regularly applying software updates
2. Have Your Employees’ Full Trust and Honesty
According to the Insignia Group, dealerships lose an average of f $500,000 annually from employee turnover. Even more alarming, a Cox Automotive Staffing Study reported the turnover rate for salespeople was 67%. This figure is at an all-time high and poses risks to dealership operations and profitability.
Factors like slow population growth and higher retirement rates exacerbate the challenge, causing potential long-term talent shortages.
To fight turnover, dealerships should focus on:
- quality recruitment
- ongoing employee development
- stronger retention strategies
Enacting programs that facilitate skill enhancement and promote from within can lower turnover rates and create a more stable, experienced workforce. Also, employer branding can create a positive workplace culture and make dealerships more attractive to current and prospective employees.
3. Maintain Multiple Streams of Profit
Diversifying revenue streams help dealerships mitigate risks associated with market fluctuations. Address these key areas for more profit:
- Warranties and Aftermarket Services: These improve customer satisfaction while generating recurring revenue. This can include maintenance plans, tire protection, and cosmetic services tailored to consumer needs.
- Service Center Operations: The service department can be a lucrative aspect of a dealership. Reliable vehicle maintenance and repairs create a loyal customer base that returns for regular service and repairs and inspires increased parts and accessories sales.
- Trade-In Vehicles: A strong trade-in program can be advantageous. Dealerships can attract customers who want to upgrade their vehicles and profit from reselling trade-in vehicles at a markup after reconditioning them.
4. Manage Liability Risks
With customers regularly visiting, the risk of accidents and liability claims at dealerships is always a concern.
Liability insurance is a necessity to protect against damages to vehicles in your care. Keeping your team trained and conducting regular safety inspections can help lower these risks and keep you compliant with health and safety rules.
Here are the essentials:
- garage keeper’s coverage
- business interruption coverage
- general liability insurance
- worker’s compensation insurance
- property insurance
- commercial auto insurance
- equipment breakdown insurance
- errors and omissions insurance
- employment practices liability insurance
- cyber liability insurance
- ambient risk insurance
5. Choose a Strong AI Inventory Management Platform
Lotlinx’s 2024 Auto Retail Inventory Pulse suggests only 38.7% of dealerships are currently using the capabilities of AI/ML or predictive modeling data to manage inventory and adjust pricing levels. That leaves 61.3% of dealerships to outdated, slow-moving, and manual strategies.
With the expansion of online shopping and customer expectations for real-time pricing, a dealership’s success depends on a capable modernization in your approach, providing tangible benefits like:
- real-time price optimization
- improved accuracy forecasting demand
- lower storage costs and eliminate dead stock
An automotive inventory management system like Lotlinx Sentinel use data analytics to predict potential risks and guide targeted marketing efforts at the vehicle identification number (VIN) level. This helps dealers minimize the time vehicles sit on the lot. It’s powered by Lexaca—an AI-driven chatbot that analyzes comprehensive market data—to make informed decisions for new and used car inventory. This strategic combination facilitates quicker connections with shoppers for challenging-to-sell used units for faster inventory turnover and lower carrying costs.
Ultimately, one of the biggest risks is being too slow to enact adaptive AI technologies. Those dealers who do will win in today’s digitalized society.
Will Your Dealership Be An Industry Winner?
In order to sort out which risks to address and build a customized risk management strategy to tackle them, enterprises need a strong inventory management platform. Good thing Lotlinx has 24 billion data points, omni-channel insights, and 24/7 monitoring to lean on.
Contact a team representative for a complimentary car dealership risk assessment.