The automotive industry is in a defining era — one where traditional dealership strategies must evolve to keep pace with changing market conditions.

Already in 2025, dealers are challenged with an increasingly complex market. Inventory challenges, rising carryover rates, and the relentless pressure to maintain profitability are forcing dealerships to rethink how they approach sales, marketing, and operations.

Yet, amid these challenges, there is an opportunity — a momentous shift driven by artificial intelligence (AI) and machine learning. AI is no longer just a buzzword; it’s becoming a necessity for dealerships that want to stay competitive. The question is no longer if AI will change the car business, but how quickly dealers can adapt before they fall behind.

A tighter, more competitive market in the new normal

For those who have been in the industry for decades, the idea of a “normal” car business means navigating a highly competitive and margin-sensitive environment. Over the past few years, dealers have enjoyed record-high profits due to inventory shortages and high demand. However, as supply stabilizes, the market is shifting back to pre-COVID pandemic dynamics.

One of the most pressing concerns is inventory carryover — the percentage of vehicles that remain unsold past a dealer’s optimal selling window. New-car carryover rates have risen sharply, now hovering around 56%, up from 45% in the previous quarter. The longer a car sits, the more it eats into profits. Dealers typically aim to sell new inventory within 45 days and used inventory within 30 days.

When that doesn’t happen, markdowns begin, margins shrink, and vehicles become financial liabilities instead of assets.

The data is clear: when a car crosses the 45-day threshold, the average days-to-sell skyrockets from 12 to 98. As a result, markdowns become inevitable, yet 76% of new car markdowns occur without a single shopper engaging with the vehicle beforehand. Dealers are caught in a cycle of reactive price cuts, hoping to move stagnant inventory, only to find that it often takes up to four markdowns before a unit sells.

Why traditional strategies are no longer enough

For years, dealerships have relied on instinct, experience, and manual processes to manage their inventory and pricing strategies. In today’s data-driven world, however, gut feelings are no match for predictive analytics.

Many dealerships have invested in Customer Data Platforms (CDPs) and advanced CRM tools, hoping to gain better insights into customer behavior, but simply accumulating data is not enough. Without the ability to activate and apply that data effectively, dealers find themselves drowning in information rather than harnessing it for strategic advantage.

This is where AI is changing the game. Rather than relying on static reports and reactive decision-making, AI-powered platforms can continuously analyze dealership data in real time, identify patterns, and predict which vehicles are at risk of aging out before they become a problem.

AI’s role in inventory and pricing optimization

AI is not just about automation; it’s about augmentation — enhancing human decision-making with data-driven precision. AI is already transforming dealership operations in several key ways. First, it enables proactive inventory management by identifying which vehicles are likely to become slow movers before they reach the markdown stage. This allows dealers to take action early, adjusting their sales strategy and marketing efforts to move those units before they become a liability.

Second, AI modernizes pricing strategies by analyzing competitive pricing, local demand trends, and shopper engagement levels. Instead of relying on broad markdown schedules, AI-driven insights ensure vehicles are priced optimally in real time, maintaining competitiveness without unnecessary price cuts.

As an example, the average markdown variance of a new vehicle that turns from new to aged is typically $928, and for used it is $767. However, not all vehicles across the spectrum are the same, and some vehicles have a markdown variance between fresh and aged of as much as $2,208 per vehicle. The increased use of AI helps to optimize this pricing strategy, so the markdown variance becomes more opportunistic for each dealer.

Third, AI enhances lead activation and retargeting. Many dealers mistakenly mark leads as dead the moment a high-demand vehicle sells, failing to recognize that the shopper is still in the market. AI can identify alternative inventory options relevant to those buyers and automatically engage them, reducing wasted marketing spend and improving conversion rates.

Fourth, AI helps eliminate unnecessary markdowns by detecting when a dealer is about to reduce the price of a vehicle that still has active leads. Too often, dealers unknowingly discount cars that shoppers are already considering at full price. By flagging these situations, AI ensures that discounts are applied strategically rather than arbitrarily, protecting dealer margins.

Finally, AI improves operational efficiency by acting as an intelligent assistant, surfacing the most critical next steps for dealership managers. Instead of sifting through overwhelming data, AI distills insights into actionable recommendations, allowing managers to focus on execution rather than analysis.

The risk of falling behind

The shift toward AI-driven operations is reminiscent of the early days of the internet. In the late 1990s and early 2000s, many dealers were skeptical about online car sales, only to watch early adopters dominate the market. AI is on the same trajectory.

Dealers who hesitate to integrate AI risk being left behind — not because AI will replace human expertise, but because their competitors will gain an insurmountable efficiency advantage. In a margin-tight business, every dollar counts, and the dealers who optimize their operations today will be the ones leading the industry tomorrow.

Beyond efficiency, dealers who fail to adopt AI risk losing their competitive edge in customer experience. Today’s consumers expect personalized, data-driven interactions. A dealership that can predict customer preferences, streamline the buying process, and present relevant inventory faster than competitors will naturally win more business.

AI is not a futuristic concept — it’s here now, reshaping how dealers buy, sell, and price their inventory. The industry is entering an era where execution speed and precision will determine success. Dealers who embrace AI-powered inventory management will gain the ability to sell more cars, faster, and at better margins — a critical advantage in an increasingly competitive market.

As we progress through 2025, the message is clear: AI is not an optional upgrade — it’s the next frontier of automotive retail. The only question is, who will adapt in time to lead the charge?

Len Short is the executive chairman of Lotlinx, which offers an inventory platform that can enable dealers to automatically adapt to market dynamics, mitigating inventory risk through VIN-specific strategies. For more information, visit www.lotlinx.com.