Reflecting on the automotive retail landscape of 2025, experts discuss the growing influence of AI in dealerships, particularly in back-office operations and customer service. The episode highlights the cautious yet increasing adoption of AI technologies, addressing concerns about cybersecurity vulnerabilities. Key acquisitions, like Asbury's purchase of Herb Chambers, illustrate ongoing consolidation trends in the industry. The panel also examines the performance of F&I as a profit center amidst rising costs in service and parts, and the challenges dealers face in retaining customers post-warranty.
Daily Drive's year-end series concludes with the final installment from the Automotive News retail team, which wraps up the biggest retail stories of 2025. In this episode, they examine the impact of AI on dealerships, mergers and acquisitions trends, and the state of service and parts operations.
"...we're gonna need a couple of brake rotors here and I need a new quarter panel there..."
Brake rotors are the round metal discs that help your car stop when you press the brake pedal. If they get too worn, they need to be replaced to ensure your brakes work well.
Brake rotors are essential components of a vehicle's braking system, providing the surface against which brake pads clamp to slow down or stop the vehicle. They can wear out over time and may need to be replaced for optimal braking performance.
"...and I need a new quarter panel there and so they're able to use AI to do that..."
The quarter panel is the section of the car's body located at the back, usually around the rear wheel and trunk area. If it's damaged, it might need to be replaced to keep the car looking good and safe.
The quarter panel is a part of a car's body that extends from the rear door to the trunk. It can be damaged in collisions and may require replacement to maintain the vehicle's structural integrity and appearance.
"Well, let's talk a little more about Carvana buying franchise new dealerships. Did anyone see that coming?"
Carvana is a company that sells used cars online. You can buy a car from them without visiting a dealership, and they even have machines that look like vending machines to pick up your car.
Carvana is an online used car retailer that allows customers to buy and sell vehicles through its website. They have gained attention for their unique car vending machines and home delivery service.
"...leasing of those vehicles coming back to the dealership under warranty for work..."
A warranty is like a guarantee from the car maker that they will fix certain problems with the car for a certain amount of time. It helps customers feel safe about their purchase and encourages them to return to the dealership for service.
A warranty is a promise from the manufacturer or dealer to repair or replace a vehicle's parts if they fail within a specified period. This is often a key factor in customer retention, as many customers return to the dealership for service while their vehicle is still under warranty.
"...then they got to go out and find new customers. And that's sometimes difficult to do. 70% of customers defect from their dealership after the warranty expires..."
Customer retention is about keeping customers coming back to the same dealership for service and repairs. It's important for businesses to maintain their customers, especially after their warranty ends.
Customer retention refers to the ability of a company to keep its customers over time. In the automotive industry, this is particularly important as dealerships rely on repeat business for service and parts after the initial vehicle sale.
"Well, Melissa, if fixed ops is struggling, where do dealers make money?"
Fixed ops is a term used to describe the parts and service side of a car dealership. It's where they make money from repairs and selling parts, especially when fewer new cars are being sold.
Fixed ops, short for fixed operations, refers to the service and parts departments of a dealership. This includes maintenance, repairs, and parts sales, which are crucial for a dealership's profitability, especially when new vehicle sales are declining.
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Welcome to Daily Drive for Friday, January 2nd, 2025.
I'm Kellan Walker in Las Vegas.
Today on the show, we wrap up our series of year-end conversations about the topics and
trends affecting the auto industry throughout the past year.
We're talking with members of the Automotive News retail team about all of the biggest
stories they covered throughout 2025.
Melissa Burton and Dan Shine are senior retail editors for Automotive News.
John Hutter covers retail F&I, Paige Hutter covers dealership mergers and acquisitions,
and Group One Automotive, and Mark Homer covers retail tech.
In this final portion of our conversation, we talk about the impact of AI on dealerships,
the state of service and parts, and more.
Mark, you covered AI's march into dealerships all year.
How much has it actually changed retail?
I would say it's more in the back office, and it's only in dealerships who are early adopters,
but the number is growing, so it's handling processes, it's handling answering phones,
it's handling customer service on the website, it's handling just basic, for repair shops,
it's scheduled appointments, that kind of thing.
So for dealers that are trying this out, it's starting to make a difference in those small areas,
and dealerships have been cautious about AI, and those that are adopting it are not going
all out all at once.
They're taking time and doing it in steps, seeing how it does and adding it gradually.
Well, you know, we've had quite a few cyber attacks the last couple years,
CDK last year, 700 credit this year.
Now Mark, are dealers more vulnerable now that everything is connected?
I think everybody is more vulnerable now that everything is connected,
including dealerships.
Without those cyber attacks, they were still just as vulnerable.
And what they are starting to do, and what experts have been long recommending that they do,
is to be more vigilant and invest in constant monitoring and protection, because attacks
change, they morph with every production that's added.
Cyber attackers figure out a different way in.
So it requires adaptation, it requires expertise, and it requires monitoring.
John, can AI handle FNI, or is that still too complex?
To some degree, it kind of is in terms of training right now.
Well, it's kind of the reverse, FNI managers are using AI to train their conversations with
consumers and overcome objections.
So I don't really see any reason why you couldn't flip it back the other way.
But I think the step before that is going to be just having, listing things like FNI products
on your website and letting customers build the deal with them in there.
That's something that's already starting to take off a little bit, and it seems to be working.
But yeah, I think you could get to the point where AI is handling those conversations.
I guess the trick would be when does it give up and realize it's not going to make this,
which is I guess the same question a human salesperson has as well.
And Dan, what about out in the garage?
Oh, about time, Kelly, that's about a question.
Sorry, sorry, we're here, we're here.
But what about out in the garage, Dan, out in the boys in the back?
How is AI changing fixed ops?
It hasn't done too much yet.
John talked about it's handling calls and Mark mentioned handling calls as well.
So if I'm a service advisor and I have a service bay, a lane of cars waiting to be checked in
and my phone is ringing off the hook, AI is in the background answering those calls,
scheduling appointments, some of the more progressive dealerships are having them send out
text messages, oh, your cars just got sent back, they'll be working on it right now,
your car is ready.
So those kind of things that are, they hope, freeing up the service advisor to then
give better customer service to the person standing in front of them.
They're not worrying about the phone that's ringing off the hook behind them
and other things where they got to update customers.
They're letting AI kind of do those types of things and also get a little bit into parts ordering.
I was just about to ask you, has dealers started incorporating AI to order parts
and for parts deliveries and things like that?
They do that for delivery and they can check, make sure there's no obsolescence that they're
running out of things and that the parts are properly, if you've got enough supply.
And I think, again, that goes to, if they see, here's the next day's repairs or the next week's
repairs coming up and then they can go to AI and say, okay, well, we're gonna need a couple of
brake rotors here and I need a new quarter panel there and so they're able to use AI to do that.
We also have seen robot deliveries in parts departments.
So they can load it onto a robot and the robot will then navigate its way through the service
garage into the right bay, the mechanic or technician can just pull the box off of it,
send the robot on its way and then you're just not wasting time.
A lot of times technicians will have to walk to the parts department and then they start shooting,
shooting a bowl about the game last night and it's just wasted time.
And so now technicians stay at their bay and their parts are delivered by a robot to them.
In terms of AI, I think one of the biggest,
more interesting things that have been during the year was the experimentation.
There is AI that is being used by dealerships to help sell cars online,
for the website that's being tested.
But a startup came out with an AI agent that's designed to help customers themselves
negotiate with dealerships or dealership AI.
So at some point we could have one AI negotiating with another AI to buy a car.
That's, I've never thought about that that way.
I'm telling you, SkyNet, we are all going to be part of the movie Terminator here before we know it.
Oh yeah, it's happening.
Melissa, will AI eliminate dealership jobs or just change them?
What's your opinion on that?
I would say now I think we're seeing just like a lot of industries that are testing AI and using it.
It's, a lot of it is for time saving, right?
They're looking for ways that they can save their employees time,
make things more efficient, faster, easier.
So it could change some of their roles a little bit or maybe they freeze up time for them to work on.
I'm not sure currently if we're seeing a lot of losses in terms of jobs,
it may be maybe a onesie-toosie kind of thing in the back office potentially,
or maybe they look not to refill something because they have a solution now in place.
But I don't think it's anything dramatic at this point.
However, once, you know, in the next year or two, if things take off,
I mean, there's always a chance that that could change.
Now, Melissa, stay with me.
You oversee buy-sell coverage.
Asbury bought Herb Chambers for nearly $1.5 billion and Carvana bought three Stalantis stores.
What's happening with consolidation?
Yes, the Asbury Herb Chambers acquisition was the biggest of the year.
Asbury bought 33 stores, gained some, a big presence in the Northeast,
a lot of luxury stores.
That was kind of the big mega deal of the year.
So we're seeing plays like that, you know, those are smaller and fewer of those.
But where a bigger group, a public group is buying a platform
and growing at a significant size, you have, you mentioned Carvana.
That's a little different.
I can talk a little bit more about that maybe in a minute.
But the other part of consolidation is just the continued increase for seeing of,
you know, maybe regional groups or smaller groups buying smaller platforms,
you know, maybe three to five stores or a smaller dealer who has two to three stores
buying his fourth or fifth store, that kind of thing.
And that's been continuing.
And we're continuing to see, you know, dealers that may be of retirement age,
selling their stores, that's continuing to happen.
Well, let's talk a little more about Carvana buying franchise new dealerships.
Did anyone see that coming?
And what does it mean?
It was a little surprising, I think, to some at first.
But it kind of makes sense if you look at it that they're staying with one brand so far.
So they have the three Stellantis stores, different parts of the country,
but it's giving them a window into what they could do with their platform for online selling
in a franchise store.
And I think they're looking for some learnings there,
how they can refine their process.
I wouldn't be surprised if they continue to acquire some more stores.
I'm not sure how many they will end up buying.
I don't know that we have an idea on that for sure.
But I see it as kind of a testing play, if you will, a pilot of some kind for them
to see what maybe is working really well with their platform and what they might want to change.
We did see, you know, it's not unheard of CarMax,
which didn't have the online platform at the time so much,
but they did have mistaken some franchise stores for a time that they actually sold.
It's been four or five years now, I think they got out of the business.
So it's kind of interesting now that we have Carvana kind of coming in.
And would you say consolidation?
Is it accelerating or slowing down?
No, I'd say it's accelerating.
It's worth at least staying at the same pace it has been.
I don't see that changing really in the future.
Okay. And Paige, are the big public groups still on a buying spree or are they pulling back?
You know, I can mostly speak to Group One.
Obviously, Azri had a big year,
but Group One had a pretty big year in 2024, bought a big dealership group in the UK.
This year, they focused mostly on, you know, integrating that big dealership group in the UK
into the business, which has not been a simple process.
And you know, what I hear mostly in the earnings calls is that they really want to be strategic
about what types of stores they're buying, what markets they're in and when.
You know, it's not something that they're looking to grow at any cost.
They want to make sure that the capital they're using to buy those dealerships goes a long way.
And they're also willing to sell off dealerships that aren't doing how they want that are maybe
underperforming. And so it's less growth at any cost and more like portfolio management
and really making sure that their investments are working the best they can.
John and Paige, FNI is a huge profit center for dealers. How did it fair in 2025?
You know, honestly, this year, it's been based on the latest stony gold data,
been kind of doing better and better this year than it was in 24.
Let's see, the most recent third quarter, the FNI gross profit for vehicles sold was up
8.2% to $1,933 per car. So that's, you know, that's up over a year ago. You have the interest
rates dropping, which, you know, maybe hurts a little bit on your reserve end, but it's certainly
that gives you more room to build in things to deal. So honestly, FNI has been pretty good.
The, you know, kind of stony gold made the point that it helps, you know,
that steady, like strong performance in FNI helps as the front end margins go down on,
you know, on the vehicles themselves. So that, you know, as that gets back, the FNI has stayed
pretty steady. And Paige, are dealers selling different FNI products now that EVs are cooling off?
You know, I don't necessarily think so. There were a couple different product providers who
came out with some EV specific stuff, made some headlines when the EVs started, you know,
growing in sales. But I don't know that they ever really became like dominant or super popular
products. And, you know, I think in general, dealers are finding a lot of success with just
more niche products in general, but not like powertrain specific necessarily. And you
affordability has been pretty tight. It, you know, the payments are high. So if someone has
a specific budget for what they're willing to pay overall, or each month, it can be hard to work in
something like an entire service contract. But you might be able to sell them on tire and wheel
if they live in an area where that's, you know, something that, you know, could be damaged.
And so I think we've really heard about the FNI managers really working those ancillary products
and really trying to get to know the person sitting in front of them. What are you worried about?
You know, if I can't tell you on some of these big products, like how can I get
a couple more dollars out of this deal with something that you actually might find useful?
So that's where we've seen a lot of the focus. We have heard pretty pretty maintenance has been
like one opportunity for FNI finance managers with things like tariffs and inflation. It's like
lock in, you know, lock in all your maintenance now because, you know, auto repair and auto parts
are going to go up in price. So that, that has worked out that in bundling products. We've heard,
you know, some of the ancillary stuff to Pages Point. No, uh, no, you know, buying or selling
of the clear coat. Yeah, that's right. Bad Fargo joke. Now, John, any regulatory pressure on FNI
that dealers should be worried about? The only one is that the FTC is, you know, has been pretty
defamed, but it's not completely gone away. Like they still have a case against Asbury Automotive,
for example, and that started under, started under the Biden administration, but it's
Asbury, you know, just fairness to them. They've denied everything, but that's still winding its
way through the process and being fought out in court. So they haven't quite gone away.
And then, yeah, to, to what kind of Pages Point earlier, the states are going to be the ones to
watch because they'll continue to implement different regulatory reforms. You can't completely
rest and just think that no regulation is going to happen. And Dan, there's been a lot of struggles
in the world of service and parts. Fixed-op sentiment dropped to near-record lows in Q4.
What happened to dealers safety net? What came out is that they dropped, they're still in the
positive territory, but they did drop. And it's just one of the questions that they asked about
future opportunities that was the lowest that Cox Automotive ever recorded on this question.
So, yes, they've dropped, they're still in positive territory, but I think there's concern
about pricing. You know, costs are going up, salaries are going up, particularly, you know,
the labor rate hours are going up, pricing for parts is going up. And so repairs are
more expensive and the people are not either coming into dealerships to get their cars worked on,
or they're not coming in at all. You know, they're really having to work for business. And, you know,
again, it starts all from the new vehicle sales down through leasing. If you're not getting new
sales, you're not getting leasing of those vehicles coming back to the dealership under
warranty for work, then they got to go out and they got to retain the customers they have,
then they got to go out and find new customers. And that's sometimes difficult to do. 70% of
customers defect from their dealership after the warranty expires. So that's a large number. And
it's, you know, it's been that way for a number of years and they're still trying to fight,
you know, to kind of retain the customers that they have.
Well, Melissa, if fixed ops is struggling, where do dealers make money?
Well, as John talked about, FNI has been a decent, decent business this year. So they could look at
their FNI business and try to ramp that up a little more. But I think what the good, you know,
good thing about a dealership is because they have multiple departments, they usually can lean on
another department when they are down in one area. So, you know, obviously, they've got new vehicle
sales, as well as UVS vehicles that might be an area they can look to to grow in terms of acquiring
more inventory or reconditioning used vehicles. So I think it's just kind of across the board.
They would just look for kind of where the best opportunity is. But I think FNI would be one
of them that they might look to this year. That's Daily Dry for today. I'm Kellen Walker.
Thanks to Automotive News executive producer Jake Neer for his help on today's podcast.
You can get the latest news on artificial intelligence, finance and insurance and everything
happening in the auto industry at AutoNews.com. We're off for the weekend as we gear up for our
coverage of CES in Las Vegas. Come back on Monday as we resume our regular programming here on
Daily Drive. We'd love to hear from you. Let us know what you think of the show and the topics
we covered today. Send us an email at DailyDrive at AutoNews.com or leave us a voicemail at 313-444-2774.
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