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If I were to offer a two-word outlook for the coming year it would be, “cautiously optimistic.”

Don’t get me wrong. I think 2014 will be a strong year, and perhaps a repeat of the sales and profit success dealers achieved in 2013 in both new and used vehicles.

But I’m also cautious because I believe 2014 will be a little bit trickier for dealers from an operational perspective. In particular, there are four areas that will pose specific challenges and may well separate the truly successful dealers from their peers.

Challenge 1: Demand-based Inventory Management in New and Used Vehicles

In new vehicles, there are signs that the supply/demand equilibrium that dealers enjoyed in 2013 will dissipate. Factories are hungry for more market share, and many plan to step up production in the coming year to meet those goals.

For dealers, this dynamic makes it ever-more important to proactively align new vehicle inventories to customer demand — ensuring every car fits the right color and configuration for the local market. This won’t be an easy task for dealers unwilling to apply the available market data and discipline to minimize the number of slow-selling vehicles in their inventories (e.g., those with high market days supply and low consumer demand). Thankfully, the advent of new technology and tools will help dealers engineer the demand-based new vehicle inventories that will sell quickly and deliver maximum profitability.

In used vehicles, dealers will see ongoing signs that the “used vehicle shortage” of recent years has somewhat abated. In particular, analysts suggest large volumes of off-lease vehicles will ease wholesale supplies. Here again, though, the challenge will be for dealers to accurately assess every used vehicle as “right” for their market in the context of market supply and consumer demand — a task that may be more difficult as factories push dealers to retail a larger share of used vehicles as part of their certified pre-owned (CPO) programs.

Challenge 2: “In The Market” Pricing

It’s fair to say that most dealers now understand the importance of “in the market” pricing in used vehicles. They know if a car is not priced “in the market” against competing units, it’s far less likely to catch the eye of potential buyers. I still see dealers putting initial “prayer-like prices” on vehicles, as one dealer puts it, but generally dealers have adopted more market-rational pricing strategies.

In new vehicles, however, 2014 will be a watershed year for new vehicle pricing as dealers adapt to the availability of incentive and pricing data and tools that help them price their vehicles “in the market” compared to the competition. My prediction: Dealers who price and promote their vehicles in a credible, market-proper manner will be rewarded with the buyers who want more clarity in new vehicle pricing.

Challenge 3: More Efficient, Less-Hassle Sales Processes

In the past year, Automotive News and other industry outlets chronicled the growing number of private and public dealers who now offer more customer-friendly, less time-consuming “the price you see is the price you pay”-type sales processes. In 2014, I believe we’ll see more dealers adopt this one-price-like/minimal negotiation retailing approach to meet growing customer expectations for more efficiency and transparency as they do business with dealers. For more tradition-minded dealers who view negotiating the price of a vehicle as a near-sacred right, this shift toward transparency can be a tough pill to swallow. My suggestion: Take the medicine in the coming year to position your dealership for the not-so-distant future where fast, transparent transactions are the norm.

Challenge 4: E-Commerce-like Options

I’ve listed this challenge fourth for a reason: We’re still a ways away from selling cars the way other retailers sell their goods and services online. But each day brings our industry closer to e-commerce. In fact, some dealers actively embrace elements of e-commerce, offering “I’ll Take It” and “Buy Now” options for consumers with online vehicle listings. In the coming year, I believe such e-commerce experiments will continue to prove profitable and productive for the dealers who undertake them. If I were a dealer, I’d at least begin exploring e-commerce options to convey my operation as a technology-smart retailer who’s willing to work with customers who have little or no desire to visit my dealership.

As I indicated earlier, I’m cautiously optimistic that 2014 will be a good year for dealers — and a great one for those who embrace the opportunities inherent in each of these operational challenges.

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