During the last Digital Dealer Conference, I presented a seminar on “Changing DMS Systems” which included a quiz to see if you need a Tier 1 system like R+R, DealerStar, or ADP (CDK) or can you switch to a Tier 2 or 3 system like AutoSoft, AutoMate, Dominion ACS, or DealerTrack. During my past few articles in Digital Dealer, I’ve discussed the features that are lacking in these bargain systems, but the biggest element in your decision-making process is price. When comparing DMS systems, there is a great divide between the price of an older Tier 1 legacy DMS like ADP or R+R and the little Tier 2 and 3 systems. Most DMS decisions over the past ten years have been made solely based on price. According to Jim Skeans of Jim Skeans Consulting, “Picking a DMS system strictly on price can have damaging results if you lose the features you need.” Over the past decade many dealers selected a bargain Tier 2 or 3 system and were disappointed when they found they needed 2-3 other technology tools to plug the holes. “You pay one way or another,” adds consultant, Skeans. In addition, the bargain DMS systems have been increasing their prices. When many of the alternative systems boasted that they didn’t have long-term contracts, we became concerned. One of the bargain Tier 2 systems, DealerTrack, is being sold to Cox Automotive for whopping estimated 4.6 billion dollars. I can’t help but wonder, “How will Cox recoup that huge investment?” If you’re a numbers person, you might have noticed that their cap value was a little over 600 million in 2010. If we were to estimate that half of the 4.6 billion is “blue sky” – or 2 billion, then there is a goal to recoup that amount. Cox, the automotive arm of media company Cox Enterprises, said it would fund this purchase through a $1.85 billion loan arranged by Citigroup Global Markets, a $750 million equity investment from BDT Capital Partners and existing credit facility. If we assume that the other Cox Automotive technology companies are already charging what the market will bear, then the obvious place to increase prices is the only “required” technology that all dealers must have; the DMS. Divide the 2 billion that needs a return by the estimated 1500 DealerTrack DMS dealers. Using 5-10 years as a guide to recoup; they need an extra $11,000 to $22,000 a month per dealer, or much closer to what ADP and R+R charge. That is without making any capital investments into improving their older Tier 2 DMS system (the former Arkona/Ensign system.) DealerTrack DMS customers might regret not having a contract to protect their bargain $1500 a month support fee in 5-10 years. DealerTrack isn’t the only one that has been purchased; ACS sold to Dominion and ADP “spun off” their DMS to a new company, called CDK with a cap value of 8.69 billion today. That is a lot of money to recoup! As dealership profits and technology costs continue to rise, tech companies are finding excellent opportunities to capture some of that dealership profit and move over to their bottom lines and reward investors. Over the next decade, it will be more important than ever for dealerships to evaluate their technology and make long-term plans to get the features they need at a price they can afford in good times and bad.
You might think of the Digital Dealer Conference as an Internet conference, but in reality it is a technology summit for everyone involved in the mission to obtain a truly “Digital Dealership” and control technology costs. The next Digital Dealer Conference will have over 10 tracks of sessions – so something for everyone from the Internet Manager to General Manager to the IT Director. Hopefully you’ll be able to attend, October 5-7th in Las Vegas and get caught up on all technology available for dealerships. If you would like a copy of my quiz that evaluates if you’re ready to change DMS systems, then please send me an email.