ADP's View of the World

Hoffman Estates, IL — Steve Anenen has been at the helm now for one year as the president of Automated Data Processing Inc.'s Dealer Services Group.

And it has been a good year. Recently, the company signed contracts to be the sole dealer management system (DMS) provider for two large public dealer groups, AutoNation Inc. and the Sonic Automotive Group. Additionally, ADP has increased market share slightly this year in what is a highly competitive arena.

But Anenen, who has been with the technology providor for thirty years, has been through enough battles to know not to brag. Besides, it is not his style. “I'm not an ‘in-your-face’ kind of guy,” he says referring to an earlier story about the company's recent successes. “I don't like to brag. Instead, we let the numbers speak for themselves.”

Despite the strong year, serious challenges loom for large automotive retail technology providers in general. ADP and its competitor, Reynolds & Reynolds Co. control slightly more than 80% of the dealer management system (DMS) market. But technology has advanced to a point where the barriers to entry for smaller companies are not as foreboding as in the past.

Competition is becoming more difficult as more players enter the market, threatening to chip away at market share and revenue. General Motors Corp., days before the National Automobile Dealers Assn. convention in February, began soliciting bids from technology vendors for the right to manage the DMS systems for all 455 Saturn dealers.

The systems currently are managed by ADP's Automotive Retail Group (ARG), a division it acquired from EDS in 2004.

GM is scheduled to announce the winner by the 2006 NADA convention. It is difficult to envision a scenario in which ADP loses the contract but some industry experts speculate that a small Canadian DMS vendor may have the inside track at winning the contract.

Ward's recently sat down with Anenen at the company's headquarters in Hoffman Estates where he talked candidly about the pressures of the changing market, the future of ADP and the value his company provides dealers.

Ward's: The dealer management system landscape is becoming more competitive today. There are approximately 20 players now vying for business. What effect does the increased competition have on the market in general, and what effect does it have on ADP?

Anenen: The number of players has been increasing the last five years. I think it shows what a strong and competitive market it is.

Some of the smaller players have a value proposition while others may focus on pricing primarily. Dealers are trying to discern between the two.

For ADP, competition forces us to be better. Internally, we have to look at where our value proposition is and make sure it resonates with dealers. We have to evaluate everything from pricing to return on investment.

We want to make sure our focus is helping dealers sell more cars, parts and service profitably. The best return for the money spent.

Ward's: What about some of the barriers to entry for these smaller players? Is that an advantage for you?

Anenen: If you're a small player, you might enter the market with some of the core applications that will do some of the primary functions dealers require. But to have the breadth and depth and understand all of what goes on in a dealership requires a lot of investment.

When you have more than 40 applications that can be completely integrated — like us and Reynolds & Reynolds and UCS have — that has taken us a lot years to get to where we're at. And we all know there is a lot more for us to do.

It is tough for someone to enter the space with deep enough pockets to do all of the necessary research and development — and not just build a basic system, but to make sure it's scalable as demands increase and that it is proven against the test of time.

Scalability becomes a big issue. I think, in some respects, the organization is even more important than the product, especially when you talk about issues such as implementation, and support.

You do have several variables — different OEM requirements and network communications, different processes in each dealership — that affect whether a company can build a successful DMS and then scale that system to 50 sites, and then on to 100 sites and so on.

Ward's: SAP acquired a DMS company earlier this year and there is speculation it could bring the solution to the U.S. Is that a scenario that concerns you?

Anenen: SAP is a large and company that has some very good software. Large enterprise companies use it and probably most of the OEMs use elements of the software in their back offices. But to be able to take that software and move it down to the dealership level is difficult to do without industry expertise.

For SAP, I think it is a question of where do they want to play? How do they obtain the necessary industry expertise? How do they train, install and supprt at a desktop level?

Ward's: Much of ADP's revenue is derived from selling new services to existing clients. What are some areas Dealer Services are looking at to generate future growth?

Anenen: If you look at ADP, we really are a solutions provider. Our game is built around trying to bring all of the pieces of the puzzle together to form one solution for the dealer. Keep in mind, our client is also the OEM, so we have to work with a solution set that serves the needs of both customers.

The tools we provide have to both pencil financially and be effective. We have several dealer advisors that tell us what dealers need for their businesses — both in terms of efficiency and in creating more value.

I think ASP (application service provider) Managed Services becomes a nice extension for us, where we take on the burden of managing the technology needs for the dealer. We'll house the server; manage all of the software updates and the necessary security.

The concept is becoming more popular with larger dealer groups, but my best guess is that over time, half of our customers will move toward a managed services environment. The adoption curve is increasing.

Another area that we've worked hard at is customer relationship management (CRM). How do you manage the lifecycle of the customer? You need good contact management, follow-up management and the ability to mine the data to attract and sell more customers, and to communicate with them better.

We're going to be launching over the next year elements of our fulfillment services, where we'll manage the CRM processes for the dealer like we manage the technology in Managed Services.

We think these are huge opportunities for our clients as well as for us. We are working to bring more automation and discipline to the front end, like we have in the accounting and fixed operations. But that discipline requires a process change in the front end. So there is consultive education involved with that.

We're also going to see more blending of the technologies. We'll see servers with Internet-abled phones, radio frequency identification (RFID) and electronic digitization of most forms, especially in finance and insuance.

We're working hard at the digitization of the seling process. Look at the deal jackets — there are 30 forms in there. We want to be able to do every form electronically — the signing, sending, funding and archiving everything — but we can't do that today. These are all things that are coming, though.

Consumers want the process to be easy and less time consuming, especially once the decision is made to buy the vehicle. When they have the euphoria of having made the purchase, it's “I got the car, now get me into as quickly as possible.”

It is a natural extension of where dealers would like that experience to be.

Ward's: General Motors Corp. just before the National Automobile Dealers Assn. began soliciting initial bids for the Saturn contract, which is managed by the Automotive Retail Group, which ADP acquired from EDS last year. There is speculation a smaller DMS vendor may win that contract.

Anenen: We have a strong solution today, and it is compliant with most of the requirements GM has. We've also added several solutions to it to provide increased value to Saturn dealers.

We have offerings that can scale from 20 users to 4,000 users. Obviously, through our relationship with Saturn, we understand what the needs are.

But you have to look at the stratification of the market realizing many dealers have multiple franchise lines and ask, Is picking another Saturn DMS most critical, or is integrating across their enterprise of more value? We're trying to work with both sides, and it is a tough needle to thread.

Ward's: ADP recently landed some big contracts to be the sole DMS vendor for the Sonic Automotive Group and AutoNation Inc. Some dealers have indicated concern that ADP's resources may be focused on those two companies and be strained as a result. How does ADP keep that from happening?

Anenen: We are prepared! We anticipated the contracts well in advance and knew we had to make significant investment in hiring for our implementation and support groups. Now as we ramped that up, we had to determine how to blend the new employees with our experienced people and make sure we have the capacity levels to handle that. It's not been a problem.

Also, our software today is easier to use and implement. Our w.e.b.Suite2005 (launched in February) is more intuitive. When you're bringing people up to speed, it's that much easier.

As dealer groups have begun migrating to one system the last few years, we've been able to streamline the process of of converting competitive systems to ours. Those unhooks are much easier today.

Ward's: What is the biggest misconception about ADP?

Anenen: It probably is that ADP has a closed and proprietary system. We don't, but we do have a system for integrating that is both disciplined and formal. We have more than 20 API partners for sophisticated dealership IT users and approved third party vendors.

We feel that our continued focus on integration initiatives have enhanced our competitive position. For example, ADP is chairing the STAR committee this year.

Security though is a consideration when talking about integration. Systems cannot be 100% open because of the privacy and legal issues.

Dealers don't want just anybody accessing their data. As much as we've heard about openness, compliance and security has been the No. 1 concerns for our dealer advisory boards over the last three years.