DealerSocket Considers Where to Plug In Next

To grasp how car dealerships function, Jonathan Ord and business partner Brad Perry worked at one for a year. The pay sucked.

“We worked for free,” Ord says. “That way, they couldn’t fire us. We asked a lot of questions.”

The gratis gig was a prelude to Ord and Perry in 2000 founding DealerSocket, which has become one of the nation’s leading customer-relationship management software and digital-services providers.

Ord and Perry were classmates at Brigham Young University where Ord in his freshman year in 1989 was back-up quarterback to eventual Heisman Trophy winner Ty Detmer.

DealerSocket has been in an acquisition mode lately. In a WardsAuto Q&A, Ord talks about new ventures, how he sees the dealership model changing and what’s next for his company. Here is an edited version of the interview.  

WardsAuto: DealerSocket has been busy with acquisitions. Give a rundown?

Ord: In January, we did a deal with DealerFire, a website-design and marketing company. We liked that aspect. We thought it fit well with our application.

About two years ago, we started investigating the independent-dealership space. This year, we launched our CRM in a light version there. It was a wonderful entry. We signed up 1,500 dealers quickly.

WardsAuto: Obviously you got into it seeing an opportunity. But were you surprised it took off like it did?

Ord: We were surprised at the dollar amounts we were able to earn from the independent stores.

We were thinking on average we’d have to go with a lower-feature functionality in our CRM, charging $400 to $600 a month. But many independent dealers look more and more like franchised dealers. Our average billings for independent stores have been $1,300 a month. And they’re using two-and-a-half times the functionality we thought they would.

How Sophisticated Are Used-Car Dealers?

WardsAuto: Is that a question of a dealer-sophistication level among used-car stores?

Ord: Absolutely. They are extremely sophisticated. The inventory of used-car dealerships isn’t guaranteed for them. They have to go out and find inventory that sells. The whole inventory-management (software) piece is key to them.

We bought the largest and best DMS companies in the independent space, Finance Express and Auto Star. We’ve merged those two companies together, taking the best of both. We’ll launch that in mid-2016.

Our last acquisition we just completed is the American Auto Exchange. The people are a perfect fit, as is the functionality.

WardsAuto: What is the functionality?

Ord: Basically understanding what cars are selling for in the market and how best to merchandise those cars. Understanding time-to-market, reconditioning costs, where vehicles are in the market. We’ll leverage that to provide independent dealers better access to inventory.

WardsAuto: So it’s an inventory-management system.

Ord: Yes. It competes with FirstLook, VAuto and the likes of those. Dealers struggle now and will struggle more in the future with finding the right inventory and how to merchandise it. From our data, we know certain vehicles are hot in certain markets, but in other parts of the country they’re selling at a supreme discount. So there’s an arbitrage happening.

WardsAuto: Is there a potential relationship between inventory-management software, which helps dealers stock and price the right inventory, and CRM software, which helps them connect with consumers?

Ord: That’s the goal. There already is a light integration we’ve completed. That will get stronger over time.

WardsAuto: At a conference a year or so ago you spoke about the possibility of impending mergers and acquisitions in automotive information technology. Presumably, when you said that, you had things in mind. Were you telegraphing a strategy?

Ord: Yeah. Everything we do today is trying to integrate, innovate and bring things from other industries into this model. The idea is to help the automotive ecosystem and better serve customers.

WardsAuto: What kind of car do you drive?

Ord: I have a couple of Porsches and my daily driver is an Audi S8. Cars are both an emotional buy and a transportation-issue buy. Some people claim the dealership space needs to go away or needs to morph. We believe it needs to morph, and technology will help it. 

WardsAuto: You have had a good relationship with the Van Tuyl Group. What about Warren Buffett acquiring it, and that whole trend of investment companies buying dealerships?

Ord: It’s great any time you put a light on the industry like Warren Buffett has helped do. Private equity loves our industry. Individual investors love it and are figuring out more and more it’s a great industry to be in.

WardsAuto: Private equity seems to like all aspects of the industry, including yours. You have had a relationship with Vista dating to 2014. Does that enable you to do the acquisitions of late?

Ord: Yes. It was strategic. Vista has a tremendous playbook and methodology. We’ve been beneficiaries of that. And we’ve been able to share with them some of our best practices.

It gives us access to large amounts of capital. They have $16 billion worth of management. If I say, “This particular company will benefit dealers and us, they’ll say ‘OK, let’s go buy them.’”

The neat thing is Brad Perry and I, who boot-strapped DealerSocket, still own about half the company internally. Brad is a great partner; smart, innovative, no ego. And then we have this great partner that allows us to grow.

Missing Pieces of the Puzzle

WardsAuto: What pieces of the puzzle are missing for DealerSocket?

Ord: There’s quite a few, and some we can partner on with other companies. The big ones are online transactions and digital retailing, and then getting more into the DMS (dealership-management system) space.

We’re in this mood of whether to buy, build, partner. Or do a big transaction in the coming years where we could do a substantive partnership with a CDK or a Reynolds & Reynolds (the nation’s top two automotive IT companies), something that might revolutionize the way they service their dealers. It will be an interesting and fun next couple years.

WardsAuto: There’s no final answer yet on a potential CDK or Reynolds deal?

Ord: Everything is on the table right now. We want to do it methodically and smartly and have it technologically benefit our dealers.

WardsAuto: Where will DealerSocket be in three years?

Ord: I work really well on 12-month plans.

WardsAuto: Well, at least I didn’t ask about a 5-year plan. 

Ord: In the last year, we’ve grown 30% to 40% organically and 70% to 60% through acquisitions. We’ll continue to grow.

We’ll make sure dealers have access to consolidated and coalesced data in a form that’s actionable.

The automotive industry still tends to look so much on the transaction. That includes dealerships salespeople, sales managers, even service advisers.

I believe in the next world, it will be based more on relationships. A relationship is a combination of many transactions.

If you look at a customer across a lifecycle and say, “They could have 15 to 19 transactions with me,” it changes the way you deal with them on the first, third or sixth transaction. You know them and communicate with them better. Our applications help there. But people-wise, the (dealership) mindset has to change. Pay plans need to change. On the outskirts of technology, other things that are people- and resource-based need to change.

Millennials want the relationship and want the value. And it’s been proven time and time again they will pay more for it. They won’t be grinders, but their wants and needs require us to be different.

Changing How Salespeople Are Paid

WardsAuto: When you speak of changing compensation plans, you are talking about not emphasizing them being so much based on a percentage of the gross profit on a vehicle sale, right?

Ord: On a single transaction. Paying a percentage of gross profit to someone with a low base salary or no base salary incentivizes them to focus on the transaction, not on the relationship.

So what if there were a scaling system where the salesperson got X for the first car they sold to a customer and got X plus Y for the second car sold to that customer and X plus Y plus Z for the third car? Then it becomes more of an annuity relationship.

Many dealers feel if they pay their employees less base salary, payroll costs will go down. But it gets so variable and so low on the guaranteed-base side, you have this revolving door. Most dealerships have a 60% attrition of their sales forces. That is so expensive when you look at rehiring and retraining costs.

Our goal, which is somewhat selfish because we want dealers to use our technology, is to create a more-stable dealership environment with career paths for those individuals who really love the automotive space and aren’t the transients who go from store to store with the frequency of a cheap ham radio.

WardsAuto: You mentioned your self-interests. Presumably, a young college graduate or otherwise bright person who might make dealership work a career would be more likely to use your technology, or any technology. Many dealerships have the technology but much of the staff doesn’t use it.

Ord:  Yes. And the customer will be served better if we continue to tweak the model. For dealers it means serving customers better, making more money and creating career paths for their people.

There is a value to relationships over and above transactions, not the other way around.

WardsAuto: How hard is it to try to convince a dealer to change their information-technology systems?

Ord: It is challenging. We try to tell dealers what we can and can’t do, and then try to overachieve. Just as we espouse to the dealers, it’s a relationship game, not a transaction game.

[email protected]