What ADP Plans with New Buy

Tommy Brasher, owner of Brasher Motors in Weimar, TX, says he felt like he was kicked in the stomach when his son called him with news that Electronic Data Systems had sold its Automotive Retail Group (ARG) to Automatic Data Processing Inc. (ADP).

“I was certainly dismayed,” Brasher tells Ward's. He was such a loyal customer he may be recognizable as one of the public faces for EDS' advertising campaign touting its dealer management system (DMS).

But his mood has changed in the six months since the acquisition. “It has been a good experience,” Brasher says. Following the announcement, ADP sat down with the dealers on ARG's advisory board to outline its plans for the division.

“It wasn't what we were expecting,” says Brasher. “ADP stepped up to the table and has let us extend our current contracts with ARG. And it is pumping money into the products.”

In retrospect, he says that ARG introduced few products for its dealers in recent years because parent company EDS has been cash-strapped. “ARG was being starved. It should be interesting for us the next several months.”

On several fronts, ADP's strategy since acquiring ARG has been unique. Often, when ADP or its main competitor, the Reynolds and Reynolds Co. acquire companies, they kill them and assimilate the products and technology.

But ADP is keeping the entire ARG division intact and has kept the majority of its employees. And ADP is wasting no time in strengthening the division, says Byron McDuffee, vice president and general manager for ARG.

“We hit the ground running,” he says. “We didn't stop to evaluate exactly what ARG has or doesn't have. We have a vision of where we want to take it and are working hard to accomplish that.”

ADP is investing $5 million into ARG this year to upgrade its technology infrastructure and to roll out new products for its dealers. McDuffee says the company will be launching at least 20 new applications for ARG dealers by the end of the year.

The acquisition has increased ADP's market share 5% according to the National Automobile Dealers Assn.'s most recent DMS survey. The acquisition gives ADP an additional 900 dealers to whom it can market its services.

Because of the costs, few dealerships switch DMS systems when their contracts are up. Consequently, companies such as ADP and Reynolds must find other ways to grow revenue. One way is to sell services and products to existing dealers.

McDuffee's marching orders are to upsell to current ARG dealers — not adding to its existing dealer base.

Having ARG also means ADP should have a closer relationship with General Motors Corp., which had close ties with ARG. “We're not sure yet exactly what that means,” says Kevin Henahan, ADP's senior vice president of marketing. “But we think it's better to be closer to GM than not.”

GM's Saturn subsidiary's 443 dealers have an exclusive contract with ARG to use its hosted offsite DMS. It is the only contract of its nature in the North American automotive retail industry.

Some industry analysts speculate if ADP can meet or exceed the strict service level agreements ARG has in place with GM (ARG pays stiff penalties if service at dealerships do not meet certain requirements), it can establish similar contracts with other GM brands.

If ADP can pull it off, “OEMs will get a solid partner and a long-sought single point of integration for thousands of dealers,” says Mark Dixon Bunger, senior analyst with Forrester Research Inc.

For now ARG's first task is to get its dealers up to speed with no interruption of service.

George Fields, general manager for Saturn of Fresno, says, “I don't know ADP from Adam.” But he calls the transition “seamless” to the point of being unnoticeable.

“It hasn't been good or bad. That's because there has been no experience yet,” he says. “If it weren't for a phone call telling us about the switch, we wouldn't have known about it.”