System Shopping at NADA

While hundreds of software and service providers will exhibit during the National Automobile Dealers Assn.'s convention in Orlando, count on the dealership management system vendors as being the busiest of the bunch.

NADA's latest DMS survey found that 19% of the dealers and general managers surveyed plan to switch to a competing DMS vendor when their existing contracts are up. Another 2% are undecided.

And that number is probably on the low side, says Wayne Youngs, executive consultant at Dixon Hughes PLLC.

From 2000 to 2006, the change rate increased from about 12% to 18%, based on his clients, Youngs says. Since 2006 it has increased sharply to 31%, he says.

Dealers, vendors and consultants say there are some factors that dealers ought to consider when shopping for a new DMS at the Feb. 13-15 NADA expo.

Youngs recommends dealers make sure they are comparing apples to apples. If dealers are interested in a new DMS vendor, but must add a third-party application, like customer relationship management, to be comparable with their existing vendor, they must add in the cost of that additional application.

Dealers also must consider the initial cost of changing to another system, which is roughly $450 per user, a figure that represents the loss in productivity as employees learn the new system in the first year, Youngs says.

Youngs recommends no longer than a 3-year deal because technology changes fast. Some DMS vendors offer month-to-month contracts, others try to lock dealers into a 5-year contract or longer.

Paul MacDonald, a Mazda dealer in Bountiful, UT, and a dealership information-technology consultant, tells dealers they should avoid the fear of change that may have held them back in the past.

“That's the underlying reason why dealers are so hesitant to move,” says MacDonald, founder of the TriMac Automotive Advisory Group. “It can be — but not always — very painful.”

Dealers don't want to upset their business during economic turmoil, MacDonald says, but now is actually the perfect time to make a change. With business down, dealers who switch to another vendor can use the move as a way to re-evaluate everything they do, he says.

MacDonald urges dealers to consider licensing costs and determine the “mothership” of their operation. If the DMS vendor charges a license fee per keyboard, determine the cost for additional licenses as the dealership expands, he says.

“Identify in your own organization the mothership, the foundation block of your business, be it parts, service, new or used sales, whatever the key component is that makes you the money in your store,” he says.

“I've seen dealers end up short-circuiting their parts department or service department because they bought a system that can't handle the volume or can't handle the structure that they've set up in those departments.”

NADA's survey includes seven DMS vendors, but NADA notes there are another 13 vendors active in the U.S. market not included in the survey because they failed to meet the customer threshold.

Charlie Prophet, chief operating officer at AutoSoft International Inc., advises dealers to look at a DMS vendor in terms of “back to front,” meaning all customer information should flow seamlessly from one department to the next, and then come full circle from service back to sales and CRM.

“The important thing is do it primarily with one vendor, and hopefully that vendor can offer all the pieces of the puzzle,” Prophet says. If dealers added the cost of third-party applications to their DMS, “they would probably surprise themselves,” he says.

Trey Hiers, vice president of corporate marketing at Reynolds and Reynolds Co., one of the two largest DMS vendors in the market, says a lot of dealers likely will end up larger than they were before the recession and they will need to serve a broader customer base. That typically means a greater need for technology, he says.

“But regardless of dealership size, today the DMS needs to be seen as the central, controlled database of all the business activity in the dealership,” Hiers says.

Dealers should determine how effectively the DMS extends beyond the traditional core DMS functions of payroll, parts, and accounting, for example, into a full-fledged retail management system.

Hiers also encourages dealers to examine whether the DMS and the add-on applications enable the dealership to make decisions holistically for the entire dealership.