As a first time exhibitor at National Auto Dealer Association this year, our team staffed the booth and had a great opportunity to talk with current and former clients and prospects. We also spent a fair amount of time on the show floor, meeting suppliers, investigating new companies and new technology. Our sourcing manager met with at least 30 different suppliers during the show investigating new and innovative supplies, services and equipment that help dealerships increase revenue and/or reduce costs. Our management team talked with and met with at least another 20 suppliers, so we came away with a pretty good feel for the show from a purchasing perspective and found some great products, concepts and suppliers that can assist dealers in 2011 and beyond.
I want to touch on DMS system opportunities for a couple of reasons. First, our dealership clients are interested in reviewing the many new DMS options in the marketplace today. Second, during and after the show were able to sit through some supplier presentations and came away with a better appreciation of DMS suppliers, capabilities, limitations and costs.
Before I get into the DMS observations, I’d like to recap some takeaways from the NADA show this year based on our many conversations with dealers, prospects, suppliers and industry experts:
- Optimism – Dealers/dealer groups are optimistic that sales are coming back and 2011 will be a dramatic improvement over the past two and a half years. Dealers we talked with feel that pent up demand will produce a very good year in new and used car sales.
- Cautious optimism – Dealers expressed to us that service and parts revenues are also key to their business profitability. As such, while price is important, their suppliers must be reliable, quick to respond, and provide the right inventory at the right time, with the right information and the systems to back up their value proposition. If they don’t do this, price will be a non-factor. Said another way, competitive pricing combined with service, quality, speed and access to information defines the supplier value proposition going forward.
- Cost control focus – According to dealers, experts and 20 group leaders that we talked with, cost control strategies will be the focus of high performing dealerships in 2011. There is a fear that increased sales will mask increased costs once again and that smart operators will get control of expenses now.
- Price creep is occurring – Dealers expressed concern about the prospect of increased pricing, higher costs and challenges to profitability. We had a number of conversations with folks interested in protecting their pricing today from inflationary impacts that may be coming. Fuel costs, fuel surcharges and cotton pricing(uniforms) were the most common examples of current price increases.
- Innovation – We had an ambitious plan to uncover innovative suppliers and solutions to the everyday dealership challenges, and we were not disappointed. The DMS category is growing with reliable, cost effective solutions and satisfied customers. We learned of some new low cost advertising strategies that are growing rapidly with very positive results. Providers of financial solutions (credit card/check guarantee/invoice payments) are providing more cost effective solutions that will reduce indirect costs and soft costs as well. CRM solutions, F&I products, credit tools, service drive solutions and mobile applications were also in abundance at the show.
NADA takeaways – purchasing perspectives
Net, net, our takeaways from the NADA show are that dealers are optimistic about better sales opportunities and top line growth, but they are going to be much more proactive in cost reduction strategies that provide bottom line impact. Competition among suppliers is increasing which is good for dealerships. The better suppliers are offering more value, more innovative solutions and bringing competitive prices to grow their market share. One of the largest expenses that dealerships have to contend with is their DMS expenses, the focus of this article.
As a supply chain expert with deep experience in the airline, manufacturing and retail markets, I have always had the ability to get the information needed to run the various business segments I have been involved in with relative ease. Not so in the DMS world.
When we first became involved in the automotive space in 2001, we were then and still are quite dependent on supplier and financial information resident in the DMS systems to support our work. Being new to the automotive space in 2001, I was initially surprised by a number of issues and gaps in the DMS system space. While DMS systems as a whole are quite impressive, my outsider observations revealed some unexpected surprises and gaps:
- High cost of the system solutions – Large up-front investment plus five digit expenses per month.
- Monthly costs that are often higher than budget or expected.
- System functionality that is billed, but essentially unused.
- Long term contracts – five years and more.
- Lack of transparency on invoices – inability to understand the detail.
- Array of contracts with varying expiration dates – no common expiration date.
- Inability to extract common information (suppliers and spend data) – third parties required.
- Lack of reporting capabilities – the rise of third party reporting systems attest to this.
- Addition of new DMS functionality may lead to extensions of other existing contracts.
- Inconsistent pricing among customers.
Today there are many solutions and emerging fixes to the issues listed above. There are experts in the DMS space that have been very effective at helping dealer clients resolve these issues and plug the gaps. A cottage industry of experts have been supporting dealership clients for years and can effectively solve the problems, provide transparency and demystify the DMS world including:
- DMS quoting assistance.
- Dashboard reporting systems to simplify the complex.
- Audit services for those who can’t make sense of their invoices.
- CPA firms who bridge the financial reporting gaps.
- CRM firms with robust , high tech customer interfaces.
- Much more.
Significant opportunities today
The one thing the consultants and experts have not been able to do consistently, is dramatically reduce the cost of DMS systems and support. The marketplace is taking care of that however, competition is on the rise and reliable solutions are taking a serious bite out of DMS costs.
There are significant opportunities available today for dealers to reduce costs in a significant way. Emerging DMS providers are growing their market share at the expense of the largest providers. Based on our research, it is apparent that cost reductions of 50-80% can be achieved in the DMS expense line. Highly functional and robust systems are available at a fraction of what many dealers are paying today. It is not unusual for a single point store to be able to reduce DMS support costs by $50,000 to $80,000 per year, maybe more depending upon desired capabilities. Plus, some suppliers are willing to guarantee that their rates will not change for an extended period of time.
Caveat emptor – be clear about your requirements
New, lower cost systems are available, but the buyer will be well advised to go into these discussions and reviews with eyes wide open, and a very well articulated set of business requirements and expectations.
While the initial and on-going cost of new DMS alternatives are very appealing, and system functionality can be very similar across options, there are some concerns about customer support levels, reporting capabilities, costs across multiple brands within a location, existing network capability and training that may be issues you will want to explore further. Having clear business requirements, and well-defined expectations should be developed before you begin your analysis of DMS alternatives.
Where do you go from here?
There are some well respected consultants that can help you with a technical and business evaluation of system options, and I would be happy to provide a referral if you need outside assistance. Many of you are using those experts today with good results.
If you conduct this review yourself however, I would suggest that you build a spreadsheet and compare the DMS offerings. While a side by side comparison of alternatives is always helpful for any large purchase commitment, the process of going through that comparison ensures that you are asking the right questions and the same questions, of every supplier, and this will enhance your evaluation and decision-making process.
Space doesn’t permit a thorough description of all potential requirements for your DMS system, but assuming you can define your functional requirements, don’t forget to include the following in your DMS evaluation:
|OEM integration (if no, when?)||Financial reporting (compared to current)||Network requirements|
|Fees by location – brand||Customer service levels||Customer service Contacts|
|Implementation timing/training||Fee structures – (fixed or variable)||Security|
|Remote access||Custom reporting – costs/timing||Bolt on functionality – costs|
Significant cost reduction opportunities are available in the DMS space that have both near term and long-term cost reduction potential. A thorough set of business requirements should be developed along with a side by side comparison of options to ensure the best decision possible.
For a check list that can be used in your review and internal comparison of DMS system options, please contact Doug Austin via e-mail at: firstname.lastname@example.org for a copy. This tool has been created with the help of system experts and suppliers and may be helpful to you. Again, for technical DMS assistance, we can refer very qualified experts to assist.