Posted on August 24, 2021 by Travis Peterson
As the fable goes, a frog put in a cool pot of water that is slowly heated will happily hang out until its eventually cooked. The gradually changing temperature fools it into thinking conditions are not changing. When it comes to your DMS provider, you cannot be complacent like the frog.
There are many great providers out there who deserve your loyalty, but the DMS space continues to generate headlines with more acquisitions and consolidations coming left and right. You’ll remember DealerSocket bought Auto/Mate last year, only to be acquired by Solera this year. That was the second acquisition for Auto/Mate in just two years.
nd they’re not just buying each other. Many are snapping up third-party providers too. Back in 2018, CDK dropped over 100 members of its support staff to, as its managing director stated, “align itself with a growth strategy,” then announced it was acquiring Elead.
This past spring, CDK bought Roadster and R&R bought Gubagoo, to offer digital retailing tools to existing customers. The cynic in me has to wonder if in the future these big guys will require their dealer clients to use the platforms they now own.
With so much movement in the space, it’s prudent to keep a keen eye on your DMS vendor. After all, although vendors talk about putting customers first and wanting to be your “partner,” they are businesses with balance sheets to monitor, and in many cases, shareholders to please.
Don’t get me wrong; change via acquisition or consolidation is not always bad; these can lead to increased functionality or value. What is bad is when it catches you off-guard and a provider you considered a “friend” gradually introduces new ways of doing business that don’t work for your dealership.
As with any relationship, you should be cautiously aware of warning signs. Even if everything is great today, be vigilant of your DMS changing in the following ways:
- Change in contract terms – DMS vendors will always push for a longer contract length – that’s just good business for them. You should be alarmed if the DMS forces longer contract terms, without an off-setting benefit to you, like lower prices or increased services. Don’t be forced to scratch their back without them scratching yours.
- Deviations in support – CDK likely cut support employees before acquiring Elead because it needed to trim payroll or because workers were redundant. Either way, deviations in the level of support is a signal that change may be coming.
- A new primary strategy – Most companies have a primary business strategy, such as cross-selling more products, offering the most innovative tools, or delivering the best support. A company moving away from stellar support and toward pushing more products, for example, is an early sign they are prioritizing revenue over customer satisfaction.
- A change in leadership –Be on the lookout for executives moving from one DMS to the next. Those executives will be bringing their playbook along – and may implement many of the negative company practices you have been trying to avoid.
- Changes in product offerings – CDK and R&R saw market openings when they purchased digital retailing platforms, especially since the pandemic sped up dealerships’ adoption of technology to power remote selling. There’s no harm in offering more products. The harm comes if vendors require customers to use those products.
- Restricting third-party vendors – Dealertrack DMS and others make a big deal about allowing dealers to work with preferred third-party vendors. Starting to restrict certain vendors is the flip side of requiring certain vendors. Be wary of both strategies to restrict how you run your business.
- Changes in data retrieval – Some vendors have a reputation for essentially holding a dealers’ data hostage if they try to make a DMS switch. If your vendor starts to get cagey about how you retrieve data and/or how much it will cost, that’s a red flag that a change you may not like is possible. Be straightforward and ask the cost outright; if your vendor can’t give you a straight answer, be wary.
Now for the good stuff. There are plenty of vendors in the market who exhibit integrity and best practices that put dealers first, even if these vendors are interested in being acquired.
A DMS to stick with may exhibit these signs:
- Offering more products – A DMS that is continually innovating to bring you new products is working for you, not against you. A good partner DMS will educate you; not upsell you.
- Integrating more third-party vendors – You should be able to work with companies that are best for your business. A DMS that understands that and works to create new relationships with third-parties is good for your business.
- Contract Flexibility –A DMS that doesn’t push contracts understands continual improvement, stellar functionality, and hands-on support, are required 24/7 to keep a client base. They work harder to keep you happy, which only benefits you.
As the DMS space continues to generate headlines, it’s smart to remember the fable of the frog and stay vigilant. Change can be good, but only if you’re aware of it and on-board. Otherwise, you may end up with a solution that is no longer a best-fit for your dealership.