Dealers vs DMS Companies: Who Owns the Data?
There’s an ongoing debate in the automotive retail business about data ownership; an issue that has become polarized due to the oligopolistic position of the two major DMS (Dealer Management System) players, Reynolds & Reynolds and CDK Global (the two are reported to hold ~70% market share in the USA).
Automotive News has published a great article on the issues, and we publish that article in its entirety, below:
Held hostage’: Dealer’s battle with software giants escalates
December 26, 2016 @ 12:01 am
Vince Bond Jr.
A Tennessee dealer has taken his gripes with the data security policies of major software providers CDK Global and Reynolds and Reynolds directly to the National Automobile Dealers Association.
The dealership management system giants, which control around 70 percent of the DMS market, have caused a stir among dealerships and vendors in recent years by charging third-party vendors for access to the consumer data needed to run their systems. The added expense for third parties is then passed to their dealer clients, wrote Mitch Walters, president of the Friendship Family of Dealerships in Bristol, Tenn., in a Dec. 20 letter to NADA President Peter Welch.
A copy of the letter was sent to Automotive News.
While the DMS providers say the integration surcharges are necessary to pay for security measures, Walters says it’s a way to coerce dealerships to use services offered by the two major companies. Walters told Automotive News that he feels dealers are stuck in the middle of a war between DMS providers and third-party vendors as more companies decide to charge for data access.
“It is like a dealership is “held hostage’ with its own data. This is unfair and unreasonable,” Walters wrote. “The DMS providers insist that the only way for a dealer not to experience this unfair surcharge is to utilize products that are exclusive to the DMS provider in lieu of a dealership choosing the vendor it desires. I believe that a dealership should be able to partner with the third party vendor that has the best solution to assist the dealership with making more sales and more gross profit, and not an internal vendor that is owned and operated by a DMS provider.”
Walters said his eight stores have been using desking and customer-relationship management tools from VinSolutions, which is owned by Cox Automotive. Reflecting CDK’s data surcharge, VinSolutions is adding around $2,400 to the monthly bills of his dealerships for both products. He said the fees kicked in earlier this year.
“Now they’re charging Cox, and Cox is charging us $150 a store. That’s $1,200 per month, per product,” Walters told Automotive News. “We’ve got $30,000 overhead now that we shouldn’t have. It’s our data.”
Walters said his group isn’t paying the surcharge-related fees until a “resolution” can be reached.
Reynolds, citing security concerns, has been strict about which vendors can have access to its DMS. So far, the company has certified more than 150 vendors that can retrieve data from Reynolds’ DMS to run their respective services. The vendors have to pay a certification fee; Reynolds has declined to say how much.
In an emailed statement, Reynolds spokesman Tom Schwartz wrote that the certified vendors exchange data between their applications and the Reynolds DMS in a safe, secure, and verifiable manner.
Once Reynolds certifies a vendor, the company takes “on the maintenance and ongoing updates to the third party’s interface. This helps ensure the data exchange for third party applications occurs flawlessly, regardless of DMS software updates or changes,” Schwartz wrote, adding: “That’s a cost avoidance burden taken off the third party, and they also gain the advantage of a more efficient, reliable business process for handling the data.”
In August 2011, Reynolds said it was cutting access by noncertified vendors to its DMS in an effort to tighten security.
In the past, a dealer would provide a username and password to a vendor so it could get into the DMS and pull whatever data it needed. But Reynolds’ move to limit access solely to certified vendors threw a wrench into the day-to-day operations of some stores.
One vendor, who has not been able to gain certification from Reynolds, said that data control has huge profit potential for DMS providers but that the extra fees in the name of security are bad for business.
Reynolds’ August 2011 move “interrupted data flow [and] caused huge chaos,” the vendor told Automotive News. “Incentive payments couldn’t be made to dealers. … Rebates [and] dealer payments were interrupted. They were held ransom.”
CDK appears to be following in Reynolds’ surcharge footsteps.
In 2015, CDK started charging higher fees to outside vendors, such as customer relationship and inventory management software providers, which wanted access to dealerships’ data as part of its SecurityFirst policy. Some vendors said monthly fees doubled after SecurityFirst.
CDK told Automotive News in an emailed statement: “CDK Global is committed to helping protect our dealer clients’ data. For years, our Third-Party Access Program has provided secure access to CDK systems while allowing reliable data integration between dealers and their vendors. It is crucial that we maintain a secure data ecosystem, thus our focus on requiring third-party vendors to be approved and to have them share in the expense of investment in access infrastructure and security.
“We implemented standardized pricing for 3PA-approved vendors nearly two years ago to create a level playing field for third-party vendors. Our program provides dealer choice, while helping maintain a secure ecosystem.”
Dealers are taking a financial hit because dealerships work with so many third-party providers that must access their DMS. Reynolds President Ron Lamb said the average dealer uses 18 software systems to run a store.
Some dealers haven’t yet caught on to the price hikes because CDK is hiking vendor contracts in order of expiration, sources said.
Fees among vendors have varied. Some went from about $100 per rooftop each month to $200. Other vendors would have to pay as much as $600 a month for DMS access.
Dealership groups that have more than 20 rooftops likely work with more than 80 third-party vendors that need CDK’s third-party access, one source estimated. If dealership groups work with 80 providers and now have to pay $200 each month in fees that are passed on, they could end up paying an extra $16,000 a month for using third-party vendors.
Before SecurityFirst, CDK was fairly easy to work with, some vendors said. Sources said Dealertrack, Autosoft and Auto/Mate, among other DMS providers, are still easy to integrate with.
Walters’ dealerships once used Reynolds’ DMS but switched to CDK. Walters is now hesitant to continue the relationship with CDK because of the surcharge policy even though he likes its system.
“We do not want to be forced to change from CDK as our DMS provider as we have over 10 years of training, hardware and software,” he wrote in the letter to NADA. “The burden of change is not an issue we really want to take on, although we will if we need to do so.”