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Downturn Opens Door for Technology

May 2009, F&I and Showroom - Cover Story

by Gregory Arroyo - Also by this author

While selling cars, decreasing expenses, floorplanning and musing over the fate of General Motors and Chrysler dominate the discussions at dealerships these days, experts see a movement taking place. The closely held belief is that the current economic downturn will do what technology providers have attempted to do for decades.

Parallels have been drawn between the current recession and the one that hit the economy in 1982 and 1983. What came out of that period was the dealer management system (DMS), which, aside from availability, was hampered by the same thing impeding many of today’s revolutionary technologies: cost.

“If you look back at those times, that’s when dealer management systems started taking off. That’s when we got the ERA system going,” said Christopher Morris, product planning director for Reynolds and Reynolds. “It wasn’t so much that the market forced it. It was just that it became available and cost effective.”

Adjusting to their new reality of doing more with less, dealers are reexamining every dealership process, including processes related to technology usage. This self-reflection, technology providers say, is exactly what the industry needs.

“Now more than ever, dealers are seeking a better understanding of the technologies available to them,” said Brad Rogers, a RouteOne executive. “While they are not likely to spend thousands of dollars on new processes and procedures in this environment, dealers are looking to take better advantage of existing tools and systems.”

Loss of Dealers Shaping Technology Strategies

How many dealers will be lost this year is anyone’s guess. The National Automobile Dealers Association (NADA) said the number of dealership closures last year was 1,000, and projects another 900 will be lost this year. However, those predictions don’t factor in the unknown futures of Chrysler and GM.

The belief is that the industry will see a steep decline in the number of metro area dealerships, with the larger dealer groups being the ones that survive. However, small- to mid-size dealers are believed to have the advantage in the rural areas. And in this environment, technology insiders believe the smaller dealers are the ones with the upper hand.

David DeHaven, president of One View, a provider of document archiving and scanning solutions, is on the front lines of the battle for positioning among technology providers. He believes the small- to mid-size dealer simply offers more advantage to software makers.

“If you think about it, the competition isn’t for the big guys. That’s because technology companies simply don’t make big margins off the bigger guys,” he said. “And the second-tier vendors are having a tremendous impact in telling dealers to go month-to-month rather than by contract. And they’re doing that so these dealers won’t switch.”

Some DMS providers even admit the smaller dealers are the ones driving technology. Because they have less organizational structure than the large dealer groups, these dealer segments are looking for efficiencies and multitasking capabilities. And with so many uncertainties these days, dealers are looking for these capabilities in the one area they can control — inventory management.

“The industry is obviously contracting, and dealers are looking for ways to get their cost structures aligned. And one way to do that is technology,” said Raj Sundaram, senior vice president of dealer solutions and services at DealerTrack. “What’s also happening is the importance of the used-car business is coming to light in a big way. This is where technology can and needs to add significant value.”

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