To paraphrase the lyrics in a famous Talking Heads song, have you ever wondered how we — as in the entire retail auto industry — got here? By “here” I am referring to the current state of what I like to call “technology monopoly.”
Dealers need software to run their business. The dealership management system (DMS) is the backbone that every other software runs on. Therefore, it’s incredibly important that your DMS be flexible and able to integrate with third-party software. As a dealer, you should get to choose any vendor that you want, as well as vendors that offer choice and flexibility, instead of having those choices driven by their ownership stake in other products.
Yet this is not where we are in the retail auto industry today. I can’t help but ask myself, “How did we get here?” Because in other industries, it’s not this way.
Let me tell you a story about how technology works in other industries.
Many years ago, I started my career working in a car dealership. In those days I knew little about software or how it worked, other than how it helped me sell cars. Then I got the opportunity to sell software for a living. I went to work for a company that shall remain unnamed, selling DMS software to franchise auto dealers.
I learned how to sell software the IBM way, urging dealers to sign long-term contracts because recurring revenue and the ability to increase that recurring revenue was the top priority. There was little competition, and I thought that was normal.
Eventually I decided to make a change, so I took a job selling enterprise software in the building materials industry. Instead of selling software to auto dealers, I sold software to lumberyards, masonry supply stores and retailers like True Value, Ace and Do It Best.
The building materials industry is a lot like the auto industry, in that there are a lot of franchises. The enterprise software I sold does for those retailers the exact same thing that DMS software does for auto dealers, including inventory, payroll, accounting and point of sale. The software also communicates with the franchise (OEM) software, just like a DMS system does with pricing, rebates and financial statements.
But when I took that job, I had an epiphany. There were no long-term contracts. Every contract was month-to-month, so as a company our top priority was to deliver great customer service and keep our customers happy, so they wouldn’t switch to another vendor.
Another revelation I had was that there was a lot more competition. Franchise owners in the building materials industry can choose between dozens of vendors, and because of that, they pay a small fraction compared to what many auto dealers pay monthly for their DMS software. A lumberyard with 30 employees uses their software the exact same way as a car dealership with 30 employees; but in most cases the auto dealer is paying 10 times more per month with a five- to seven-year support contract. Ouch!
You might be thinking, well, our business is so much more complex, therefore the software must be more sophisticated. I hate to burst your bubble, but no, it’s really not. Your business is not any more complex than Home Depot’s — in fact, retailers in other industries have to deal with many different suppliers, instead of just a specific OEM.
I also learned something else. The ability to develop and deliver great software and world-class customer support has nothing to do with the size of the legal department or terms of your contract. You don’t need a large building with 10,000 employees to be the best. In fact, smaller companies have the ability to respond more quickly to changes in the industry.
Speaking of change, in the auto industry the pace of change has accelerated in recent years. It’s very likely that new technologies, new retail models and new trends will have a significant impact on the way that dealers will do business in the coming years.
Do you feel 100-percent confident in your software vendors’ ability to keep up with this change? If your vendors cannot quickly adapt and meet your changing needs, how will you be able to stay competitive?
This is why long-term contracts are not only unnecessary, but downright dangerous to your business. You should demand choice and flexibility with how you spend your technology dollars.
In other industries, long-term contracts for software services are unheard of. Franchise owners in the building materials industry pay for their enterprise software on a month-to-month basis. If they want to make a change, it’s as simple as making a phone call and canceling the service.
As a dealer, you know that your customers have plenty of choices when it comes to what type of car they want to buy and where they buy it from. It takes a lot of hard work and significant investment to attract and retain their business. But isn’t that the way it should be? Competition forces you to be better at what you do.
Do you know what the most important thing I learned while selling software in another industry? That for many years, auto dealers have been taken to the woodshed. I am not sure how we got here as an industry, but I am happy to see that things are beginning to change, albeit a bit slow for my taste.
In general, more competition, lower prices and the ability to adapt to industry changes can only benefit auto dealers. But it’s your business, and you’re the only ones with the power to change how software vendors do their business.