What I learned about Dealers & Technology in the Automotive Industry

In 2000, my partner and I started Arkona, Inc. to introduce a revolutionary new Dealer Management System (“DMS”) to automobile dealers based on Cloud Technology. I had no practical experience in the automotive industry, but with 20 years in the computer industry and law it was obvious that automobile dealers had been excluded from technology revolution. I deemed this largely the result of monopolistic-type practices of the large technology providers, ADP and Reynolds & Reynolds. These publicly traded companies on the NYSE, were the epitome of a “duopoly” within a mega billion-dollar industry. A third significant provider was Universal Computer Systems (“UCS”), a privately held company, much smaller than either ADP or Reynolds, but with an offering successfully positioned as the Rolls Royce of the DMS solutions—and UCS pricing reflected it. There were other DMS providers, but many vanished, got bought by the big three, or remained niche players.

For more than 7 years as the CEO and attorney for Arkona, I saw the challenges faced by dealers. I remember well a call I received from a dealer in Texas who wanted to change from UCS to Arkona (I received a lot of these calls). He asked if I would review his UCS contract to see if he could change systems. Imagine the dealer’s horror when I informed him that the numerous add-on products from UCS had extended the term of the entire agreement an additional 30 years. I have read vendor agreements exceeding 100 pages. Without an industry experienced attorney, the dealer was at a distinct disadvantage.

Not long after selling the company to DealerTrack (NASDQ: TRAK), I returned to my legal roots and became a founding shareholder in The Rudd Firm, P.C. My ambition was to continue to support dealers, not just in the contract phase, but in every aspect of the dealership. I have spoken with more than 1000 dealerships and I believe I understand their challenges, especially in the area technology management.

Here are just a few things I learned from my automotive experience, maybe it has a familiar tone:

1. Don’t underestimate the power of the DMS vendor in your dealership (positive or negative).
2. Most vendors attempt to lock dealerships into longer-term agreements with no accountability provisions for products that fail to perform as expected.
3. Dealerships negotiate from a position of strength, but fail to capitalize on it. Vendors are masters of the contract and their agreements are difficult and expensive to terminate.
4. A vendor may claim to own the dealership’s data residing on the vendor’s technology.
5. Many vendors promise enhancements, integration, or performance levels that go unfulfilled.
6. Dealers look to technology to increase revenues and margins, particularly with service and CRM applications. Unfortunately, dealerships pay a higher percentage of their net revenues for technology and technical support than other business of the same size.
7. Dealers too often pay for more than what they need, or get.
8. Dealers are concerned that OEMs will by-pass the dealer channel and sell direct. Ford tried and failed. Tesla is pushing the direct model today. Franchise laws are important in this area.
9. There is a high dissatisfaction level with technology vendors in the dealership space.

If you are an auto dealer, new or used, The Rudd Firm knows your business. Let us help.

Alan Rudd is the Senior Attorney in The Rudd Firm. P.C. in Salt Lake City. Mr. Rudd was recognized as Entrepreneur of the Year in 2004 by Ernst Young for his leadership with Arkona.

THIS ARTICLE IS NOT INTENDED AS LEGAL ADVICE, AND IS FOR INFORMATIONAL PURPOSES ONLY.