Dangerous Assumptions Auto Dealers Make About Technology

Some common but dangerous assumptions auto dealers make about technology decisions and why you should avoid them. Behold, the Deadly Dozen!

Bad Idea #1: “These vendor contracts are all the same – I just signed it”

The dealer technology world has become a very perilous place and the old rules simply do not apply. Vendors have made extensive changes to their terms. Dealers who assume that nothing has changed and just sign a renewal could be in for a shock down the road.

Remember that you are not buying a computer. You are signing a contract for computer software & services. Do you think your rep put all the documents in front of you? What about the referenced contract? Did you see a couple of passing allusions to another minor document or two? Did you get copies of these contracts as well? Often these are the real governing documents. This very prevalent tactic can lead a dealer to think that these docs are just a few innocuous items like “user guides”, reference manuals and such. Usually these contract terms reside on a password-protected website (and they are periodically revised as the vendor sees fit). Woe to the dealer who does not take the time to carefully scrutinize what are, in reality, the most crucial parts of the agreement, incorporating the terms and conditions that primarily favor the vendor. A quick read is not enoughYou have to make sure you completely understand the ramifications and historical application of each clause. Do you really have the terms you think you have?

Vendor reps are always on a deadline. A dealer should never yield to the pressure they create as soon as documents are delivered for signature. Dealers should insist on changes to these contracts if they find the terms to be unfavorable to their business. You will get only what you negotiate. This is a business to business relationship – the consumer protection laws don’t apply. Level the playing field by having all the documents reviewed by an expert who sees these contracts every day and knows not only what needs to be changed, but also what is missing. No one sees more DMS contracts than we do, so call us at Gillrie and we’ll help you get the terms you need.

Bad Idea #2: “I’m going to let my contract expire – I’ll just go month to month.”

Recent changes in vendor policies probably make this old tactic impossible but, even when you could do it, is this really a good idea? A close look will probably prove that it’s not.

When you read the last contract you signed, you may find that your contract automatically renews for a specific additional term. The new term may be one year or it may be equal to the full term of your previous contract. Because, in this scenario, you have not updated your hardware or software so any innovation or a “required update” leaves you in a vulnerable position. The vendor can then force your hand and decide when and how much more you will pay. Don’t think this can’t happen to you – it’s a real-world nightmare that many dealers have faced in recent years.

Even if your contract allows you fly without a new agreement, it’s still not always the best idea. Because of the flux in the current DMS market, there is another danger in going month to month. The temporary nature of the agreement cuts both ways. If you can cancel it in 30 days, so can your technology vendor. If your vendor ever decided to exercise that option, as some have recently, where would you go to get a working system up and running in 30 days? You couldn’t. Current lead times are four to six months and longer. You would be forced into a position where you have no choice and no leverage. You would just re-up with your existing vendor. You would almost certainly pay too much and get the wrong terms.

Call us at least a year before your current contract expires and we’ll help you explore all your options. It’s always a good idea to make decisions when you are not “under the gun”.

Bad Idea #3: “I don’t want to check to see if I got a good deal – I know it’s good.”

This is almost never the case. We constantly speak with dealers who are in the final stages of a negotiation, ready to sign a deal (or just signed one). We tell the dealer to send us his deal and let us analyze it–without obligation on their part. Some dealers choose to bury their heads in the sand. The old axiom, “Decide in haste, repent at leisure” comes to mind.

Because of the complexity of today’s systems, the confusion stemming from the innumerable offerings, the vendor’s intricate pricing structures and the convoluted, seemingly contradictory contract terms, a dealer, even the very best negotiator, is at an almost impossible disadvantage. Everything has changed since the last time he did this and the salesperson can spend all his time on the deal while the dealer has his business to run. The results are very predictable. We cannot recall ever having seen a completely correct deal that a dealer has negotiated without experienced, expert assistance.

Here are a few of the most common errors:

  1. The dealer misses important items that will have to be added later – by then the dealer will have no leverage and pay way too much for them.
  2. The dealer buys items that he or she doesn’t need, won’t use or which just don’t work. The dealer, nevertheless, pays for them for the next five to seven years.
  3. The dealer just pays too much. How can he or she get it right when you don’t know what the right price is?

Often additional costs emerge that were not apparent when the deal was signed.

  1. The dealer agrees to a contract that doesn’t include all the protections. Because the dealer neglects to insist on important addenda to the standard vendor contract, he or she gets some nasty surprises down the road. Clauses that look innocuous enough now may turn out to be dangerous later on.

Our advice: Get expert help. Call us – we guarantee our results.

Bad Idea #4: “I have to sign this deal now because my rep tells me I’m getting a special deal that is going to expire”

One simple rule: Never negotiate when you are under pressure.

Vendors always seem to have a reason why you have to act without hesitation. Recognize that these are their timetables, not yours, and the pressure is usually artificial. Good deals will likely still be around when you are ready to move. The other kind of exerted pressure is some sort of ominous deadline. Your contract is ending. Your computer will no longer be supported. There’s a price increase coming. If you have followed the first rule above and started early enough, these are doubtless there to create urgency that will force you to act precipitously.

Verify the bona fide situation by asking a professional who is knowledgeable about industry practices and history. Ascertain what other successful dealers have done in this circumstance and remain faithful to your plan and your schedule.

Bad Idea #5: “I can’t think about my computer system; business is very soft (or I’m too busy)”

We totally agree. Don’t spend money unless you can actually reduce your overall DMS costs or improve your store’s efficiency by taking advantage of the latest technology. In the real world, technology is always getting cheaper, why not use that leverage, enhanced by the increased competition in the industry to spend less and get more for your tech dollar?

Just like signing a new cellular phone plan can wind up being cheaper for better service, it sometimes pays to look at a new DMS plan as a way to reduce your technology expense. You may even find that they will throw in the new “phone” as an incentive to get or keep your business! Call us and tell us what you need – we’ll help you find it and get a great deal.

Bad idea #6: “I’ll just renew. I know my deal is OK. I just need to sign a new contract”

Do you really have the best deal or have price increases and market competition changed your “good deal” into a better deal for your vendor?

Are there other costs that don’t show up clearly on your DMS bill? What about the integration fees that your third-party vendors are now charging because they are paying tribute to your DMS provider?

Has your vendor made changes to their master contracts or modified their policies since you last signed with them? Even if you get the same contract terms as you previously had, are they still sufficient to protect you for the next five years or longer? Did you miss any of the “minor” revisions the vendor made?

Will there be surprises? Are you protected if your circumstances change during the contract term?

Does your hardware that has been running 24/7 for five years, have another five years of life left? As many dealers have learned, going forward with yesterday’s technology puts your DMS vendor in charge. If you are later told you must “upgrade” your equipment mid-contract, you will almost certainly pay much more than it is worth – you have no leverage! This applies to printers, scanners and other peripherals also.

For those of you who still have an onsite server that you bought years ago, will it need to be replaced soon? At the time of renewal, you should consider a new server (or more likely, a move to the “cloud” now. Your leverage vaporizes the minute you sign that new contract.

Bear in mind that a new server that probably costs no more than $5,000.00 in the real world market. (Newer servers also can be ten times as fast, less vulnerable to data breaches and more reliable). It will always cost much more from your vendor, and that is to be expected, but how much more? What other costs are associated with the hardware?  If your vendor wants to extend your contract, how can you make sure you have enough computers to last the contract term? Even if you buy what your vendor offers, will you then have the latest technology with enough excess capacity and power to serve you for the foreseeable future? Or will you simply have paid too much for an outdated piece of equipment destined to last only until the next “required upgrade”?

Bad Idea #7: “I’m not going to think about computer systems until I get into my new building.”

Realignments are constantly taking place among dealers and manufacturers’ requirement just add to the turmoil and revisions are the new norm.  Recently, many dealers are moving to different facilities for one reason or another. Common sense tells us to avoid stacking stressful situations in our personal lives into one short period of time. It’s no different for a dealer and his staff. Moving into a new facility, even one across the street, can be a daunting enterprise. Installing a new computer system, including one from a familiar vendor, at the same time can create chaos. Our advice is to have the system you will use in the new facility up and running in the existing store so that your team can be doing business as soon as the system is plugged into the new network. The tough issues of installation, data migration and training will then be far behind you as you make the physical move.

The new facility will, of course, require wiring. This is done more economically and efficiently in an empty space during the construction phase. Because the new system is already up and operating in your old facility, forecasting specific new network needs is also vastly simplified. You will save money because duplication of existing, fully serviceable peripheral equipment (printers, switches, routers etc.) will also be easier to identify and avoid. Also remember that it is much cheaper to build in some wiring overcapacity at this stage than to add capacity later after the walls are finished.

Lastly, the most critical phase of any DMS system upgrade is the data migration. Simply put, you have to move all the information about your business and all your records and history to the new system.

The old method where vendors migrated information by having both computers sitting next to each other while running in parallel is no longer viable in an era where data likely resides in the cloud.  Dealers can’t assume that because the “old’ computer is up and running without issue, the migration can easily be accomplished without disruption of ongoing business.

Call us if you have any questions and we’ll always try to help.

Bad Idea #8: “I have a pending buy/sell. I’ll think about technology contracts only after the dust settles.”

There is probably no more critical time to address ongoing DMS issues than as stores transition from one owner to another. The time preceding a buy/sell is full of unique opportunities and dangerous pitfalls. Do I completely understand which outstanding obligations I may be assuming? Is there an existing unfavorable vendor contract? Can I use this event to eliminate a deficient system or a bad contract? Do I want to keep all my stores separate or consolidate them on one system? Which system will best serve my needs? Will my employees in either store need additional training? Can I renegotiate terms with my existing DMS vendor or with the vendor I am inheriting with the new store? What if the same vendor is in both stores? Can I eliminate excess capacity and reduce costs?

These are just a few of the myriad important questions. Now is the time, when you may have all the leverage you need, to reduce your exposure and, at the same time strike the best deal. Certainly, in a buy sell, you may have to reach some compromise with the other dealer if it’s a deal you really want to make. On the other hand, you may choose to walk away rather than getting mired in contractual swamp. The important thing is that you know exactly where you stand and go forward with your eyes wide open. We’ve been party to some surprisingly innovative solutions that have saved deals that looked doomed to failure. Call us if you need help with the technology or the associated contract issues. We’ve seen hundreds of these situations and we have the answers you need.

Bad Idea #9: “ABC is coming out with a new system. I’m going to wait”

Before a new DMS vendor can successfully enter a market, they have to:

  1. Have a comprehensive product
  2. Have successful test stores
  3. Have approved, verifiable Factory Communications (DCS)
  4. Have a sales and service network in place

Our advice: 

“Vaporware” or hyped technology that has been promised but may never be ready to be released to the real world, is a common occurrence in the dealer tech space. You may miss the opportunity to make the right choice while you wait for a new tech solution that never materializes.

Never buy the latest, unproven technology from any source. The “first adopters” tend to be little more than guinea pigs who come to rue the day they moved too quickly. The DMS industry is rife with sad examples of this principle at work. Wait until there are a few hundred dealers using a system and then talk to the managers who use the technology every day in these stores. That’s how you will find out what you really need to know before you trust the future of your entire business to a new vendor. In the interim, make the best possible deal with a proven provider and watch what happens. You can always make a move later on.

Because we are involved in so many of the DMS deals made across the country, we are generally “in the know”. You can always call us to talk about any ideas you have. We work only for dealers and you can rely on our independent, unbiased advice.

Bad Idea #10: “My office always checks the technology bill before we pay it – I know it’s right”

We recently helped a dealer whose monthly maintenance bill jumped about $3,000.00 for over seven months. No one in his organization noticed until he questioned it and asked us to figure out what happened. We found that there was no contractual basis for the extra charges and he received a credit of over $22,000.00.

Your office staff is likely very diligent and well intentioned, but in many cases, we see billing errors and charges appear that are not in accordance with the signed agreement a dealer has with his vendor. Errors are rarely made in the dealer’s favor and that fact has given some dealers the impression that their vendor is just trying to slip these charges past them. When these charges are identified and brought to the vendor’s attention they are usually resolved and the dealer is reimbursed or credited. Because dealers’ DMS bills can byzantine, nearly impossible to understand and their staffs are busy, it is common for excess charges to go unquestioned.

The monthly billing, further, has to be evaluated in the context of the governing contract. This is a document a dealer’s payables clerk has usually never seen. An example of this type of item might be the periodic price increase a vendor assesses. Is it something you should pay? Does your contract call for no increases? Limited increases? Less frequent assessments? Are you confident your office will pick up such an error? It is extremely unlikely that a vendor will make a mistake that results in a benefit to the dealer. Strangely, these “errors” tend only to be in the vendors’ favor.

Because the Gillrie staff works with DMS bills and contracts every day, they are experts at identifying problems and serving our clients. Our clients send us their bills periodically and we check them against the deals they signed (and common industry practices) to ensure they do not overpay. We help them identify errors and get credits. Call us if you would like some help.

Bad idea #11: “I don’t have to worry – my vendor has fixed pricing”

Has this really worked out for most dealers? In most cases, it’s not even true. Even with so-called “fixed price” systems there are lots of ways to save money and get more for the money you spend. Your vendor may have fixed pricing for one product but have another very similar product that is discounted heavily. Many dealers feel that some very recent developments cast serious doubt on the staying power of contracts that are pre-negotiated by third parties.

Remember the Gillrie doctrine: “The price you pay is solely dependent on the negotiating strategy you employ”. Call us – we’ll always save you money, time and aggravation!

Bad Idea #12: “I’ve known my rep for years – I trust them to give me a good deal”

Your rep is probably a good guy or gal but, especially now with the current changes in industry alignment, your rep is subject to tremendous new pressures. Just to keep their jobs and maintain their current level of income, some reps are following some very stringent new rules that are definitely not in the dealer’s best interest. As reps are now frequently required to sell (or not sell) certain items, their assumed consultative value and discretion in configuring your system is no longer a given.

Even if your rep is telling you what he or she believes is the truth, you may find that they are operating without all the facts. Your local rep is responsible for relatively few deals and only in your area, so he/she may not even realize that other dealers are getting much better prices and better terms in other parts of the country. The rep may be totally truthful when he/she tells you that yours is the best deal seen. It is likely very far from the best deal you could get. In the best case, you are relying on a salesperson to act against self-interest and reduce the commission to give you a “deal”. Think you can really rely on that to be the case?

Our advice: Trust, but verify.

Because we are involved in hundreds of deals across the country, we know exactly what a good deal looks like. Our experience is your assurance that you are getting the right configuration, the right price and the right terms and conditions on your DMS. Before you start any negotiations and certainly before you sign a deal, be sure to let us take a look at it. There’s never a charge unless we can save you much more than we charge and the evaluation is free and without obligation.

At the Gillrie Institute, we’re always available to answer your questions and help you make the best decision for your individual situation.

2017-12-06T23:03:40+00:00