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5 Costly DMS Trends

Costly DMS Trend 1 – The DMS Re-Licensing Fee

DMS vendors have always been creative with finding new methods to squeeze a few dollars more out of their dealers. They have introduced customized hardware, mandatory laser printers, obligatory network equipment, site licenses on top of user licenses, annual price increases, and myriad other costs. The newest contrivance: the RE-LICENSING FEE.

If an automobile or truck dealer wants to renew an existing DMS contract and stay on the same management business suite, the DMS vendor will either attempt to charge the dealer a second time for upfront fees on the core software licenses or they will exact a a premium on the monthly support charges. The DMS provider’s primary object is clear: by increasing the dealer’s potential cost of staying on their existing system, it makes switching to the “new” system look more cost-effective. The DMS vendor might argue that the re-licensing fee is a valid toll for moving the dealer to a new system “release”. But how much do dealers really gain when they move from DMS 1.6 to 2.0? Please have in mind that enhancements to the existing system are free (moving from 1.6 to 1.7), but new “releases” require additional investment (moving from 1.6 to 2.0). What is the difference? Dealers should ask -and then resist paying more to stay on the same version. Shouldn’t they receive a loyalty discount rather than being exploited new fees?

What dealers should do about the re-licensing fee?

Overall a re-licensing fee is not just a questionable way for a DMS vendor to make more money, but it also changes the entire DMS selection process for a dealer. Without re-licensing fees, there was a clear cost benefit for staying on the existing DMS. But by introducing the re-licensing fee, DMS vendors actually eliminate the incumbent advantage and therefore they reduce the financial hurdle of switching vendors. Dealers should always shop for DMS systems and utilize competitive bids.

Costly DMS Trend 2 – The Disguised DMS Promotion

Promotions are becoming a popular way for DMS vendors to temporarily offer “special” conditions and terms. They allegedly provide dealers with “extraordinary” incentives to commit to (usually) long-term contracts. But is there really anything for free? Here are the two problems:

At first a promotion is nothing but a DMS vendor’s way to inhibit an apples-to-apples comparison between different systems. When a DMS vendor tells a dealer it is giving something away,  rest assured that the dealer will be paying for it (probably several times over) down the road. For example, if a DMS provider reduces or eliminates an upfront cost or provides special financing, it’s likely that the monthly support costs will be higher than usual to compensate for the artificial largesse. That means that often there is no real financial benefit for dealers to participate in a DMS promo. Most dealers will actually pay more over time under these programs.

Secondly DMS vendors use promotions to gain short-term revenue and rush dealers into a bad decision. One can imagine that a vendor’s marketing plan and promo end-date rarely match the timeline a dealer uses to prepare a sound decision about the best DMS solution for its dealership operations. We have seen it many times before – vendors tell dealers that the promotion ends very soon and they have to make a quick decision. But remember the old adage: “Decisions made in haste are usually lamented at leisure”.

What dealers should do about DMS promotions?

We always urge our dealers to understand a DMS system’s total costs of ownership. Do not just look at “discounted” upfront and monthly support fees, but ask about electronic tape updates, price increase rates, financing conditions, and variable charges e.g. for lasers, credit bureaus, and forms programming. Dealers should never let DMS vendors pressure them into a bad decision. If the vendor is serious about a dealer’s business, then the offer will likely be just as good or better after a promotion ends.

Costly DMS Trend 3 – The Myth of A Cheap Second Tier DMS System

When considering the switch to a second or even third Tier DMS vendor, dealers often fail to account for the cost of “filling the gaps” with the appropriate third party vendors. They only see a much lower monthly DMS support fee and don’t realize that the smaller DMS vendor did not include network equipment, phones, data and voice circuits, scanning solutions, CRM and front end applications, and other services. The real question that needs to be answered in these situations is: “What will be my total cost of technology after I make the switch?”

Dealers have switched to smaller DMS vendors, hoping to reap massive savings, only to find that they have to supplement the DMS functionality with third parties. That converts the “perceived” cost savings into actual higher overall technology costs, often with less efficiency. Indirect costs to consider may include: managing more integration points by operating more data extraction interfaces, administering myriad contracts with different terms, more training expense, a diminution of efficiency because of the workflow distractions caused by dissimilar user interfaces and screens, and others.

What dealers should do when considering 2nd tier DMS vendors?

It is critical to understand the aggregated costs of all technology when making an educated decision about the dealer’s next DMS system. For the purpose of an effective comparison between DMS vendors, either remove the services from the quote that only the 1st tier vendor can provide, or get proposals from all third parties that need to be engaged for adding more functionality to the 2nd tier DMS vendor’s system. In addition to the DMS fees, dealers need to make sure they fully comprehend the 2nd tier vendor’s limitations regarding the DCS interfaces, ongoing system support, contract language and fairness, the company’s financial stability and R&D investments, and of course functionality and work flow.

Costly DMS Trend 4 – Underdeveloped DMS-Third Party Interfaces

Having third party alternatives in the business office, front end, fixed op’s and dealership-wide applications may not just beneficial for expanding the functionality of the dealership retail management system, but also for gaining leverage on pricing negotiations with the DMS vendors if they are offering equivalent services. However when it comes down to actually using the third party services in conjunction with the DMS many vendors will struggle with operating advanced interfaces for seamless data integration and transfer. There are DMS vendors that just don’t allow certain technology vendors to access the DMS, or they repeatedly shut down the access to report generator and query builders, or provide batches over night without encryption and no data pushback to the DMS. We have dealer groups that dedicate a full-time employee to manage third party access and interfaces. Does that sound like an efficient strategy?

Even if a dealer works with so called “certified” or “approved” third party vendors, dealer will invariably pay more for these services than dealers using a different DMS. Some DMS vendors charge each third party an exorbitant monthly fee to interface with their systems. The third party has no choice but to pass these costs on to the final “consumer” – the dealer. So overall third party interface management has a big impact on dealership operations and the indirect and direct costs of technology.

What dealers should do about third party interfaces?

First of all dealers should prefer DMS vendors with established interface programs, and third parties that have developed bi-directional, real-time and secure data transfer interfaces with the dealer’s current DMS vendor. Asking third parties about the method they apply to retrieve data from the DMS and what data elements they actually pull will create more transparency. Always negotiate a separate addenda point in the DMS and third party contract that the data belongs to the dealer. Additionally technology vendors should show dealers how they safeguard sensitive dealer and customer data as NPI – Nonpublic-Personal-Information (e.g. SSN for buyer and co-buyer).

Costly DMS Trend 5 – Additional Training and Support Fees For Utilization

Many dealers underestimate the value of good training. The return on investment depends on instructing dealership personnel on how to utilize the system to its full capacity. Either dealers don’t get enough training days or they get the wrong training (in-dealership or online classes). In any case dealers should always expect to receive knowledgeable and experienced instructors.

But are the best DMS coaches the norm out there? DMS vendors started separating not just between INITIAL training from DMS trainers and ONGOING utilization “support” from Relationship Managers and Software Support Staff (which is often free), but they also differentiate between in-house coaches and “consultants” from their independent consulting branches, which come with a much higher price tag of course. Don’t misunderstand. The feedback we receive from our dealers about the consultants is generally quite positive. The problem is that it almost looks like DMS vendors have an incentive to send mediocre instructors first to mess up the training, to then have an up-sell opportunity and send in the expensive consultants. Not a very good plan for a dealer that needs help in utilizing the very expensive system he has acquired!

That brings up a general misconception: training is NOT free. It is NOT included in the DMS contract if not explicitly listed with detailed pricing. Costs for training are related to the labor provided and to the travel/lodging expenses. Even if dealers negotiate rates, the travel and lodging portion is often just an estimate which can easily grow exponentially as it depends on the distance traveled and the expense of local lodging.

We see more and more dealers having problems with providing quick and efficient system support. Dealers get caught in waiting queues, they can’t get the right people on the phone, support tickets remain unresolved for weeks or miraculously disappear. One of the bigger DMS vendors out there found an interesting solution. It introduced “Elite” support and charges an additional monthly fee! Shouldn’t good support be the expectation, not the exception?

What dealers should do about the DMS training and installation?

Ask the right questions: is training included in the quote? Is this an estimate or fixed? Is this an upfront or monthly charge? Does that cover labor, and travel and lodging? What training will the dealer receive (in-dealership or web online classes). How many days? Get detailed training schedules including the number of trainers, and training days, as well as the topics they will talk about (CRM, desking, Service,…). Always negotiate the training costs and get resumes and bios before hand and look at the level of experience. When dealers have coaches onsite they should always run a training journal or log. Have trainers sign off time sheets, and keep track about when they come in on Monday and when they leave on Friday.