DMS Contracts Check Your Excess Computer Baggage! Questions To Ask Before Renewing DMS Contracts.
DMS Contract renewal starts with all the baggage you have collected since your last renewal. It’s very likely that your business has changed appreciably since you last contracted for DMS. If you take some time now to assess your current technology situation, you can make the right decisions for the future. As your current commitments wind down, you should ask yourself the following questions before you assume any new obligations.
- Beginning in 2005, the emergence of the second tier vendors was finally acknowledged by the giants that dominated the DMS world for decades. As the new players began to erode this de facto oligopoly; there was significant downward pressure on computer prices. Do your current discounts and concessions reflect these global reductions? Dealers sometimes compare their technology costs to other dealers they know. This method is seldom effective. Do you know in detail what actual solutions these other dealers are using? How do you know what kind of deal they were able to negotiate? This is one area where some professional help is in order. Send us your bill and we’ll do a free, no obligation analysis to tell you where you stand.
- If you choose a second tier vendor, will you be able to efficiently operate your business?There is a lot of misinformation out there and it’s hard to know what to believe. One of the major considerations, although certainly not the only one, is the integration each system provides with the manufacturers you represent. Don’t accept verbal assurances – contact your manufacturer for verification. Many DMS providers cannot provide integration with DCS and some bend the truth when they claim to be “approved”. Some say they are right on the cusp of approval. A vendor may say they have integration and then offer it only through a patchwork of third parties. Why is this so important?
- Additional factors that must be evaluated with a smaller vendor are fixed operations offerings (especially if you have a large wholesale parts operation), front end (CRM and BDC) solutions, third party integration and data management and archiving.If you need help choosing a vendor, no one has more experience than we do in all phases of DMS acquisition and evaluation. Call us with your questions – we can help!It is almost impossible to communicate with the factory without a DMS interface and it will affect your cash flow. In these cases, you will find that your staff will need to “double-input” to accomplish even simple tasks. When tasks that are routinely automated become more labor-intensive, you increase your costs and the chance of errors. You should also consider the deleterious effect on your cash flow of any delays or errors in DCS inputs. Rebates and warranty claims are just two of the receivables that could be delayed. Between holdback, rebates, floor plan incentives, warranty claims, new car prep costs and paid commissions; it is not unusual for adealer to experience initial negative cash flow when a new vehicle is sold. Full DCS integration helps to alleviate this problem.
- Did I build extra capacity into my computer system that I never actually used? As recently as a year ago, dealers were routinely adding extra capacity as they configured a new DMS. Dealers were acquiring new points and adding franchises as their core business continued to grow. To put it gently, things have changed for many dealers and there are opportunities for savings if they can eliminate excess resources. If you have closed or sold a point, seen a reduction in sales, staff and fixed operations, you should explore your options and slash some costs. At Gillrie, we know where to get the most savings and how deep to cut. Scalability is the new watchword. Call us – you’ll be glad you did!
- How much lower will my bill be if I choose to renew with my current vendor?No dealer should be expecting an increase. The only question is, “How much less?” In almost every case, your cost for the same services should be less, even with your current vendor. Any additional cuts in services should result in an additional reduction. Vendors are fighting hard to maintain their revenue streams and will employ a plethora of tactics to hang on to your monthly check. You need to fight back harder and smarter than ever before. The Gillrie Institute is involved in almost 40% of all DMS deals currently being negotiated. We know what you should buy, what you should pay and what terms you must insist on receiving. We also know how to get vendors to give in and give you the best deal.
- Do I have a copy of all the relevant computer contracts? Nearly every vendor has made crucial changes to their contract provisions recently. They are trying to find ways to hang on to customers they have in a period of fierce competition. If you don’t read, understand and seek modifications to these more perilous contracts, you will find yourself in an uncomfortable, possibly untenable position down the road. Check your current contracts now for possible problems (e,g. automatic renewals, non-cancelable maintenance etc.). Be sure your rights are not abridged. Five years ago, desirable contract addenda were mostly centered on extra price protections and future costs. Current conditions require you to push for much more fundamental changes. Be assured that these changes are massive and you proceed with peril if you choose to ignore this advice. You should call The Gillrie Institute before you sign any DMS contract or accept any proposal – from ANY vendor.
- Does my computer have the capacity and power to serve my needs until the end of my current contract? Be careful if your vendor rep says you don’t need a new computer. He may tell you that he just wants to “renew your contract” at the same price you are paying. In normal times, this sounds like a perfectly reasonable offer. But by now you know that the price is too high and the terms are, indeed, not the same. Still, some dealers will think this is an attractive alternative. It is not. Buy into this suggestion and you could expose yourself to the “mandatoryupgrade”. Remember that the actual computer (server) is the least expensive part of the DMS equation. A state-of- the-art server for a large dealership (or group) now probably costs no more than $6,000.00 in the real world. But, if you buy it from a vendor in the middle of a contract, it can cost up to $300,000! Anytime you sign a new service agreement with your vendor, you should insist that it include the latest hardware technology. This prevents the vendor from suddenly discovering a “computer insufficiency” halfway through your contract and compelling you to exercise one of these painful options:
- Upgrade it at a huge premium (You have no leverage at this point and there are no real market forces in place to hold down the cost)or
- Sign another contract extension to get the enormously inflated cost of the hardware reduced to just seriously excessive.
By keeping the old hardware, you didn’t save much money but you gave up your strong negotiating position without getting anything in return. The only winner was the DMS vendor.
Ultimately, dealers have never had as many choices or as much leverage as they have today. Don’t squander this potent advantage. Heed these suggestions, get some help and finally take control of your DMS costs.
