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The Future of Dealer Technology: CEO Perspective, Part 2

Earlier this month, I published Part 1 of my article that contemplates the future of dealer technology and the pivotal role that the DMS – dealership management system – will play in it. In this article, I made the case that the DMS platform of the future will move well beyond its traditional role as the system of record and become the dealership’s system of fulfillment, insight, and engagement.

In these new roles, the DMS will serve as the hub of a dealership’s technology ecosystem. It will connect all ecosystem members – dealers, end consumers, OEMs, various point solutions in the dealer tech stack, and connected cars – and unite data from all of these players to enable highly-personalized content and timely insights that optimize the consumer’s purchase and ownership journey, minimize friction along this journey, and create stickiness with the dealership.

Now, in Part 2 of my article, I want to offer some practical guidance and focus on this question: how can forward-looking dealers lay a foundation to meet this future vision as they’re making DMS decisions today?

Three Considerations to Help Future-Proof Your DMS

As you assess an existing or potential new DMS through the lens of the solution’s future role as a system of fulfillment, insight, and engagement, there are three important areas that I encourage you to consider. These include a DMS provider’s ability to deliver:

A flexible integration platform that’s free of economic rent

Look for a DMS with an integration platform that’s designed to enable a best-in-class technology strategy, not one that favors the DMS provider’s own products – after all, customer experience matters and you’ll want the freedom to use your preferred solutions and the agility to evolve your tech stack over time.

Consider technical capabilities, such as real-time API services that enable the DMS to effectively serve as the dealership’s data hub, and whether the DMS provider offers features and tools to help manage consumer privacy concerns as their data flows across your technology ecosystem. Also assess partner relationships – does the DMS offer robust OEM integrations? Does the company have a strong history of working with up-and-coming dealer tech providers and enabling DMS integration with innovative new technologies?

Of critical importance, understand whether the DMS uses third-party integrations as a profit center. Are fees charged to the dealer when your own data is being exchanged between the DMS and your other point solution vendors? Will your vendors also be charged on an ongoing basis to exchange data with your DMS? As noted in Part 1 of my article, this kind of “economic rent” is not only unhealthy for your pocketbook, but it can limit your options in your tech stack and it discourages technology innovation in our space.

Scalable customer experience tools built into the core DMS

Assess how well the DMS supports a seamless, closed-loop customer journey and at what price tag (i.e., how many separate solutions must also be licensed to achieve the customer experience you seek to deliver?) You’ll want to understand the range of customer-facing features (if any) that are included within the core DMS system and its price. Look for customer experience tools that leverage online, mobile, and social platforms to enable your dealership to create a frictionless experience and better engage with its customers – digital MPIs with video/photo upsell features, support for e-signatures and mobile payments, and the ability to capture verified customer reviews and share them via web and social channels are just a few examples.

By employing tools that are embedded within the DMS itself, rather than licensing them individually, you’re able to avoid the potential landmines of a fragmented customer experience when separate tools don’t play well together, and you can eliminate the cost of licensing some of these tools separately. In addition, if you’re just getting started on enhancing the experience at your store, having tools available within the DMS that can be easily introduced when you’re ready allows you to scale up your customer experience efforts at a pace that makes sense for your dealership.

A strong commitment to information security

As valuable and important as data is when it comes to continuously improving your ability to engage with customers in a personalized and seamless way, there is also a clear obligation for our industry to protect customers’ personal information. Driven by federal regulations, such as the GLB Safeguards Rule and the FTC Privacy Rule, it is incumbent upon dealers to develop, implement, and maintain a comprehensive written information security program to protect customer information, as well as to take steps to ensure that their service provider partners have also implemented appropriate safeguards.

To this end, evaluating a DMS provider should always include a thorough assessment of the vendor’s information security program and ability to protect customer data. Consider the following areas, at minimum, in this aspect of your vendor review:

Written information security policy
Standards and access controls in place to protect physical and logical integrity of IT resources and appropriately secure IT systems, network resources, and applications
Monitoring tools in place to identify data security events, verify effectiveness of protective measures
Personal information protected both in transit and at rest
Periodic risk assessments by independent 3rd-party (e.g., network vulnerability and penetration testing)
Information security training for employees
Incident response program
In-house cyber security expertise
Reputable hosting services partner

An Eye Toward Future Profitability and Success

Looking towards the future, the DMS will play an even more strategic and pivotal role as the epicenter of your dealership’s technology ecosystem. Identifying a DMS partner now that can successfully evolve to fulfill the role of system of fulfillment, insight, and engagement will be critical to deriving increasing value from data, optimizing your customers’ experience, and ultimately maximizing your dealership’s profitability and success. This is the future that our DealerBuilt team is passionately and determinately striving towards, side by side with our dealer clients and our partners.

Learn more about DealerBuilt’s ceDMS (customer experience DMS) platform and our commitment to information security by scheduling a custom product demonstration.

The Future of Dealer Technology: CEO Perspective, Part 1

While the DMS – dealer management system – has been a common component of car dealership technology for many years, its current role within the dealer tech ecosystem is evolving, making it one of the top strategic technology investments that today’s dealers are making – whether they realize this or not. Let’s consider several key trends impacting the retail automotive industry that reflect the importance of effectively harnessing the power of data and optimizing the customer experience. Then we’ll take a look at the DMS, and I’ll share how DealerBuilt envisions the evolution of the DMS’s traditional role within the dealer tech ecosystem. As a leader responsible for driving and shaping the future of dealer tech, my hope is that this article gets you thinking about where the industry is heading, and its potential to become a healthier ecosystem for the benefit of all of its members – end consumers, dealers, dealer tech providers, and OEMs.

Rapid Proliferation of Data

The IDC predicts that the total amount of digital data created worldwide will grow to 163 zettabytes by 2025, accelerating rapidly with the growing number of devices and sensors employed across all facets of life (Forbes). In the retail automotive space alone, vast amounts of data are generated by the DMS, CRM, and other complementary point solutions (i.e., applications that “plug in” to the DMS) used by specific departments at dealerships, website and mobile interactions by customers, OEMs, and connected cars, which are expected to make up 73% of passenger vehicles sold by 2022 (IHS).

All of this data has the power to create new efficiencies, lower costs, inform product decisions, enable tailored product and service offerings, and remove friction from customer interactions. In the dealership world this means better employing data to deliver a personalized, customer-centric, and timely vehicle purchase and ownership experience. It also offers the potential to better align your people resources (e.g., lead follow-up, intelligent dispatching) and drive operational efficiencies (e.g., inventory management, protection of vehicle assets, faster vehicle diagnostics).

The Imperative of a Closed-Loop Customer Journey

80% of customers say the experience a company provides is as important as its products and services and 64% of customers say providing an excellent customer experience strengthens their loyalty (Salesforce State of the Connected Customer Report). Given margin compression in the retail automotive space, creating a customer experience that drives a closed-loop customer journey – meaning those who purchase vehicles at your dealership become service customers who will eventually purchase their next vehicle from you – has never been more important. Dealers must strive to capture more of the higher margin fixed ops business from vehicle purchasers, and then use the ownership experience to continue cultivating loyalty and trust that results in a future vehicle sale – one that comes without the added cost of acquiring a new customer.

According to a Cox Automotive survey, the top reasons customers returned to the dealer of purchase for service are trust and a good purchase experience. On the flip side, 74% of car buyers who had their vehicle serviced by the dealership of purchase said they were likely to return there to purchase their next vehicle, while only 35% of those who did not have their vehicle serviced at the dealer said the same. To drive profitability, dealers must offer a seamless, frictionless, digitized experience throughout the entire vehicle purchase and ownership life cycle that creates stickiness and connects customers to your dealership.

Removal of Barriers to Innovation and Data Access

The final trend of note relates to data access and the hefty fees that some DMS providers have been charging for years, simply to allow dealers to push or pull their own data to/from their DMS system into other point solutions used by the dealership. As was noted by the author of NADA’s The Dealership of Tomorrow 2.0 report, this approach has amounted to “economic rent” that has “raised costs for vendors, their dealer customers and ultimately consumers, while depressing innovation in the third-party software space.”

That said, this approach to using third-party integrations as a profit center for the DMS has been rejected by more forward-looking DMS providers, which champion that dealers should have their choice of the best and most innovative technologies available when building out their dealership’s technology ecosystem. This viewpoint is certainly core to our mission at DealerBuilt and how we partner with our clients, and we count ourselves among the DMS providers working to remove barriers to innovation and data access in our industry. It’s also notable that more and more dealers are moving to alternative DMS providers, like DealerBuilt, in an effort to mitigate the cost burden of third-party integration fees, while also enjoying more technology choice when it comes to improving the customer experience and cultivating a closed-loop customer journey.

With all this in mind, let’s shift gears and discuss how these trends will influence the future dealer tech ecosystem and how the traditional role of the DMS will need to evolve.

The Hub of the Ecosystem

You may have noted that all of the trends mentioned above drive towards the need for technology that enables fluid, timely sharing of data to shape the customer experience. As the central nervous system of a dealership’s technology ecosystem, the DMS platform of the future must serve as its hub, connecting all members of the ecosystem – dealers, end consumers, OEMs, the wide variety of point solutions that make up a typical dealer tech stack, and even connected cars.

In its role as keeper of the customer “master view” within this ecosystem, the DMS is best positioned to make sense of the relationships between the vast amounts of data related to each customer and freely enable its use to cultivate the desired closed-loop customer journey of vehicle purchases and ownership.

The DMS as the keeper of the customer master view.

Graduating Beyond the System of Record

In its role as the data hub, the DMS of the future is not just the traditional system of record that collects and calculates data, but also a system of:

Fulfillment – The DMS will empower dealers, dealer point solutions, OEMs, and connected cars to serve up content that unites critical data points from multiple ecosystem members, allowing the presentation of unique content at the right time in ways that personalize and optimize the consumer’s purchase and ownership journey and create more stickiness. For example, bringing together data from various systems to enable the dealership to display the details and pricing of a customized service package to the customer within their connected car, based on the vehicle’s service history and telematics.
Insight – The DMS will connect all members of the ecosystem to data and insights that inform decision making on the part of consumers, dealers, OEMs, and dealer point solution providers. For example, during a customer’s tablet-based write-up in the service lane, providing the advisor with insights into the customer’s equity position, their vehicle’s trade-in value, as well as recent service history and spend, arming them with information to discuss whether it’s time for the customer to consider an upgrade to a different vehicle. For ecosystem members like OEMs, these insights will help them to continuously improve the product itself and better support the end consumer’s vehicle purchase and ownership experience.
Engagement – The DMS will enable consumers to interact with the dealership on their terms, in ways that minimize friction and enable seamless transitions between the digital and dealership experience. For example, its core features will include mobile tools that allow a client to schedule a service appointment, check in upon arrival at the dealership, text about the status of the vehicle, and pay via smartphone.

Setting a Course for Success

So what does this future view of the DMS mean for you as a dealer today? As you consider technology investments now that will set your dealership on a course for long-term success, it’s critical to assess an existing or potential new DMS through the lens of its future role as a system of fulfillment, insight, and engagement. Even if you’re not currently in a DMS evaluation cycle, there’s a high likelihood this will be on your agenda in the not-too-distant future. Be on the lookout for Part 2 of my “Future of Dealer Technology” article later this month. In it, I’ll share three important areas that dealers should consider as you evaluate a DMS provider’s ability to successfully serve as your dealership’s DMS platform of the future.

Learn more about DealerBuilt’s ceDMS (customer experience DMS) platform or schedule a custom product demonstration.

The Future of Dealer Technology: COVID-19 and Beyond

Dealerships are resilient businesses. They showed positive return-on-equity even at the height of the Financial Crisis.* Now, amid COVID-19, dealers again are tasked to respond quickly to optimize cash flow.

Many choose to consolidate dealership technology solutions in the Dealership Management System (DMS) to keep the business operational. Long-term implications, however, caused by potential attitudinal changes in consumer behavior from the coronavirus, are hard to predict. Among other external factors, they will determine the evolution of the dealership business model and its stack of DealerTech applications. The famous ACES – Autonomous driving, Connected vehicles, Electrification of the powertrain, and Shared Mobility – initiated the creation of a new mobility economy that is about to unfold. Although unsure about the exact road map, we will see a new competition approach emerge in which dealers, Original Equipment Manufacturers (OEMs), Dealer Service Providers (DSP), and others will partner and compete for the end-consumer relationship at the same time.

Fragmented Dealership Technology Market

The futures of the dealership business model and dealership technology are intertwined. One cannot live without the other. Dealership technology only exists to serve the exceptional retail needs of its primary target group: car/truck dealers. On the other side, operators of dealerships recognize the need for DealerTech as an enabler to evolve the business model.

With over 700 dealership technology vendors in 40+ categories, the market for dealer software applications is crowded with a long tail of smaller applications sitting on top of only a few DealerTech platforms – mainly DMS.* With an abundance of choices and intense competition among DSP in categories of a high rate of adoption, come great opportunities for dealers. Switching costs have never been lower considering the pressure on DealerTech pricing, and the stronger focus on transition and success management related to converting from one system to another.

COVID-19 Dealership Technology Adjustments

Changing DMS may not be the only path in uncertain times to optimize cash management. Dealers are also reviewing their current DealerTech stack to cut fat and offload underutilized applications where possible. With a sharper focus on analytics, dealers are not only trying to optimize cash by collecting on Contracts-In-Transit or Warranty Reimbursements, but also identifying the right opportunities in variable and fixed-ops like off-leases, commercial (fleet) buyers, or recalls. Digital Retail applications can offer a lifeline in states where online sales are possible, and pickup and delivery, as well as mobile service systems, provide an outlet to keep service and parts running.

Furthermore, remote work and home offices require a reset or reconfiguration on some of the elements in the DealerTech stack. For example, either by offering remote access or customizing the setups if shared services like centralized accounting and payroll in dealers groups are implemented.

Short-Term Concerns Fuel Dealership Technology CX Needs

Despite a substantial hit in vehicle sales during COVID-19, the general hope among dealers and DealerTech solution providers is to see the relevance of personal transportation and car ownership increase. After all, our homes and cars are the only private places to feel safe. A dealer poll in 2020 suggests that “Re-inventing the dealership business model for long-term success” is the biggest concern at the moment for 8 out of 13 dealers.* Embracing change and customer experience management may not only be necessary for the sake of the dealership survival, but also for creating a competitive advantage for the coming years.

Research from McKinsey & Company indicates that leaders in Customer Experience (CX) management had a three times higher total return to shareholders than laggards during and after the financial crisis in and around 2008. Shifting dealership value propositions to a more robust customer-centric mobility approach may offer the right path forward to defend the relevance of the dealership business model and to escape margin compression. Consequently, the significance of dealership technology applications that orchestrate the customer journey and have a strong focus on capturing and nurturing customer engagement opportunities may see uplift in dealer demand. Value propositions for dealers will circle more around digital assets and experience management versus the traditional analog approach to inventory-centric process management.

The Rise of the Engagement Platforms

However the new vehicle retail norm will unfold in the different local markets in North America, one has to conclude that Mobility as a Service gravitates around the consumer, and not around the vehicle. Regardless if this is Digital Retailing applications or the existing DealerTech stack to manage the in-store customer experience. Dealers are required to do both, look beyond the traditional sales funnel to map the omnichannel end-to-end customer journey, and to connect the different DealerTech applications to convert consumers traveling in the customer experience loop.

Our dealer poll indicates that Customer Engagement and Digital Retailing systems will become the most critical DealerTech applications in 5 years. As our automotive retail industry is not known for its best practices in data sharing and collaboration, one may conclude that dealers will drift more towards customer engagement platforms. Those tend to offer native data flows among all available modules. Alternatively, following a best-of-breed approach may lack the necessary data integrations with other crucial pieces in the road to sale or service.

Poll answers to which dealership technology system will have the highest impact on success

Dealership Technology Evaluation and Selection

In other words, the feature breadth and depth of DealerTech platforms may remain one of the most important dealer decision-making points when selecting one dealership technology vendor over the other. As many of us were hoping that the openness of data integrations and associated costs would regulate the DealerTech market, we have to conclude that change among dealers comes slowly. COVID-19 may not only change the way dealers serve their consumers but also accelerate the transition to DealerTech platforms. By reducing the existing DealerTech stack from 10-15 to a more manageable count, dealers would be able to improve workflows and reduce the associated transaction and overhead costs.

For this to be a viable long-term approach, it is vital to gain OEMs backing. After all, OEMs have a strong influence on the dealers’ set of software applications when certifying or approving new vendors as we currently witness with Digital Retailing offerings. Alternatively, to pushing only one or a few vendors, dealers may recommend to their manufacturer partners to rewrite the OEM integration points allowing dealers a more level playing field when making their platform choices. Every single OEM is currently rebuilding its set of Application Program interfaces (API) to accommodate new vehicle requirements for connected vehicles and over-the-air software updates or in-vehicle services. Why not rewriting the dealer and DealerTech API at the same time so that all stakeholders have an equal opportunity to serve consumers in new way

About our Guest Author

Stefan Drechsel is the founder of DealerTech Nerd. His mission is to provide a better platform to explore dealership technology.

Prior, Stefan spent years guiding dealers through the negotiations of dealership technology and assisting others in navigating through the complex world of DealerTech. The NADA selected him to author the Dealer Guide to Automotive CRM. Automotive News featured Stefan on DMS/Third-Party integration. He is a regular speaker for DealerTech trends at NADA, ADAs, 20 Groups, and other events. His favorite car is the East German Trabant 601.

*They showed positive return-on-equity even at the height of the Financial Crisis. Source: Kerrigan Advisors

*With over 700 dealership technology vendors in 40+ categories, the market for dealer software applications is crowded with a long tail of smaller applications sitting on top of only a few DealerTech platforms – mainly DMS. Source: DealerTech Nerd Research

*A dealer poll in 2020 suggests that “Re-inventing the dealership business model for long-term success” is the biggest concern at the moment for 8 out of 13 dealers. Source: DealerTech Nerd and DealerBuilt Live Webinar Session 4/28/20

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Resource: Blog Article