Oxlo Observer

Open Secure Access

Recently Oxlo made the decision to join Open Secure Access (OSA) as a member and signatory on their open letter to dealers.  We had been invited to join OSA previously and declined.  Though Oxlo has always been fundamentally in agreement with the five principles espoused by OSA, we have carefully avoided anything confrontational with the two major dealer systems providers, preferring to find ways to work cooperatively with them.  However recent events such as the DealerTrack IPO, the introduction of the Reynolds RCI program, and the UCS acquisition of Reynolds, have combined to strongly suggest the industry is at a crossroads.  The issue OSA brings to our attention is core to the future of the industry.  Now is the right time for a debate in the industry, and industry participants should declare their positions. 

Like Reynolds and ADP, the vendors that are members of OSA, including Oxlo, are in business simply to produce value for their shareholders. Our opinions on the behavior of other participants in the market are not particularly important.  Ultimately the customers, both dealers and OEMs, must decide whether the business practices of Reynolds and ADP are worthy of their continued support.  And so OSA, whatever the motives of its individual member companies, is performing a valuable service to the industry.  Oxlo’s intent in joining OSA is to encourage the discussion.  By bringing the issues to dealers and OEMs, they can make informed decisions about what is important to them, and how they will spend their money. 

Dealer Relationship Management?

I recently read about Ford’s restructuring of their North American Marketing, Sales and Service organization.  With these changes, Alan Mullay and Mark Fields begin breaking down the fiefdoms for which Ford is so famous and bringing much needed efficiencies to the company. Still, as I review the organization, I see what I believe is a significant deficiency.

Ford has no single group that owns the entire dealer relationship. There is one group under Darryl Hazel that owns parts and service and another under Randy Ortiz that owns new vehicle sales.  Of course Ford Credit owns the F&I relationship with the dealer.  You don’t have to travel far from Ford’s headquarters in Dearborn to find other automakers structured the same way.

At a time when market share and dealer profitability are falling and brands are suffering, it seems a little backward.  Several years ago my banker realized that treating me as a single customer who had various loans and deposits was a better way to do business.  Some of the more progressive auto dealers are following suit and moving toward customer life-cycle management and integrated marketing of vehicles, financing and parts and service.  I expect those dealers will be very successful.  Most dealers, though, continue to run their businesses as a loose collection of profit centers, each with its own relationship with the customer. These profit centers generally correspond to the automaker groups that call on them. If the automakers had a single relationship with their dealers, perhaps more dealers would consolidate their customer relationships.

New vehicles, used vehicles, financing, parts and service are all intimately related in the customer’s mind.  If the automakers had a sales and marketing organization that kept its fingers on the pulse of dealer operations across all these areas, they might be in a better position to make the decisions that solve their most vexing problems.

Data Concerns – NADA Getting Involved

A few months ago I suggested in a blog post that dealers should organize around the data rights issue to ensure their needs are protected.  According to Ralph Kisiel in this week’s Automotive News, NADA will try to do just that at a meeting on Friday with Reynolds and Reynolds Vice Chairman, Finbar O’Neil.  In the article (subscription required) Bill Keith, head of the NADA IT committee and a dealer principal, shares his concerns that Reynolds appears to be headed toward the UCS model of restricting third-party access, and that their plans will impact 11,000 dealers. 

I applaud NADA for getting involved in this very important issue.  Data security is an important issue also, but it should not become an excuse for shutting out third-parties.  Hundreds of innovative third-party vendors have supported the entrepreneurial success of dealers for years, and more are entering the market all the time.  The challenges in today’s automotive retail market are driving dealers to innovate and apply new technologies that streamline operations and grow profits. 

If, in fact, Reynolds is moving to further restrict access to their systems, they are moving in the wrong direction.  The industry needs open, interoperable systems to further spur innovation, and provide dealers with the tools they need to better manage their business.  For better or worse, Reynolds has a leading position in automotive retail.  I hope for their customers’ sake they don’t abuse that position.

Personalized Marketing – Saturn/Google Take a Step

Last week Automotive News had an interesting article (subscription required) by Ralph Kisiel about a new Google offering of click-to-play video ads for the automotive market.  While online video advertising is certainly not new, I think Saturn’s pilot of this program is pretty interesting.  Based on the users’ location, the ad link will launch a ‘personalized’ video with a local dealership General Manager as the moderator.   This is a step towards the personalized marketing that online retailers in other markets, such as Amazon.com, have been doing for years.  Amazon does not just take customer orders, but uses its customer data to make a personalized connection with each online visitor by recommending products they are likely to find interesting.  For the automotive retail market to catch up with the marketing sophistication of other industries, it must establish greater collaboration between the point-of-sale at the dealership and the marketing systems of the automakers.  For example instead of just distributing leads out to dealers, automakers might also provide dealers with demographics and customer ownership history, along with all applicable incentives – directly into the dealership sales software application.  Dealers then might submit to the automaker details of the customer follow up, such as communications, if a test drive was taken, requests for specific color or features, and then details of the vehicle purchase or the lost opportunity to a competitive offering. This increased collaboration requires not only a commitment on the part of dealers and automakers to work more closely together, but also a commitment to real-time, bi-directional integration between the various software applications used in the automotive sales and marketing processes.  Implementing greater personalization benefits everyone, and customers increasingly expect this type of experience.

DMS Integration – Considering a Standard Approach

For the last year or so, I have served as the Communication Chair on the STAR Steering Committee.  I had an interesting discussion yesterday about whether STAR should take a position on non-certified DMS integration as it relates to data privacy and security concerns.  Turns out it’s not such a clear decision.

The most obvious position to take may be that dealers should only use integrations that are certified by their DMS vendor.  This would allow the DMS vendor, the integrated vendor, and the dealer to jointly share responsibility for data security and privacy. 

While this position may seem obvious, it would eliminate the vast majority of integrations dealers and their partners rely on today.  These integrations are commonly referred to as “hostile” or “non-certified” and their use in the market is wide-spread.  Automakers make use of non-certified data extraction providers because they provide data at a low cost and high quality.  Many CRM, desking, F&I, & fixed ops software solutions vital to dealers’ businesses rely on non-certified integration.  The continued success of these kinds of innovative software providers is one of the most exciting aspects of automotive retail.  In many cases, however, these systems will never be fully integrated in a certified manner.

The problem is these software providers often offer functionality which competes with functionality offered by DMS providers.  Historically, major DMS providers have blocked integration access to limit new competition. While recent well-publicized ‘open certification’ programs hold out the promise of greater access to integration, the reality is that blocking access to full integration may prove to be a hard habit to break.

Two things are clear.  First, dealers and automakers must encourage and adopt new solutions that help sell more cars, reduce costs and increase profits.  The widespread use of non-certified solutions by the major players in automotive retail indicates a strong entrepreneurial environment exists that is delivering high value solutions into the market – dealers and automakers must guard against restricting this innovation.  Second, continued strengthening of privacy legislation makes it critical that dealers ensure access to their systems is under their explicit control and that their solution providers abide by all data security and privacy regulations.

The Time is Now

All the uncertainties around the UCS / Reynolds merger are creating opportunities for other vendors.  I’ve heard from several in recent weeks who are very optimistic about their prospects to significantly add new customers over the coming year.  Certainly ADP is bullish, even placing full page ads in Automotive News playing on the F.U.D. factor.  How many dealers seriously consider changing DMS systems remains to be seen but its easy to imagine Ford, Chrysler or GM dealers giving this more thought than in prior years.  Anyone will tell you, this is a market where reference selling is huge and for vendors who can’t afford full page ads or sophisticated marketing campaigns they must rely on word of mouth.  Yet last years NADA DSP Survey Summary showed that only 48% of dealer principals and general managers would recommend their DSP vendor to another dealer.  At a time where the market for dealer systems may be more dynamic than any other time in the past 20 years this has to be a major concern for many vendors.  Those who execute well right now, making good decisions on where to invest resources and focusing on the customer will stand to gain.  Timing is everything and this could just be the time that many vendors have longed for.

Data Rights – Dealers Unite

While DMS products deliver critical needs for running an automotive dealership, they cannot meet all the application needs within the dealership.  That is why so many third party applications exist, such as CRM, desking/F&I tools, menu selling, and service bay management tools, among others.  These innovative solutions deliver great value to the market.  To improve efficiencies and maximize dealer value, these application providers have developed ‘integrations’ between their solutions and the DMS, primarily through DMS data extraction on a batch basis.  Reynolds has offered the market what they call the Reynolds Certified Interface (RCI) program; to control data access, ensuring data security and system reliability are maintained.  Skeptics express concerns that the Reynolds program will become prohibitively expensive, particularly for applications that may be competitive to Reynolds’ offerings – they also worry that ADP will head down the same path.  Vendors with a vested interest in maintaining access to DMS data have established a coalition called Open Secure Access to collectively address their concerns.  Dealers should organize themselves around this issue to ensure their needs and concerns are addressed – a recent discussion on the DealersEdge Forum highlights related dealer issues.  To ensure vendors focus on the dealers’ best interests there needs to be an open and competitive market – that means an open market for DMS to automaker systems, as well as an open market for third party applications to DMS.  A focused dealer coalition, similar to Open Secure Access, would ensure their needs are met during this market transformation.

Extending the Warranty

GM recently announced that it would extend its drivetrain warranty to five years or 100K miles—a sensible move for a company that believes that its quality is underappreciated in the market.  As Rick Wagoner said, GM is “putting our money where our mouth is.”  This action does a whole lot more for the brand than more customer cash.  It also creates a new liability for the company that must be managed carefully.

As Fin O’Neill showed us at Hyundai, providing an outrageous warranty is a powerful way of overcoming quality concerns.    And while Hyundai’s 10 year/100K mile warranty was a marketing gambit, it also had the effect of forcing Hyundai’s manufacturing operations to improve quality.  Had Hyundai failed to improve quality, the warranty could have been a financial disaster.  Addressing both the perception and reality was crucial.

GM’s quality today is considerably better than Hyundai’s was when it went to the 100K warranty.  Still, further improving quality should be a critical objective for GM.  A Warranty Early Warning solution that streamlines the flow of data from the dealership to the factory and supply chain will be an important step in achieving this objective.  Dealers and DSPs should expect that GM will be aggressive in the deployment of its forthcoming Global Warranty Workbench.

Listening to the Dealer

I just saw Steve Finlay’s piece in WardsAuto.com, “Auto Dealers Know What’s Going On.”  He makes the case that OEM’s should be listening to their dealers when it comes to product decisions and understanding customer demand.  His anecdotes about Buick SUVs, the Cadillac Catera and Mercedes cupholders ring true. 

Too often executives with the OEMs substitute their judgment for that of their dealers, even though many of them haven’t set foot in a dealership in years.   Oxlo is currently working with one large dealer group to implement a vehicle order solution that optimizes the order based on local customer demand and allocations.  That’s one way for dealers to let OEMs know what they want.

New Competition in the DMS Market

At its recent partner conference Microsoft announced a number of new vertical applications of its Dynamics AX ERP application (aka Axapta), one of which was automotive retail.  The world’s largest software company is now marketing a DMS.  Microsoft will depend on a European DSP, Infonizer, an outgrowth of a Danish dealer group, to customize Dynamics AX for automotive retail. 

Whatever anyone may think of Microsoft, this is good news for automotive retail.  Companies like Microsoft and another recent entrant, SAP, have the potential to bring true competition to the DMS market.  Microsoft has always been known for aggressive pricing and that will be attractive to dealers.  It will also bring a product based on newer technology to the market—something that should be attractive to both dealers and OEMs interested in implementing more sophisticated integrations with their point-of-sale.