Sonic farms out its technology

Dealer group makes move to cut costs

Going off-site
Benefits of using an application service provider

  • Removes burden
    of hardware ownership and upgrades

  • Allows dealers
    to focus on core business operations

  • Levels IT spending; IT becomes more of a fixed expense

  • Lowers up-front costs

    Source: EDS Automotive Retail Group

  • Sonic Automotive Inc. dealers have taken a leap of faith in technology.

    Sonic, which has 170 franchises, has converted entirely to an application service provider model. It is the first large U.S. dealer group to do so.

    Application service providers operate and maintain a dealership’s hardware and software off-site.

    Gone are the information technology managers and staff required at each dealership. Gone are the servers — the computer hardware — required to run the complex dealership management systems that handle payroll, accounting, parts inventory, parts invoicing, service, repair order invoicing, and finance and insurance.

    Sonic anticipates some of its dealerships will realize a 50 percent reduction in information technology operation costs. Others with badly outdated hardware may experience an initial increase in costs. The dealership group chose to use Reynolds and Reynolds Co. and ADP Dealer Services — the two largest vendors of dealer management systems — as its application service providers.

    Sonic uses three servers from Reynolds and Reynolds and three servers from ADP. About 60 percent of Sonic dealers use ADP, and 40 percent use Reynolds and Reynolds.

    Sonic, a Fortune 500 company with 10,000 employees, believes an application service provider is the most cost-efficient way to run a large dealership group. Sonic was No. 2 on the latest Automotive News list of Top 100 dealership groups in the nation, with 131,365 new retail unit sales last year.

    As Sonic acquires stores, it will phase them off the in-store system and onto the central application service provider.

    David Boatman, Sonic’s chief information officer, began planning for the conversion shortly after joining the Charlotte, N.C., dealership group in 1999.

    Dealers skeptical

    Dealers initially were skeptical of moving critical data out of their stores, Boatman said. Sonic had to prove the system’s reliability by first converting dealerships in a region, and then relying on those dealers to help sell the concept to the rest of the group.

    Driving down a dealership’s costs is the primary goal of an application service provider, said Bill Corrao, vice president of services, development and deployment at Reynolds and Reynolds.

    “I think there’s interest in the marketplace,” Corrao said. “But the movement and the decision-making pro-cess with the customers has been very slow. There has been some reluctance to shifting their critical information to an off-site location.”

    So far, only dealer groups have expressed interest in an application service provider, he said.

    AutoNation Inc. and UnitedAuto Group Inc. are two other dealership groups interested in application service providers.

    “By outsourcing their IT services, dealerships then can focus in on their core business, which is selling cars and servicing their customer base,” Corrao said.

    Reynolds and Reynolds has fewer than 200 dealerships operating entirely under the application service provider model. But about 2,000 dealerships are using Reynolds and Reynolds as an application service provider for a specific application.

    Dealers will in time become more comfortable with the concept, especially if they are testing it with a specific application, Corrao said.

    Sonic dealers still have some three-year leases for equipment from Reynolds and Reynolds and ADP. But as those on-site server leases expire, dealerships will begin to realize the true cost under an application service provider, Boatman said.

    Other benefits

    Using an application service provider offers benefits beyond cost reduction, Boatman said. He now can mine data either at a national, divisional, regional or store level in sales, service, parts and F&I. And he can make statistical Web-based reports for managers at all levels of the company.

    “We can also track customers across the nation now,” Boatman said. “That customer can be a Sonic customer instead of just a dealership customer now. All this information will be centrally located now in an aggregated fashion.”

    There are other advantages.

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