Some car dealers say outsourcing their computer technology is the wave of the future.
Rather than making an investment in a dealership management system - the computer hardware and software that does everything from parts ordering to accounting - dealers are outsourcing this technology to application service providers.
These providers use their own servers - computers in a network shared by multiple users - at their own sites to store data that normally would exist in a dealership's computer system.
While the application service provider model is common in other retail environments, it is only now receiving serious attention from automotive dealers and manufacturers because of potential cost savings associated with not having to maintain or upgrade computer systems.
'I truly believe that this is the way that business is going to be done in the future,' said Michael Cohen, a dealer with five Mitsubishi stores in New Jersey, New York and Massachusetts.
Cohen's Bell Mitsubishi in Rahway, N.J., is one of two Mitsubishi dealerships piloting a program called Diamond Manage, which uses EDS as its application service provider. EDS servers in its Systems Management Center in Auburn Hills, Mich., a Detroit suburb, manage the technology.
Rolling out the system to about 20 dealerships a month, Mitsubishi Motor Sales of America Inc. plans to offer it to all of its 515 U.S. dealerships this year.
The automaker will pay for installation costs. Subscribing dealers will pay monthly fees.
'I can tell you, there's great interest amongst the dealer body in this system,' said Cohen, who also is chairman of the Mitsubishi national dealer council's technology committee.
Mitsubishi's application service provider model will encompass the dealership management system, not just Web-enabled customer relationship management or Internet lead management tools.
Diamond Manage is a natural extension of Mitsubishi's retail strategy, said Greg O'Neill, general manager of Mitsubishi Motor Sales of America. Mitsubishi has been offering Web-enabled technology to its dealers during the last few years. Some Mitsubishi dealers now use Web-enabled customer relationship management and service tools, he said.
'We think there's going to be a migration very quickly to this DMS (dealer management system) ,' O'Neill said. 'But we're not going to force it.'
Dealers elsewhere are seeing advantages to outsourcing technology.
Sonic Automotive Inc., a dealership group in Charlotte, N.C., with 174 franchises, is carrying out an application service provider strategy.
'Instead of building a large IT infrastructure internally, our goal is to outsource this,' said David Boatman, Sonic's chief information officer. 'I believe the ASP (application service provider) model is the wave of the future. It will cut our costs.'
Sonic dealerships using application service providers are generating 10 percent to 15 percent savings, he said.
Sonic is using ADP Dealer Services, a longtime provider of dealer management systems, as its primary application service provider, Boatman said.
ADP President Mike Martone predicts a significant increase in the number of auto dealers wanting an application service provider.
There are dealers who want to run their technology platforms and there are dealers who have had enough of investing in technology, Martone said.
While only 118 dealers will be using ADP as their application service provider by the end of June, Martone sees the role of his company growing rapidly in this capacity.
Reynolds and Reynolds Co., another major dealer management system provider, is focusing its application service provider services on front-office dealership applications, such as customer relationship management and Internet lead management. But it can move a dealer's back-office dealer management system to an application service provider if desired, said Scott Schafer, senior vice president of Reynolds' Info-Structure Services Group.
A December 2000 survey commissioned by EDS suggests that at least a third of the dealers are ready for this technology. In the 2000 Dealer Information Technology & Computer System Survey, 36 percent of the dealers surveyed said they would like to see dealer management systems migrate to the Web, and 18 percent were unsure. Forty-six percent of the dealers said they do not want to see these systems move to the Web.
'Probably the No. 1 concern is about security,' said Matt Parsons, vice president of marketing at EDS Automotive Retail Group. Some dealers are skittish about having their sensitive business data residing outside their dealership, he said. They want a guarantee, especially when the application service provider uses the Internet, that nobody can see their financial data or be able to tap the system, Parsons said.