The sedate world of dealership software vendors could be headed for a shakeup.
For years, ADP Dealer Services Group () and Reynolds and Reynolds Co. (reyrey.com) have grabbed about 80 percent of the estimated $2 billion U.S. market for dealer-management software. But German giant SAP AG - the world's second-largest software supplier - appears poised to invade this market.
The company has been coy about its plans to sell software to U.S. dealerships. But recent moves suggest SAP (sap.com) of Walldorf, Germany, is preparing for battle.
With worldwide software sales of about $9.9 billion, SAP is a leading producer of business software. But it had limited software for dealerships - until last month. In February, SAP purchased a British firm's dealership-management system, then announced plans to market it to European dealers.
Will SAP try to sell it in North America? "There's probably a huge opportunity to come in and shake up the marketplace," says Thomas Wright, an automotive executive with SAP America Inc.
Traditional dealership software includes tools to manage human resources, finance, sales, service and parts. The typical auto dealer might spend $6,000 per month for computer hardware, software and services - and that's a tempting target for a newcomer such as SAP.
And dealers may be ready for a new approach to software. ADP and Reynolds both market hardware and software packages that typically require dealerships to sign five-year leases.
But if a software provider can market an Internet-based system, dealers can eliminate that expensive hardware. "It's time that we have a dealer service provider that we can access over the Internet," says Wes Lutz, owner of Extreme Dodge in Jackson, Mich.
As former chairman of the National Automobile Dealers Association Information Technology Committee, Lutz is an expert on dealership software. Existing software is reliable, Lutz says. But dealers complain that it's expensive, and they use only a small fraction of the software's features.
Reynolds and ADP are aware of these complaints. Last year ADP purchased the software system developed by EDS for Saturn dealerships. That system is Internet-based, and ADP is offering it to other dealerships. Saturn says its new centralized Internet-based system will cost 15 percent less over a five-year period than buying or leasing new equipment.
Publicly, ADP and Reynolds say they are not worried about new competition.
"We have a distinct competitive advantage in that space," says Finbarr O'Neill, the former boss of Mitsubishi Motors North America who became Reynolds' CEO in January.
But a prominent executive from a dealership software vendor told Automotive News that he is convinced SAP will enter the market. And if it does, SAP's size will force competitors to regard it as a serious threat. At the moment, all eyes are on Europe, where SAP plans to introduce its dealership software this fall. What happens in Europe will be critical to what SAP does in North America.
"The decision to come to, and how to enter, the North America market would be much more effective if we could leverage success and acceptance elsewhere in the world," says Wright, SAP's automotive principal based in Southfield, Mich.
And what about King Kong?
As if that weren't enough, Microsoft - the King Kong of the software industry - might get serious about dealership software at some point. If SAP enters the United States, some industry observers expect Microsoft () to follow with its own software.
Microsoft dabbles in dealership software through a partnership with Reynolds. In 2002, Microsoft helped Reynolds develop its Reynolds Generations Series Suite, a new dealer management system that shares information more efficiently among all dealership operations.
Sales of Generations software have been disappointing. Kyle Solomon, Microsoft's automotive industry manager based in Southfield, Mich., insists that Microsoft prefers to maintain its partnerships with other vendors.
But Kevin Mixer, research director at AMR Research Inc. in Boston (), speculates that Microsoft may compete with its partner by marketing its own software.
Meanwhile, Microsoft is using its partnership with Reynolds to learn about the market, Mixer says.
Is Reynolds worried that Microsoft may go it alone? "I can't speak for Microsoft," says O'Neill, who joined Reynolds in January. "Of course, their relationships are nonexclusive by policy. Personally, I have enough on my plate learning what the situation is at Reynolds."
Perhaps so, but Lutz and others believe the world of dealership software - dominated by two large players - is ripe for a shakeup.
The United States is not too crowded for a new software provider, he says. In fact, Lutz predicts, an interloper such as SAP would trigger "the perfect storm."