Dealers will pay up for vendors' data access after CDK switch

Dealerships already pay substantial monthly fees for their dealer management systems. Now, stores using DMS from CDK Global are going to pay more so their other software vendors can get at customer data.

CDK, formerly ADP Dealer Services, has decided to start charging higher fees to outside vendors, such as customer relationship and inventory management software providers, to get access to dealers' data.

CDK said the program is part of an initiative, called SecurityFirst, to better protect customer data from falling into unauthorized hands.

But the vendors in the CDK program lament that they plan to pass those extra costs on to their dealer customers. They say the costs being charged far exceed the value of any increased data security.

Reynolds and Reynolds, CDK's archrival in the DMS business, has had a similar vendor-access program in place for years.

It's difficult to say how much more a typical dealership will pay for the extra charges because dealerships buy a mix of software products.

But for seven popular software products, CDK now charges for data access a total of about $475 per dealership, vendors say. In about a year, the charges will be about $1,600, the vendors say -- a net increase of $1,125 if all the increases are passed on to dealers.

CDK said it intends to charge each third-party vendor in SecurityFirst between $250 and $300 a month per store for each software product. The current fees average about $70 per software product, the vendors said.

A typical midsize dealership pays more than $5,000 a month for DMS offered by CDK or Reynolds and Reynolds.

A vendor executive who asked not to be named called the data-access cost a surcharge under the guise of data security.

Bob Karp, CDK's president of retail solutions North America, said protecting dealers' computer security is critical. He cited computer break-ins at Target in 2013 and the Home Depot in 2014, in which data of millions of customers were stolen.

As dealerships have moved into the digital age, store employees have come to rely on as many as 10 software vendors -- beyond the base DMS -- to help them run operations.

In most cases, CDK and Reynolds have broadened their own software offerings so they compete against third-party vendors that now face higher fees from both DMS providers.

The DMS is the main operating software of a store. It helps dealerships run accounting, payroll, parts ordering, vehicle ordering and finance and insurance. Critically, it is the place where customer and dealer data are stored.

CDK and Reynolds are the dominant DMS providers. Most experts estimate that combined, they provide DMS to about 70 percent of the nation's 18,000 franchised dealerships.

But hundreds of third-party software vendors need data at least daily from any single store's DMS to complete their tasks.

Those tasks include marketing to customers, posting vehicle listings on online shopping sites, managing new and used inventory, scheduling service, finding customers with vehicle equity and a host of other sometimes small but essential tasks.

CDK, Reynolds and other, smaller DMS providers act as gatekeepers of dealer data in a couple of fundamental ways. One is to provide portals to outside vendors, protected by passcodes, to exchange data in real time with the DMS.

The other way is for approved contractors to extract the data in a batch, usually overnight, before organizing the information and parceling out the specific data fields that each vendor or carmaker needs in a timely way.

Vendors briefed on CDK's new data-security program said nothing will change in the way they get data from CDK-served DMS dealerships under SecurityFirst except for a higher price. Prices generally will go up for 120 vendors currently in CDK's vendor-access program.

Automotive News spoke with senior executivesof three large third-party vendors who all requested anonymity because they are in the process of determining whether they will participate at the new higher rates and fear reprisals.

They said CDK started serving them with termination notices in the spring, effectively saying vendors will lose access to the dealer data needed to perform their services until they get certified under SecurityFirst.

One vendor executive said the new program would raise monthly data fees from about $50 per store per month today to as much as $600 for customer relationship management software. CRM software requires lots of data to be exchanged between the vendor and the DMS. That extra cost will be passed along to dealerships, the executive said.

Karp said CDK is pushing third-party certification because it has a responsibility to protect customer data housed in its software systems.

In addition to putting in place new vendor-access protocols under SecurityFirst, CDK is planning to have more dealer training, improve security technology and roll out tools that allow dealers to see what data fields are being exchanged with vendors, Karp said.

CDK determined its charges after an exhaustive analysis found the company was not adequately covering costs associated with managing data-related programs, said Linda Bartman, CDK's global chief marketing officer. She said, in some cases, vendors' access fees won't rise if they already were paying higher fees than peers.

CDK's SecurityFirst is similar to a vendor-certification program that rival Reynolds has operated for years, known as Reynolds Certified Interface, or RCI.

Participation costs one CRM vendor more than $700 a month per Reynolds store. The vendor requested anonymity because Reynolds has strict nondisclosure provisions in its vendor contracts.

One dealer principal of a West Coast dealership group who requested anonymity said last week that he switched his DMS from Reynolds to a less expensive provider more than two years ago. That move saved him $450 a month per store on his CRM software bills alone because he was no longer paying for the vendor's RCI. He knows because his bill from his CRM vendor went down after he left Reynolds.

Reynolds spokesman Thomas Schwartz said in an email that Reynolds has been a leader is securing dealer data. It has certified 120 third-party vendors that need frequent access to dealership data using Reynolds DMS, with another 50-plus software vendors in the process of being certified, he said.

The process protects the consumer data because the exact data fields needed for vendors to perform their tasks are exchanged through a secured interface rather than allowing the vendors unfettered access to the dealer DMS, Schwartz said.

Not only is data security enhanced, he said, but Reynolds maintains the portal so data exchange is optimized.

He declined to say how much Reynolds charges vendors in monthly certification fees.

"We have long believed that protecting business and customer data in a Reynolds DMS is a shared responsibility between Reynolds and the dealer," Schwartz wrote. "The linchpin of that protection is to facilitate the secure exchange of DMS data with third parties and OEMs through tailored data interfaces."