Dusting Off the Tried-and-True Playbook as Auto Retail Manages Another Crisis

Dusting Off the Tried-and-True Playbook as Auto Retail Manages Another Crisis

June 26, 2024 — Here we go again. We’re nearly 25 years into this century, and already, the industry has had to grapple with at least five events that have severely impacted operations at U.S. dealerships and the vendors serving them. And again, dealers and the industry will survive.

Not since 1918 – 1945, when World War 1, the Great Depression, and World War II wreaked havoc on the world, has the auto industry encountered such business-altering challenges.

For those of us who have been in this industry for more than a few years, these dates are not just memories; they are part of our shared history.

We watched on September 11, 2001, as planes flew into the Pentagon and the World Trade Center, bringing the country to a standstill.

On September 15, 2008, the collapse of banking giant Lehman Brothers signaled the official start of the Great Recession of 2008-2009. We may not have understood the full impact then, but we knew it would be bad.

Several days later, General Motors’ and Chrysler’s captive finance arms – both controlled by Cerberus Capital Management, a global alternative investment firm – essentially stopped financing vehicle purchases, a move that pushed both automakers into bankruptcy in early 2009.

More fallout ensued on May 14, 2009, when Chrysler informed 789 of its dealers that it was terminating their franchise agreements. The next day, General Motors followed, ending its agreements with 1,100 of its dealers.

The industry then enjoyed a ten-year break from the body blows. Sales increased from nine million in 2009 to more than 17 million a year from 2015 to 2019.

Then, on March 19, 2020, California issued the first Covid-related “Stay-at-Home” order, kicking off several months of life-altering experiences for the world as businesses, including dealerships, stopped operating.

Inventory shortages, never-before-seen profits, and industry uncertainty ensued for about three years.

But, as always, the industry started returning to “normal,” or at least a semblance of what the world looked like pre-pandemic.

And then, last Wednesday morning, we woke up to learn CDK Global, the industry’s leading dealership technology firm, had been shut down by cybercriminals as part of a ransomware attack, adding June 19, 2024, to the list of dates we will long remember.

Over the last week, the auto retail industry again had to dust off the business interruption playbook as approximately 15,000 dealerships, hundreds of vendors, OEMs, state DMVs, and customers began dealing with the fallout.

It has become a tried-and-true playbook—although it varies depending on the event. This time, the playbook calls for a return to the old days of selling cars.

For dealers on the CDK system, everything that had been automated for years is now being done by hand and on paper.

The “Old Dawgs” are teaching the younger generation how to use a Sharpie to fill out the four-square on paper. Business offices are filling out paperwork and deals by hand, then handing them to runners who drive them to the state DMV offices—most of which have had to create new processes to handle titling and registration by paper. On the surface, it sounds simple. But inside the impacted dealerships, life is seesawing between severe inaction, and intense activity.

This industry has learned how to adapt. But as always, there will be winners and losers. As one dealer has expressed, “It is a Darwinian moment.”

Seasoned industry professionals understand the strategic opportunities that emerge from these moments. They know how to leverage these situations, capturing market share and growing their businesses.

In times like this, dealers who understand the value of leadership, have invested in their employees’ lives, and have built a culture of teamwork typically find their businesses are stronger as these crisis “moments” are resolved.

Other dealerships? Not so adept at rolling up the proverbial sleeves and working through a crisis.

I’m hearing of both — dealerships paralyzed not knowing what to do while others are adapting and still selling and servicing cars.

The underlying difference? Leadership.

Meanwhile, savvy and experienced vendors also have a playbook.

First step: express heartfelt empathy.

Second step: jump into action to help dealers overcome whatever challenges the latest “crisis” brings.

The industry saw this play out with numerous vendors last week.

(I watched the second step in action as numerous DAS Technology employees gave up their family plans for the Juneteenth holiday last week and worked late hours and over the weekend to structure new processes and solutions to help impacted dealers manage their incoming leads and communicate with customers. Full disclosure: AUTOVATE, a company I founded, is a portfolio company of DAS Technology).

It is a fine line for vendors. You don’t want to appear as a crass opportunist using another company’s misfortune to grow your business. It is important to keep in mind, a ransomware attack can happen to anyone.

However, there is an element of the industry pulling together, sharing ideas, and helping each other. Over the last twenty years, the industry has become smaller and more family-like in many ways. Industry conferences, social media, employees switching companies, and acquisitions have brought people together in ways not seen before 2005.

Despite that, vendors who are on top of their game recognize the CDK cyber attack for what it is—an opportunity to grab share. It’s capitalism, and it is a competitive world.

It is too soon to predict what a potential fallout will look like on the vendor side, although we are already seeing a shifting CRM landscape. Players such as Vin Solutions, DriveCentric, and DealerSocket are feasting at the chance to steal customers from CDK’s eLead solution.

The DMS fallout is much less certain. Industry dynamics and a strong leadership position may help CDK negate any massive loss of customers. But clearly, it is a world today in which CDK may find itself vulnerable for the first time.

This is a story still being written.

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