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DMS Vendors – Avoiding Costly Mistakes

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A few simple rules to help dealers avoid costly mistakes when dealing with DMS Vendors

It’s been quite the ride lately for dealers in the market to change DMS vendors or upgrade their current systems. If you haven’t been following the market, you need to know that things have changed drastically and the old rules just don’t apply any longer. Vendors are under tremendous pressure to provide their investors and stockholders a larger return on their investment. As a consequence, we’ve seen the largest market reorganization in thirty years! Unless dealers move to protect themselves, higher technology costs are very likely.

Even if he can wade through the confusion and figure out what he needs to buy, extended DMS contracts, more restrictive terms and mandatory upgrades make it harder for a dealer to keep his options open and strike a deal that makes the most sense for his store. It’s harder than ever for a dealer to find the right technology at the right price and have it delivered under an acceptable, fair contract. Misunderstanding is rampant and even the industry news reports seem contradictory. Depend on what your vendor rep tells you and you’ll probably find out that not even he knows what is really happening! Or maybe your rep is not telling you all the truth?

Retaining a dealer’s business long term in the face of increased competition, new players and industry reorganization has become a staggering task for DMS vendors. As a dealer, you simply can’t depend on what’s worked for you in the past. We’ve seen staggered leases for hardware and agreements for software parlayed into ten and, even twenty year commitments for dealers who, in some cases, don’t know how it happened.

Here are a few simple rules that every dealer should follow:

  1. Do not authorize any of your employees to sign any agreement that may obligate your dealership in any way. Immediately inform your employees of this policy and follow up with your computer vendor(s) via certified mail giving them the name(s) of anyone in your organization authorized by you to sign agreements. In most stores, only the dealer himself should be on that list.

  2. Make sure you have every agreement scrutinized by someone familiar with the current industry standards and practices. These agreements sometimes appear to say one thing when the actual intent is very different. Get help – don’t get surprised!

  3. Make sure all computer contracts terminate on the same date. All contracts should protect your right to make any future add-ons co-terminus also. If your contracts become staggered (i.e. all end at different times), it makes it more difficult for you to change vendors and reduces your leverage when negotiating.

  4. Begin contract negotiations for upgrades 18 to 24 months before the end of the current contract. Vendors love to run out the clock and thus gain the upper hand because a dealer fears that his system may be shut off. Month-to-month contracts are no panacea. There are serious and very expensive downsides with these seemingly innocuous situation

  5. Acquire new hardware whenever you sign a long term contract. Technology changes so fast that state- of-the-art equipment today is hopelessly outdated five years down the road! By retaining your old computer, you leave yourself open to the “mandated upgrade” that occurs in the middle of your contract and allows the vendor to dictate pricing and terms when you are most vulnerable. In the long run you will spend less on technology if you opt for it when you, not the vendor, are in control.

  6. Main stream computer vendors have openly declared war on the third party providers. Third party vendors are tech companies that offer products that compete directly with similar products offered by DMS vendors. A few examples are companies that provide websites, networking, CRM and archiving. By restricting access to your data under the guise of security, vendors now seek to tell dealers which companies they can employ. Would it surprise you to know that this tactic steers you to companies that have a financial relationship with the DMS vendor? Remember, if a third party supplier pays a fee to your DMS, that charge will be one you will pay one way or another. Remember, it is not who owns the data. It is who controls the data.

  7. In most cases, it takes a few hours for vendor to prepare your proposal. If your vendor is taking weeks or months to get back to you or just seems unresponsive, be very careful. If you ask for a proposal and get a Power Point slideshow instead, be very careful. Ask yourself, “Why are they stalling?” The answer is that, either they are just running out the clock so you have to make a decision when you are under the gun or they are quite happy with the status quo. DMS prices have fallen dramatically because of increased competition. If your vendor is happy with the deal he has with you, then you know that you are paying too much.