February 2014, Auto Dealer Today - Feature
You know the approximate amount of your dealership’s monthly electric bill, but do you know what you pay per kilowatt-hour? Many dealers manage the monthly invoice for their dealership management system (DMS) much like their electric bill. They know the total amount they pay but not the detail behind it.
I’m aware of an internal study by one DMS provider which found that as many as 40% of the invoices sent to dealers who had their system for at least one year were incorrect. In some cases, they paid back thousands of dollars in overcharges.
So is there a conspiracy among the DMS providers to overcharge their dealers? Absolutely not. But it is possible for a provider to make mistakes. More often than not, those mistakes are the result of changes at the dealership that are not reflected in the monthly invoice. Let’s review three key areas that can result in overcharges on your monthly DMS bill:
1. Hardware and Software: Many dealers sign up for the DMS provider’s software and applications and later replace them with software from a third party. In many cases, when a dealership stops using an application or software feature of the DMS, the monthly billing for the built-in software can and should stop.
The same goes for hardware. You could be paying monthly fees and maintenance charges to your provider for hardware you have (a) replaced with hardware from a third party or (b) upgraded via your DMS provider. Incredible as it may seem, many dealers who have updated hardware find they are still paying for the old gear. Again, there is no conspiracy at work; it’s simply a matter of failing to update your agreement.
2. Annual Increases: Many DMS contracts include a built-in annual increase, often in the neighborhood of 4%. This increase varies based on the upfront negotiations. Check to be sure the actual annual DMS price increase matches the contract.
3. Click Fees: Some DMS providers charge “click fees” for the paper and toner they use. Always audit actual usage versus what is invoiced. Don’t assume the total clicks you are being charged for are correct.
This is not a one-time process. Dealers should manage their monthly DMS invoices as prudently as they manage any other expense. Each line item of each invoice should be audited on a monthly basis, and don’t be afraid to ask for help from your provider. Recently, a dealer friend of mine sat down with a representative from his provider. Working together, they found several items that had been on his invoice for two years that the representative simply could not explain.
Many dealers who do monthly audits can attest to the financial benefit. Dealership-savvy accountants are an excellent resource. There are also a number of consultants who specialize in reviewing invoices for dealers on a monthly basis. Some are so confident in their skills that they only get paid when they save the dealer money. These companies and consultants can also perform a pricing benchmark study for you to compare what you are paying for your DMS versus a large sampling of dealers who are similar in size.
Finally, this is one issue you should feel free to bring up in your 20 Group. Some groups discuss this very topic on a regular basis. Why not start the conversation yourself? Once you have completed your review, ask your fellow dealers to do the same. You could be responsible for starting a new best practice.
The bottom line is that every dealer should be proactive in reviewing their monthly invoices from their DMS provider. The same is true whether they do it themselves or retain outside expertise. Unlike your electric bill, every line is crucial.
Summary of Charges
When dealers negotiate DMS contracts, they take a hard look at each line-item charge and the general terms and conditions associated with it. They sign the contract and, a year or so down the road, the memory of the exact terms and conditions of what was negotiated have faded. That can make reviews of the contract significantly more complicated and time-consuming.
This issue can be avoided with a simple step: Ask your provider to write a one- or two-page summary of the services provided and any associated charges. This will ensure you are fully aware of the ongoing costs at the outset and simplify the review process. Better yet, if you have a question, you don’t have to read through the entire DMS contract to find your answer.
Brian Reed is the president and CEO of Intersection Technologies Inc. and F&I Express. He is a 30-year industry veteran and an expert in dealership technology. [email protected]