Title: Impact of CDK Global Software Outage on North American Car Dealerships
Introduction:
The Anderson Economic Group (AEG) recently conducted a study on the CDK Global software outage, revealing the potential losses for North American new-car dealerships. This article explores the financial implications of the outage, alternative sales methods employed by affected dealerships, potential losses not accounted for in estimations, and the broader impact on the automotive industry.
Financial Losses Mount:
According to the AEG study, the ongoing CDK Global software outage could result in losses of up to $1 billion for North American new-car dealerships. With approximately 15,000 dealerships affected, the first two weeks of the shutdown alone have cost dealers over $600 million in lost earnings, including sales of new and used cars, service and parts sales, additional staffing costs, and financing costs. However, these figures do not account for reputational damage, customer data breaches, law enforcement costs, or legal disputes arising from the outage.
Alternative Sales Methods:
To mitigate the impact of the outage, some affected dealerships have resorted to manual methods of completing sales. While these methods are more time-consuming, they allow dealerships to continue selling cars until the systems are restored. However, this workaround may not fully compensate for the losses incurred during the outage.
Broader Industry Effects:
The CDK Global software outage has also had a wider impact on the automotive industry. Cox Automotive, an automotive research group, predicted slightly lower car sales for June due to the outage. While June’s new-vehicle sales were initially projected to be almost 16 million units (slightly higher than the previous year), the outage caused a slight decline. Cox Automotive also anticipated a slowdown in sales for the remainder of the year due to uncertainty surrounding the upcoming presidential election in 2024.
Future Outlook and Potential Recovery:
Cox Automotive believes that any losses incurred during the CDK outage may be recouped in July, potentially leading to higher sales before the anticipated slowdown. However, the availability of incentives, typically offered in June to meet sales quotas, remains uncertain for July. Dealerships may rely on pent-up demand to bolster sales instead.
Price Impact and Normalization:
The CDK Global software outage, though artificially induced, may have influenced car prices. In 2024, after the pandemic, new car prices have experienced a decline of 0.8 percent according to the Consumer Price Index. Artificial disruptions in supply and demand often lead to temporary price fluctuations, which tend to normalize once the underlying issue is resolved.
Conclusion:
The ongoing CDK Global software outage continues to pose significant financial challenges for North American new-car dealerships. The estimated losses of up to $1 billion highlight the severity of the situation. While alternative sales methods provide temporary relief, they may not fully compensate for the losses experienced during the outage. Furthermore, broader industry effects and uncertainties surrounding the upcoming presidential election contribute to an unpredictable future for the automotive market. As dealerships navigate these challenges, recovery and a return to normalcy remain key objectives.
