Owners with Cars Stuck in Service Departments May Be Hit Hardest

　　Have you had difficulty buying a car or getting one serviced at a dealership recently?The likely reason is a cyberattack on CDK Global,a software provider crucial to thousands of dealerships and service centers.The attack,which occurred on June 19,has left many dealerships struggling to complete basic tasks without their functioning computer systems.

　　Here’s What We Know So Far:

　　Who is CDK Global?

　　Based in Hoffman Estates,Illinois,CDK Global operates in over 15,000 retail locations across North America.The company provides software,particularly a“dealer management system”(DMS),that dealerships use to process transactions,arrange financing,track parts and suppliers,and manage customer relations.In 2023,Canadian private equity firm Brookfield Business Partners(BPU)acquired CDK Global for nearly$6.5 billion.

　　What Happened to CDK Global and Why Does It Matter?

　　After system outages were reported by numerous dealerships across Canada and the U.S.,CDK Global revealed it had fallen victim to a cyberattack.”CDK experienced a cyber incident,”the company said in a statement to Yahoo Finance.”Based on the information we have at this time,we anticipate that the[recovery]process will take several days to complete,”they added,noting they were working with clients on workaround solutions,effectively reverting to pre-digital methods.

　　Stuart McCallum,a partner at automotive accounting firm Withum,told Yahoo Finance,“Having to move everything to paper has resulted in both an accounting nightmare and bad buying experiences for consumers—and all during the start of their peak season.”

　　CDK later disclosed that the attackers demanded a ransom to restore services.Bloomberg reported that the group behind the attack,BlackSuit,based in Eastern Europe,was demanding tens of millions.Following the reports of a second attack after attempting to restore services,shares of CDK Global’s parent company,Brookfield,fell 5.7%in Canada.

　　Impact on Dealers and Customers

　　Dealers and their customers have been significantly affected at the retail level.Customers awaiting new car purchases or those experiencing delays are facing frustration.More critically,customers with cars stuck in service departments are in a bind.A Southern California dealer explained to Yahoo Finance,“We’re not allowed to let a car go until the repair order gets closed because that’s just the way the law works.Repair orders can’t get closed until we know who’s going to pay for it.”

　　Yahoo Finance also reported on customers at Porsche and Lexus dealerships facing delays in service returns and issues with parts orders.Large dealerships have been trying to manage the situation.AutoNation,the largest U.S.dealership group by revenue,stated in a filing that it is resorting to“manual”processes.

　　“While the outages of CDK’s systems and our DMS have been disruptive and adversely impacted our business,all of our locations remain open,and we are continuing to sell,service,and buy vehicles,and otherwise serve our customers,through manual and alternative means and processes,albeit with lower productivity,”AutoNation noted.

　　Lithia Motors,operating nearly 300 dealership locations in the U.S.,admitted the group is under strain with limited visibility into the overall impact of the outage.”While this incident has had,and is likely to continue to have,a negative impact on the Company’s business operations until the relevant systems are fully restored,the Company has not yet determined whether the incident is reasonably likely to materially impact the Company’s financial condition or results of operations,”Lithia stated.

　　Group 1 Automotive,with over 200 dealerships in the U.S.and UK,is using”alternative processes”to continue business.The company said its ability to determine the material impact from the service outage would depend on various factors.

　　The longer the outage persists,the greater the impact on dealerships.A Southern California dealer mentioned to Yahoo Finance that a brief outage would be an annoyance but manageable,whereas a prolonged disruption could cause significant problems.

　　What’s Next for CDK Global?

　　Dealerships reliant on CDK Global’s inoperable DMS are considering other software providers like SAP,Reynolds and Reynolds,and Dominion Enterprises.The Southern California dealer highlighted a”trust”issue with CDK’s handling of the situation,noting ineffective communication and vague,generic emails to clients.

　　Consumers remember poor car-buying experiences,and dealers affected by the hack might see customers shift to unaffected competitors,said McCallum from Withum.He added that some dealerships have stopped offering leases due to the difficulty of calculating them manually.

　　The cyberattack on CDK comes at a crucial time,during the end of the month and the quarter when dealerships aim to meet their sales goals.Automakers will update Wall Street analysts and investors on second-quarter production and delivery numbers next week.