According to analysts, AutoNation and Sonic Automotive are expected to be the most affected by the recent CDK Global outage in their second-quarter earnings. Both dealership groups, ranked second and sixth largest in the U.S., rely entirely on CDK’s dealer management system (DMS).
It is important to note that all six of the nation’s largest publicly traded auto retailers use CDK for at least part of their operations.
Two cyberattacks forced CDK to shut down its systems for approximately two weeks, resulting in an estimated $1.02 billion loss for dealerships, according to the Anderson Economic Group. The outage coincided with the end of the second quarter on June 30, and analysts predict that while some losses will be recovered, not all will be.
During a crucial summer sales period, the outage forced many dealerships to revert to pen-and-paper and third-party software workarounds. It affected DMS, customer relationship management, third-party software integration, and end-of-month financial accounting processes.
AutoNation estimates the outage will impact their earnings by approximately $1.50 per share, partly due to compensation paid to commission-based employees. “The company will not recover those one-time costs as neatly in the third quarter,” said David Whiston, a U.S. auto equity analyst at Morningstar. “But it needed to be done: You can’t risk losing massive chunks of your sales force or technician force.”
AutoNation, headquartered in Fort Lauderdale, Fla., will release its second-quarter earnings report on July 31.
Sonic Automotive, which operates over 100 dealerships, also faced significant disruption due to the CDK outage. The company has warned that earnings will likely “be adversely impacted by the incident.”
J.P. Morgan analysts predict an average 10 percent drop in second-quarter earnings per share for the top public auto retailers due to the outage. They will closely monitor third-quarter trends in selling, general, and administrative expenses and parts and service business to gauge recovery prospects.
Here’s the impact of the CDK outage on major public dealer groups:
– AutoNation: Uses CDK at all dealerships.
– Sonic: Uses CDK at all dealerships.
– Lithia: CDK customer but does not use the system at U.K. stores, which make up about 18% of revenue.
– Group 1: CDK customer but does not use the system at U.K. stores, which make up about 10% of revenue.
– Asbury: CDK customer but does not use the system at the 20 stores acquired from Jim Koons Automotive Cos.
– Penske: Does not use CDK at dealerships, only its Premier Truck Group.
Group 1 Automotive of Houston uses CDK at its U.S. stores but not at those in the United Kingdom, which account for about 10% of its revenue. CDK restored Group 1’s DMS early, limiting their outage to over a week.
Lithia Motors’s U.K. operations, which produce 18% of its revenue, were unaffected by the outage. Lithia owns a growing share of the U.K. DMS Pinewood and plans to bring the software to the U.S., but it did not use it as a workaround during the CDK outage.
Meanwhile, Asbury Automotive Group has not yet announced its second-quarter earnings release date.
Penske Automotive Group will likely be the least impacted by the outage as it does not use CDK’s DMS at its franchised dealerships, only for its Premier Truck Group.
