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CDK Global works to restore dealer software after hack, but fallout on auto sales still to come
The CDK Global (BBU) cyber attack disruption, which paralyzed dealerships across North Americaappears to be on the way to resolution. But the damage has already been done: the loss of sales and service revenue could be substantial.
On Wednesday evening, CDK Global released a statement with the company’s first positive news since the cyber attack began on June 19.
“We have successfully placed a small initial test group of dealers on the Dealer Management System (DMS), and once validation is complete, we will begin onboarding additional dealers,” the company said in a statement to Yahoo Finance. “We are also actively working to make available additional applications – including our customer relationship management (CRM) solutions and services – and our customer service channels.”
Sales hit? Cars sit in the parking lot of a dealership on June 20 in Chicago. (Scott Olson/Getty Images) (Scott Olson via Getty Images)
CDK attempted to restore services last week but had to backtrack after suffering a second cyberattack. CDK later admitted that the attackers demanded a ransom to restore services; Bloomberg separately reported that the group behind the attack, BlackSuit, based in Eastern Europe, demanded tens of millions of dollars. It is currently unclear whether CDK Global paid any ransom; when asked by Yahoo Finance about the payment, the company declined to comment.
Still, the new phased rollout of its DMS appears to be a step in the right direction. However, public auto dealership groups like AutoNation (ONE), Group 1 Automotive (GPI) and Lithia Motors (BOY) warned that their second-quarter financial results would likely be impacted by the disruption. Companies turned to alternative means of documenting sales and services, some even using pen and paper to record transactions.
A service center in Illinois is suing CDK Global about business lost due to cyber attack and other DMS operators like Dominion said automakers want to audit their software as well as testing the effectiveness of cybersecurity.
With systems impacted for more than a week, automotive research firms are projecting sales losses for the month of June and the second quarter.
“Because of the disruption to dealer software systems, June sales will not reflect actual consumer demand for new vehicles. Instead, a significant number of sales that would have occurred in June will now likely occur in July,” Thomas King, president of data and analytics at J.D. Power, said in a statement.
King and J.D. Power project that overall June sales will fall from an initial projection of 1.41 million units to between 1.27 to 1.33 million units of sales for the month, or a 2.6% to 7.2% decrease in sales compared to a year ago.
The story continues
One positive: Those lost sales could reappear in July. But even a lost week, or a slow week of sales, in June could affect overall second-quarter sales for dealer groups and automakers alike, given the historically strong late-June period.
“The CDK cyberattacks threw a monkey wrench into sales during the second half of June, impacting what is arguably one of the busiest and most profitable times of the month and quarter for dealerships,” said Jessica Caldwell, head of insights at Edmunds. “While the impact of these attacks will differ from dealership to dealership, this event is another hurdle on the automotive industry’s long road to recovery.”
Caldwell noted that despite high interest rates and other headwinds, new vehicle sales were expected to be strong in the second quarter due to healthier inventory levels and the return of summer incentives. However, like J.D. Power, Edmunds now expects sales to be pushed into the third quarter, meaning sales losses could be recouped.
With second-quarter earnings season approaching next month, investors will have a clearer picture of the cyberattack’s impact on dealership group sales and overall quarterly deliveries for volume automakers like Ford, GM and Toyota.
Pras Subramanian is a Yahoo Finance reporter covering the auto industry. You can follow him Twitter is at Instagram.
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