Yahoo Finance CDK Global works to restore dealer software after hack, but the auto sales fallout still looms
JD Power and Edmunds see sales getting hit due to the ongoing hack to dealers' software.
The CDK Global (BBU) cyberattack outage, which crippled dealerships across North America, appears to be on a path toward resolution. But the damage has been done: Lost sales and service revenue could be substantial.
On Wednesday night, CDK Global issued a statement with the first positive news from the company since the cyberattack began on June 19.
“We have successfully brought a small initial test group of dealers live on the Dealer Management System (DMS), and once validation is complete, we will begin phasing in other dealers,” the company said in a statement to Yahoo Finance. “We are also actively working to bring live additional applications — including our Customer Relationship Management (CRM) and Service solutions — and our Customer Care channels.”
CDK tried to restore services last week but had to backtrack after suffering a second cyberattack. CDK subsequently admitted that the perpetrators were demanding a ransom to restore services; Bloomberg separately reported that the group behind the attack, BlackSuit, is based in Eastern Europe and was demanding tens of millions of dollars. Currently, it is unclear if CDK Global paid any ransom; when asked by Yahoo Finance about payment, the company declined to comment.
Still, the new staged rollout of its DMS seems to be a step in the right direction. However, public auto dealership groups like AutoNation (AN), Group 1 Automotive (GPI), and Lithia Motors (LAD) warned their second quarter financial results would likely be impacted by the outage. The companies have resorted to alternative means of documenting sales and services, with some even using pen and paper to record transactions.
One service center in Illinois is suing CDK Global over lost business due to the cyberattack, and other DMS operators like Dominion have said automakers want to audit their software as well to test for cybersecurity effectiveness.
With systems impacted for over a week, automotive research firms are projecting lost sales for the month of June and second quarter.
“Because of the disruption to dealer software systems, June sales will not be reflective of actual consumer demand for new vehicles. Instead, a significant number of sales that would have occurred in June are now likely to occur in July,” said Thomas King, JD Power’s president of data and analytics, in a statement.
King and JD Power project overall June sales will dip from an initial 1.41 million unit projection to between 1.27 to 1.33 million unit sales for the month, or a 2.6% to 7.2% decrease in sales compared to a year ago.
A positive: Those lost sales could reappear in July. But even a lost week, or slow week of sales, in June could affect overall second quarter sales for the dealer groups and automakers too, due to the historically strong end-of-June period.
“The CDK cyberattacks have thrown a monkey wrench into sales during the second half of June, affecting what is arguably one of the most lucrative and busiest times of the month and quarter for dealerships,” said Jessica Caldwell, Edmunds’s head of insights. “Although the impact of these attacks will be different from dealer to dealer, this event is another speed bump on the automotive industry’s long road to recovery.”
Caldwell noted that despite high interest rates and other headwinds, new vehicle sales were poised to be strong in Q2 due to healthier inventory levels and return of summertime incentives. However, like JD Power, Edmunds now expects sales to be pushed to Q3, meaning sales losses could be recovered.
With Q2 earnings season coming up next month, investors will get a clearer picture of the cyberattack’s impact on dealership group-level sales and overall quarterly deliveries for volume automakers like Ford, GM, and Toyota.
Pras Subramanian is a reporter for Yahoo Finance covering the auto industry. You can follow him on Twitter and on Instagram.
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