Car Dealership Losses From CDK Software Outage Could Soon Reach $1 Billion, Study Finds

Car Dealership Losses From CDK Software Outage Could Soon Reach $1 Billion, Study Finds
Miniatures of people with computers are seen in front of binary codes and words 'Cyber attack' in this illustration taken on July 19, 2023. (Dado Ruvic/Reuters)

A new study from the Anderson Economic Group (AEG) estimated that North American losses from the CDK Global software outage could reach $1 billion if the company can’t get the 15,000 affected new-car dealerships back online by the end of the week.

CDK provides software to facilitate new-car purchases, including finance and insurance, dealer management, customer relationship management, and digital retail.

The outage began on June 19, causing CDK to shut down its systems when it discovered two separate cyberattacks, as reported earlier in The Epoch Times. It is now in the third week with many dealerships remaining offline.

Analysts from AEG estimated that the first two weeks of the shutdown have cost dealers more than $600 million in earnings on sales of new and used cars, service, and parts sales, additional staffing costs, and additional financing costs on unsold vehicles and parts.

The estimate only includes new-vehicle dealers of passenger cars and light trucks, some of which also sell heavy trucks. Dealers that only sell heavy trucks were not included in the estimate of losses.

AEG posited that some customers would find dealerships not affected by the outage and purchase vehicles there, while some would wait for the outage to end. Others might postpone a purchase indefinitely.

Some dealerships affected by the outage have reverted to manual methods of completing sales, which are often more time-consuming, but allow them to continue to sell cars until the outage ends.

Losses to affected dealers could be higher than AEG’s estimate because it did not include reputational loss to dealers or brands, loss of customers’ personal information in the cyberattack, law enforcement costs involved in bringing the cyberattack’s perpetrators to jusice, and costs of resolving legal disputes arising from the outage.

Insurance could cover some of these losses for dealerships.

The outage was mentioned as a factor in slightly lower car sales for June predicted by automotive research group Cox Automotive.

Cox predicted June’s new-vehicle sales to be almost 16 million, up slightly from 15.9 million but down from last June’s 16.1 million.

Without the outage, sales were expected to be slightly higher than last June, a difference of about 100,000 units. A slowdown was expected for the rest of the year after June because of uncertainty caused by the 2024 presidential election.

Some consumers will probably wait to see what happens with the economy after the election before deciding whether to purchase a new vehicle, Cox predicted.

Cox said that it expects any losses related to the CDK outage will be made up in July, which could lead to higher sales in July before the expected slowdown hits.

The second half of June represents the final weeks of the second quarter, generally a brisk time for sales and a time when incentives are typically offered in order to meet sales quotas.

It is not clear whether those incentives will still be offered in July, or whether dealers will rely on pent-up demand to bolster their sales instead.

Car prices have begun to decline in 2024 after rising during and after the pandemic. New cars have dropped 0.8 percent this year, according to the Consumer Price Index.

Changes in supply and demand, even when caused artificially by a glitch such as the CDK outage, sometimes affect prices on items. Any such artificial changes often normalize shortly after the cause is rectified.

A Reuters report on Monday said that CDK expects to have its systems back online by July 4, but CDK did not respond to a request by NTD News to confirm this information.