EDITOR'S NOTE: This is the first of two stories looking at how data is collected and used in the auto industry, and who ultimately owns it.
Canadian dealerships, automakers and dealership management system (DMS) providers could be forced to rewrite franchise and data-sharing agreements as battles escalate over who controls lucrative consumer data and how it is used.
“There is a whole new currency now in the world, really, and in the commercial environment that is in the form of data,” said Frank Robinson, a partner at the Toronto-based law firm Cassels Brock & Blackwell, who is an expert in franchise agreements between dealers and carmakers.
“There is really a struggle about who should own that currency now,” Robinson said. “And the way this traditional model was set up was, for the most part, these contracts were 10 and 20 years long. And the idea that data was going to have this value 10 and 20 years ag wasn’t nearly as apparent as it is today, so those older forms of agreement probably don’t say anything about that.”
As the technology to collect and store consumer information has evolved, many dealerships and automakers in Canada are seeking to protect and monetize it. Consumer data ranges from how often customers come in for service and the exact details of their vehicle transaction to sensitive information such as social insurance numbers and credit information.
At the same time, a struggle appears to be shaping up between dealerships in Canada an the United States and DMS providers. Dealers increasingly rely on interconnected, third-party dealership management systems to store data, resulting in a debate on both sides of the border about who controls that information and how to proceed.
Tim Reuss, president of the Canadian Automobile Dealers Association (CADA), said a top priority in his new role is to ensure that dealers retain control of the data they collect.
“If data is the new gold, then treat it like gold,” Reuss told Automotive News Canada at CADA headquarters in suburban Toronto. “Do you own your data? ... Do you have access to your data, or are you beholden to your dealer management IT system that charges you every time you want to access your own data? That aspect of the discussion has become much more important than it used to be.”
Agreements between automakers and franchised dealers have long revolved around physical assets such as buildings and inventory. But those agreements are typically illequipped to provide answers to questions about data ownership, use and liability. Those contracts typically can be rewritten if the automaker and dealer agree to do so, Robinson said.
“Usually what they’ll do is they’ll rewrite their contract to adopt new technology to allocate expenses related to it to allocate responsibilities for maintaining it,” he said.
In the event of a data breach, Robinson said that whichever party “is said to own” the data in a contract is typically responsible for it. Contracts can spell out how the manufacturer, DMS provider or dealers allocate risk between them, he said.
Still, he said all parties typically work together in the event of a breach or hacking, since the consumers “are going to be very angry” with all parties regardless of who is at fault, threatening all sides with a loss of business.
“There's usually some sort of joint approach by all parties to make sure they can stop the bleeding really quickly and respond to the crisis that is emerging,” he said.
John White, Reuss’s predecessor at the CADA, said the association in recent years has been working with dealer councils to make sure data-sharing agreements with third parties, such as dealership management systems, are fair.
“These are the types of things that we face on an ongoing basis, and how do we deal with it?” White said. “The dealer needs to have their business running on all cylinders, vertically in every part of their business, so that they’re maximizing their revenue stream; and that they’re also going more broadly, looking at new revenue streams and at cost sharing in some way, shape or form.”
Across the border, state legislatures in Montana, Arizona and Oregon passed laws this year giving dealers more control over data stored in a DMS.
A spokesman for DMS provider Reynolds & Reynolds said the company “does not limit what dealers can do with their own data.”
SECURITY QUESTIONS ARISE
Tom Schwartz said many of the legal battles playing out in the United States could restrict “our ability to secure the Reynolds DMS and the data in it in the ways we believe are necessary.”
A single cyber incident, he said, “can destroy a dealer’s business and reputation, especially as consumers grow more concerned with how businesses manage their personal and financial data.” Because dealers are using larger amounts of data to boost performance and customer experience, Reynolds is taking steps to protect that information, Schwartz said.
“As a result, we continue to invest in our reporting tools and certified interface program to ensure that dealers have operationally sound and secu choices to share their data without compromising syste access,” he said.
Data has become increasingly important for dealerships. Case in point: CADA this year released a report by Ontario-based Seguin Adviso Services titled “Driving the Road Ahead,” which argues that dealers must be proactive in creating new revenue streams and diversifying thei businesses. Data and artificial intelligence could be a key to achieving that goal, Reuss said.
Of all the trends noted in the report, he said, the most pressing are those related to data.
“That’s the one that’s already starting to play out i the market and is important t look at, whether it’s data-sha ing agreements between man facturers and dealers and ho that’s going to be handled, ho current revenue streams that currently exist in the industry are going to be affected or how will new revenue stream be created in the marketplace,” he said. “And how wi the dealership participate in those?”