IT Tips: Dealer System Providers

Negotiating with your Dealer System Provider (DSP)

Computer userThe vast majority of dealers lease their computer systems over a sixty-month term. The computer companies will offer the dealers discounts to offset the balance owed on the lease as well as the residual value buyout. The computer companies do this to give the dealership an incentive to buy a new computer system every four years rather than five. The reason is to pull the dealership off the market before another computer company can sell them another system.

Send a registered letter to the computer company asking for the lease buyout figures and any other contractual obligations. Tell them you need to determine how long it will be before the hard drive or memory will be unable to support your business.

When negotiating contracts for IT equipment, applications, and services, evaluate the equipment purchase options for the end-of-lease buyout. The options may include purchasing the equipment at fair market value or a not-toexceed dollar amount (typically under five percent of the total transaction price).

The type of IT equipment being acquired may affect your buyout selection:

  • Green-screen terminals and desktop PCs may have negligible market value at the end of a two or three year lease.
  • Application PC servers could have a three-year useful life and dealership mainframes that support the key sales, inventory, and accounting functions may have up to a seven-year useful life.
  • A lease with a combination of the above equipment types would have items ranging from three to seven years of useful life. Establishing a three-year lease for the combined purchase would allow equipment to be replaced as needed within three years while retaining other equipment with longer useful lives.

Beware of the lease rollover. It is estimated that 95 percent of leases don’t go to term. Use your negotiating skills to acquire the length of the lease that you desire.

There are a few compelling reasons to purchase a new computer system. The first involves the speed of the computer and the storage capacity. Many computers have grown slow and run out of disk space. If the cost to add speed and space is ridiculously high then upgrading becomes the practical solution. The second compelling reason is new software and hardware offerings. If the dealership wants to move towards new technology that is not available on the old computer system, then a new computer purchase is justified.

Contact your computer vendor sales representative and have him prepare a proposal outlining in detail the fixed computer costs you will pay after you purchase the leased box. Accept no summary analysis. Make sure every piece of equipment and software support existing on the monthly bill is on the analysis. Emphasize to the computer representative that you are deciding whether to stay with them or bring in a competitor to bid for the business.

Determine any addendums you want to add to the contract like the samples given below:

  • No price increase for 36 months.
  • Same discounts given to purchase the system are applied to updates and add-ons for the next 24 months.
  • Under-configuration Protection guaranteeing the computer will not run out of memory or hard drive space unless the dealership grows beyond expectations.
  • Cancellation Addendum allowing the termination of software or hardware support without penalty.
  • Free in-dealership training and support quarterly.
  • All F&I forms pre-programmed.