Domino effect: CDK Global outages could prove costly

The CDK Global cyberattacks have exposed major vulnerabilities in the systems car dealers have come to rely on for daily operations, and the fallout from this event could be enormous for the auto industry.  

Why it matters: The ripple effect of a lapse in cybersecurity is far-reaching. CDK alone services around 15,000 dealerships. If there is one thing that the attacks have shown us, it’s that integrated technology systems can be a house of cards. One mistake from a major provider, and a whole industry could be thrown into chaos.

Of note: Integrated technology in this context means connecting different sub-systems or applications to make sure they function as one whole unit.

Looking back: CDK is just the latest victim of cyberattacks this year. On May 8 Ascension, a Catholic health system with 140 hospitals in at least 10 states suffered a brutal ransomware attack. Providers were locked out the systems that track patient care for over a month, in some cases. 

Between the lines: The attack on CDK was a ransomware attack. Ransomware is malicious software that criminals use to lock down computer systems until a sum of money (often tens of millions) is paid out. In 2023, $1.1 billion was paid out in 2023, according to Fisher Phillips. That’s nearly double from the $567 million paid out in 2022.

By the numbers: Only 150 companies make up  90% of the technology products and services “across the global attack surface,” according to research from SecurityScorecard and McKinsey & Co.

• 41% of those companies had evidence of at least one compromised device in the past year. 

• 11% had evidence of a ransomware infection in the past year.

Key quote: “Much like a precarious house perched on a cliff’s edge, the reliance on a handful of vendors shapes the foundation of our global economy. The question to ask is: ‘Have we concentrated a mission-critical service to a single vendor — creating a single point of failure?’” said Dr. Aleksandr Yampolskiy, CEO and Co-Founder, SecurityScorecard.

The intrigue: According to estimates from Anderson Economic Group, the CDK cyberattacks could cost auto retailers $605 million if the systems don’t come back online until June 30 (the restoration date given by CDK). If the outages last until July 6, add another costly $339 million. 

Sales outlook: While the CDK cyberattacks have undoubtedly thrown a monkey wrench into car sales, analysts at Edmunds remain optimistic for the rest of summer (a typically strong selling season for dealers).

• “The good news is — unlike other black swan events that the industry has contended with in the past — sales shouldn’t be lost or severely deferred, but rather pushed into the third quarter. And in a testament to the resilience of dealerships, affected stores have actively been creating workarounds much like they did at the start of the pandemic to ensure continuity," said Jessica Caldwell, Edmunds’ head of insights.

Bottom line: Only time will tell what the true costs of this attack will amount to. But one thing is for sure, dealers are using innovative methods to endure as they have countless times before and they will most likely come out of this wiser and stronger.

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