Think the CDK outage is just about cars and dealerships? Think again
Analysis by Elisabeth Buchwald, CNN
New York (CNN) — If you aren’t in the market for a car or your family’s income isn’t tied to a car dealership, you might not be aware of crippling cyber attacks that have left nearly 15,000 dealerships across North America struggling to provide services to customers.
Or if you are aware of it, you might think, “Well that sucks, but good thing I won’t be hurt by it.”
Not so fast.
What’s happening: CDK Global, a data provider whose software is used by car dealerships to handle everything from records to scheduling, was hit by cyber attacks on June 19 that caused the company to shut down most of its systems.
Not every dealer uses CDK’s products, and even those that do may not use them for everything, but the system shutdown has been a problem for many.
To protect customer privacy, customers’ details typically aren’t written out on a piece of paper that’s just sitting on a desk anymore, my colleagues Ramishah Maruf and Peter Valdes-Dapena report. But with the outage approaching the one-week mark, some dealerships are reverting to old-fashioned methods to avoid missing out on sales during what tends to be one of the busiest times of the year for car shopping.
Still, they haven’t been able to access information about deals and customer appointments that were stored within CDK’s servers. And on Tuesday, CDK informed customers it doesn’t expect its systems to be back up and running before June 30.
Working its way through the economy
Just like the strikes that upended many parts of the economy last summer, the longer the CDK outage goes on, the greater the impact it will have on the US economy. Yes, you read that right. The CDK incident isn’t an isolated event implicating only dealers and buyers.
Last month there were $122 billion of transactions at car dealerships, according to Commerce Department estimates. That accounts for 17% of all retail sales in May.
An outage lasting through June 30 would mean 10 days without dealership access to CDK. If sales slide even just 10% at the average dealership as a result, total auto retail sales could dip by around $4 billion for the month, according to estimates by Russell Price, chief economist at Ameriprise Financial, based on last month’s retail sales report.
But in his view, the average dealership will probably experience a more drastic drop, closer to 40% for each day the outage drags on. If it ends up lasting 10 days, he estimates they’ll lose $16 billion in sales.
That, he estimates, would depress total retail sales by 2.3%.
Now here’s where it gets even more glaring: Retail sales aren’t just some minor part of the economy. They account for about a third of all consumer spending. And consumer spending is responsible for more than two-thirds of US gross domestic product. So in effect, retail sales are the backbone to the backbone of the economy.
By Price’s estimates, a 2.3% decline in retail sales for June would shave nearly a percentage point off the annualized GDP growth rate the second quarter of this year. “The good news is what we lose in retail sales in June we should make up in July and third-quarter GDP, assuming all systems are back online,” Price told CNN.
To add insult to injury
Now, again, you might be saying to yourself, “Oh I see what’s going on here it’s just a temporary dip that’ll self-correct when everything is working properly again. That doesn’t mean I’m actually going to be hurt.”
If only it were so simple…
Investors care a lot about GDP data. It’s like a quarterly check-up on the health of the economy. So it doesn’t tend to sit well with them if it becomes apparent that the economy may be less healthy than anticipated. That’s why there was an ugly stock market selloff in April when the government reported that fourth-quarter GDP fell by much more than economists were expecting.
Consider yourself warned: You may want to hold off on looking at your 401(k) on July 25, when the government releases second-quarter GDP estimates.
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