CDK cyber attack cripples auto industry and threatens economic growth

The recent cyberattack on CDK Global, a software provider for auto dealerships, has caused a major disruption to the auto industry, affecting nearly 15,000 dealerships across North America. The attack, which occurred on June 19, forced the company to shut down most of its systems, leaving dealerships scrambling to provide service to customers.

Auto dealers use CDK Global's software to manage everything from registrations to scheduling. The system shutdown has caused many dealerships to revert to old methods to avoid losing sales during the peak car-buying season. However, they have not been able to access customer quote and quote information stored on CDK's servers. CDK has advised customers that it does not expect their systems to be fully operational before June 30.

The impact of CDK's disruption extends beyond the automotive industry. Last month, transactions at auto dealerships accounted for 17 percent of all retail sales, which totaled $122 billion, according to Commerce Department estimates. An outage lasting through June 30 could result in a 10% drop in sales at the average dealership, which would represent a potential drop of about $4 billion in total auto retail sales for the month.

Russell Price, chief economist at Ameriprise Financial, predicts a steeper drop, closer to 40% for each day the outage continues. If the outage lasts 10 days, it estimates a loss of $16 billion in sales, which would reduce total retail sales by 2.3%. Given that retail sales account for roughly one-third of all consumer spending, which in turn is responsible for more than two-thirds of US gross domestic product, this could have a significant impact on the economy.

Price estimates that a 2.3% drop in retail sales for June would reduce the annual GDP growth rate in the second quarter of this year by almost a percentage point. However, he believes the loss of retail sales in June could be made up for in July and the third quarter, assuming all systems are back in line. However, the temporary drop could still cause concern among investors, which could lead to a sell-off in stocks.