Get Newsletter Submit a Tip

CDK, Reynolds and Reynolds Lawsuit: A Deeper Look

February 16, 2017 0 Comments

 

Edited: This piece has been edited to more accurately display sources.

Motor Vehicle Software Corporation (MVSC), a provider of electronic vehicle registration and titling services (EVR), has filed an antitrust lawsuit in federal court in Los Angeles against CDK Global, Inc., The Reynolds and Reynolds Company, and Computerized Vehicle Registration, Inc. (CVR).


This story was originally broken and researched by The Banks Report (TBR).

You can read the original report here.

The Lawsuit

As we recently reported, the complaint says that CDK and Reynolds are illegally blocking MVSC from joining their data access programs, which would grant MVSC access to data from dealership management systems (DMS). Computerized Vehicle Registration, a joint venture between CDK and Reynolds, was formed in 1992 and competes with MVSC in Illinois and California.

Dealers store their customer data on dealership management systems, or DMS. The question is about the control that CDK and Reynolds have, and how they allow customer data to be used. Research done by The Banks Report has found that, “CDK and Reynolds combined supply DMS systems to approximately 12,700 dealerships, which is just over 70 percent of the 18,000 franchise new-car dealerships in the U.S. Approximately 4,500 use Dealertrack, Autosoft and Auto/Mate. The rest of the market is divided among several smaller players.”

It’s a complex situation. CDK and Reynolds charge third-party vendors to access the data on their DMS, and can also block third-party access to the DMS, as the lawsuit alleges they have done with MVSC. However, companies like MVSC can’t operate properly without access to customers’ data. The lawsuit alleges that CDK and Reynolds have conspired illegally since 2014 to prevent MVSC from having access to the data on dealerships’ DMS, which provides a major competitive advantage for CVR.

DMS Concerns and Dealership Payments

Concerns over DMS access have been escalating for years. According to TBR’s report, Reynolds and Reynolds began its strategy of controlling access to the DMS in 2004 when it launched Reynolds Certified Interface (RCI), “citing data security as the reason for the new program.” Reynolds began charging vendors to be certified at this time. Two years later, Reynolds was acquired and went private, and RCI became less transparent with its pricing, in addition to being more aggressive in shutting down access to non-certified vendors.

TBR reports, “Around the same time, CDK (ADP Dealer Services) launched its own program called Third Party Access (3PA). In 2014, ADP Dealer Services became a separate publicly-traded company taking the CDK moniker, and it followed suit with RCI’s move to push vendors to join its program, while also significantly raising its prices.”

According to the lawsuit, “reports estimate that a typical midsize dealership pays over $75,000 per year for DMS services offered by CDK or Reynolds. Larger dealerships typically pay over $250,000 per year. Given the thousands of dealerships that CDK and Reynolds serve, and with profit margins exceeding 40 percent, CDK and Reynolds are extremely profitable. CDK’s market capitalization is $9 billion. Reynolds is privately owned by Bob Brockman, a billionaire many times over.”

Money

Third-party vendors who have systems that compete with Reynolds and CDK complain that the companies make it almost impossible for them to access the necessary customer data, as is the situation in the MVSC lawsuit.

The lawsuit alleges that MVSC has tried to participate since 2014 but has been denied by Reynolds and CDK, claiming that while both companies have occasionally offered certification, they did so at unreasonably high prices that they knew MVSC could not possibly accept.

MVSC’s complaint says that CDK and Reynolds executives have admitted that the reason MVSC is not allowed to participate in its programs is because it is a competitor of CVR. Although CDK’s program guide states that, “Our 3PA pricing policy is simple: standardized pricing for all customers,” the lawsuit alleges that CDK admitted privately to MVSC that such “standardized pricing” does not apply to MVSC because it competes with CVR. The suit continues by saying that a top CVR executive confirmed that the extortive price quotes were not serious and were actually designed to refuse a deal, stating to MVSC: “I wish we would have asked for 85 percent of your revenue. We don’t want you in the program.”

According to the lawsuit, the move to cut off MVSC and subsequently convert dealerships to CVR has worked. The complaint says that one dealer wrote, “I have really bad news. We are not going to be able to keep DMVDesk since CDK is only approving CDK Licensed approved vendors to have access to our [DMS].” The allegations also state that the California New Car Dealers Association has advised some of its members that CDK’s and Reynolds’ “conduct as it relates to the [EVR] program [is] troubling not only from a business perspective but also from the damage it could do to consumers and the DMV for the roadblocks it is creating in the vehicle registration process itself.” The complaint also says that, “the conspiracy has caused MVSC to suffer millions of dollars in damages,” while “it has also harmed competition by reducing dealer choice (effectively preventing dealers from going with their preferred EVR provider), degrading the quality of EVR services, increasing the quality-adjusted price of EVR services, and eliminating competition in concentrated state EVR markets.”

The Law Firm Involved

MVSC is being represented in this matter by the law firm of Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., of Washington, D.C. The firm is highly notable for securing massive wins for both plaintiffs and defendants, including both the largest and second largest antitrust judgments in U.S. history (Conwood v. U.S. Tobacco and In re Urethane Antitrust Litigation), in addition to the highly influential cases Bell Atlantic Corp. v. Twombly and American Express v. Italian Colors. Although the firm has not specifically commented on its expected outcome for this case, one can surmise based on its track record that it is confident of a big win in this lawsuit.

“As the lawsuit makes clear, we have made every effort to participate in the third-party vendor programs operated by CDK and Reynolds,” said MVSC CEO Don Armstrong to Automotive News. “Yet each time we approached these DMS companies, we were denied entry into their programs. Our goal has been, and remains, to participate in the DMS providers’ standard third-party vendor programs at the prices they advertise. With full and timely participation, we will be able to unleash a new wave of innovation in the EVR market for the benefit of our dealer clients and the millions of consumers they serve. We are simply looking to level the playing field and foster true competition by eliminating monopolies and closed programs.”

The allegations are extremely controversial. MVSC claims that the defendants’ conduct violates federal and state antitrust laws, the California Unfair Competition Law, and the Illinois Consumer Fraud and Deceptive Business Practices Act. In the lawsuit, MVSC seeks a permanent injunction barring the defendants from continuing their unlawful conduct. The lawsuit additionally seeks an injunction allowing MVSC to participate in CDK’s and Reynold’s third-party programs on reasonable, non-discriminatory terms.

What Will Happen?

Certainly, the MVSC lawsuit is an extension of what has been a growing complaint in the auto industry. Will CDK and Reynolds settle with MVSC out of court? Or will it go to trial? And, if it does, who will win the case?

Although MVSC is being represented by one of the top antitrust firms in the United States, the outcome of the lawsuit remains unclear. However, what is certain is that complaints over unfair practices in DMS access are rampant throughout the industry, and there’s no question that dealers and vendors will be watching closely to see how this monumental case unfolds in the coming period.

 

 

About the Author:

The DrivingSales News team is dedicated to breaking the relevant and the tough stories affecting car dealers. Have questions for DrivingSales News? Reach the team at news@drivingsales.com.

Leave a Reply