DaimlerChrysler fears data security decision will cost dealers

Ralph Kisiel | | Automotive News / February 5, 2007 - 1:00 am - - DaimlerChrysler AG is weighing in against Reynolds and Reynolds Co.'s planned security crackdown on U.S. dealership computer systems.

DaimlerChrysler says it is concerned that Reynolds' move on outside vendors ultimately will raise the cost of business for its dealers. Last week, DaimlerChrysler addressed the issue in a strongly worded electronic letter to Chrysler, Dodge and Jeep dealers.

Although the automaker does not name Reynolds, there is no question that DaimlerChrysler is referring to Reynolds -- the largest dealership management system vendor in the United States, with about half the market.

"A large DMS provider has announced their intent to discontinue the ability of third-party vendors to extract data via your DMS maintenance modem, which has been the predominant data extraction method," DaimlerChrysler says in its letter. "DaimlerChrysler has concern with this new policy, as it may have a significant impact to your business."

The electronic message was not signed but came from DaimlerChrysler's dealer relations department. Automotive News obtained a copy of the letter.

Reynolds, of Dayton, Ohio, has not heard from DaimlerChrysler on the issue, says Tom Schwartz, a Reynolds spokesman. Reynolds contends that such security measures are a necessity to protect dealer systems and personal data from hackers.

Reynolds is working with several automakers, including Kia, to provide data and data services from their dealer network, often involving third parties. "And all of that has gone smoothly and efficiently," Schwartz says.

Jim Arrigo, new chairman of the Chrysler-Jeep National Dealer Council, says the data security debate has not yet reached the council. There are about 3,800 Chrysler, Jeep and Dodge dealerships in the United States. It's unclear exactly how many use a Reynolds system.

"If you use the Reynolds (customer relationship management) tool, and you use their computer system, they are making enough money on that. What do they care what you do with the other stuff -- that's crazy," says Arrigo, owner of Arrigo Dodge-Chrysler-Jeep in West Palm Beach, Fla.

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Whose data is it? DaimlerChrysler has raised several concerns about Reynolds and Reynolds computer security measures, saying Vendors will pass the cost of Reynolds' certification on to dealers. Dealers won't be able to work with their preferred vendors. Reynolds may reduce the number of vendors, driving up dealer costs and fees. Reynolds' policy insinuates that dealerships are not capable of managing system access. Reynolds may be using security as a guise to enter the $4.3 billion data extraction industry.

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Growing debate

DaimlerChrysler says its dealers spend $4.3 billion annually with third-party vendors that provide an array of services and data extraction. For example, dealer data are used to support targeted consumer mailings and updated vehicle inventories.

DaimlerChrysler extracts data from its dealers' systems by using third-party vendors Digital Motorworks and IntegraLink.

"These companies have been polling dealership data on our behalf for over 10 years and have yet to incur a single security breech in the extraction or delivery of our dealership data," the automaker said in the letter.

DaimlerChrysler fears that Reynolds' certified third-party vendors will pass the cost of certification on to its dealers. Reynolds also could force third-party companies out of business, the automaker says.

In November, American Honda Motor Co. entered the debate when it hired Digital Motorworks to extract service data from Honda and Acura dealer computer systems. Reynolds then warned Honda and Acura dealers that they would violate their Reynolds contracts if they gave access to Digital Motorworks.

Reynolds and Digital Motorworks are trying to reach an agreement.

Reynolds says its certification process can cost about $10,000 to $20,000. But some vendors and dealers say the cost is actually much higher and say Reynolds also is charging dealer setup fees and monthly fees.

A 'stalking horse'?

The controversy emerged not long after Reynolds was acquired in October for $2.8 billion by a smaller competitor, Universal Computer Systems Inc., of Houston.

"If the concerns being raised around data security are merely a stalking horse for concerns around our merger, we have been clear from day one -- the Reynolds brand and the Reynolds way of doing business will continue to define the company," says Schwartz.

Reynolds executives have repeatedly denied that this security initiative has anything to do with the UCS takeover and that security enhancements began more than a year before the UCS deal closed.

Reynolds has been enhancing system security without disrupting its customers' business since 2005, Schwartz says.

In June 2005, he says, Reynolds distributed a security enhancement to 1,000 dealers "without a ripple and without public attention because it worked for dealers and third parties."