Brockman's Plan for Reynolds

Now that Bob Brockman owns Reynolds and Reynolds Co., the question is what does it mean for dealers?

Brockman's company, Universal Computer Systems Inc., a private firm in Texas, acquired the much larger and public Reynolds in October and promptly took it private. Don't stop reading, though, if your dealerships are on systems other than ones built by Reynolds or UCS, because this deal likely means you will be paying higher prices regardless of what system you use.

When Reynolds was public, it competed hard with ADP and often competed with it on price. Reynolds had to make sure its number of dealership clients remained fairly stable and even with ADP to keep Wall Street happy. But that also limited its profitability.

The fact that Reynolds and ADP competed so hard helped keep a lid of sorts on what they charged dealers. At least, savvy dealers were able to play the firms against each other into providing significant discounts when negotiating a new contract. But that dynamic no longer exists.

Brockman can afford to lose several hundred, if not thousands of dealer customers, and still make a lot of profit. It is a formula that worked at UCS.

In fact, it is not inconceivable Brockman plans on losing a large number of customers — especially customers that require a lot of support and generate little profit.

That scenario bodes well for ADP, who likely will gain significant market share in the next five years. Additionally, ADP, and even the next tier of vendors, Autosoft and Arkona, will be able to raise their prices without the specter of having to negotiate against Reynolds.

Another question is whether Brockman decides to build the servers in house as he does for UCS dealers. Currently, Reynolds buys its servers from IBM but there are reports from Dayton, OH, Reynolds' headquarters, that may not continue.

Building the servers in house will provide Reynolds greater flexibility in what it can charge dealers as well as greater ability to control who has access to the DMS.

The question of who controls access to the DMS will be a battle this year. Reynolds continues to maintain that is following through with its Reynolds Certified Interface program announced prior to the National Automobile Dealers Assn. convention last year. There has been some question whether the program would continue after the acquisition by UCS. It promises to protect the dealers' data residing on the DMS, by limiting access other applications providers have to the DMS. Several third-party companies, along with dealers, however, believe the program was conceived to drive profits for Reynolds by charging the third-party firms fees to access the DMS.

People familiar with RCI claim Reynolds has signed no contracts with third-party firms for RCI since the acquisition, which raises the question of whether Reynolds will continue the program.

For the most part, UCS has maintained a strict policy not allowing other companies with competing applications access to the DMS. As a result, UCS has a reputation for being difficult — some say impossible — to work with. It is not a stretch to imagine Reynolds adopting a similar philosophy.

There are indications, though, there may be gentler and nicer version of UCS. Brockman at least, has conveyed that possibility to different people the last few months. Time will tell.

If you're thinking he will flip the company in a few years and plan on waiting him out, don't hold your breath. The only end game Brockman has in mind is to be carried out with his boots on. The private investment firms that helped fund the deal are rumored to have already received their investment, leaving Brockman in complete control. Besides, Brockman loves this business too much to leave.

The other question is Finbarr O'Neill's future with the company. Our guess is sometime between now and April 23, the six-month anniversary of the acquisition, O'Neill will exit Reynolds.

One thing is certain: the effects of this acquisition will be felt for years to come.