Why e-deals are replacing paper -- and why not
Quicker payments from lenders are a big plus for dealerships
 | Finance Director Andrea Forteleoni can't understand why some dealers avoid e-contracts: "A lot of times we get our money before it's even due." |
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Andrea Forteleoni, finance director at Bill Seidle Nissan in Miami, can tick off several reasons why he likes paperless sales contracts.
But he cuts quickly to the bottom line: He gets paid by the bank in a few hours, and often the same day, if the deal is done through e-contracting rather than paper forms.
Nissan Motor Acceptance Corp. finances the sale or lease of about half the 300 new and used vehicles the dealership sells monthly, Forteleoni says. And Nissan Motor Acceptance handles every lease via e-contracting.
"Honestly, a lot of times we get our money before it's even due," Forteleoni says. "I can't comprehend why dealers aren't 100 percent onboard with e-contracting."
The industry, though, has been slow to get off paper.
Less than 10%
Less than 10 percent of dealerships make significant use of e-contracting in the finance and insurance department, despite the technology being around for years, says Terry O'Loughlin, director of compliance for the documents unit at Reynolds and Reynolds Co., a provider of dealer management systems.
In an unscientific online survey of dealers by Automotive News in February, just one quarter of 158 respondents said they are closing sales with e-contracting. Of those using electronic forms, more than half said they could perform only one quarter or less of the closing process via e-contracting.
E-contracting is starting to get traction thanks to dealerships' desire to get paid quickly from finance companies funding vehicle sales and leases, says Robert Granados, general manager of sales and F&I solutions at DealerTrack Inc.
Before the recession of 2008-09, dealers were selling so many vehicles -- U.S. industry sales frequently topped 16 million a year -- that quick pay was not a high priority, Granados says.
Then the recession caused dealers to focus on simple survival, he says.
As the recession abated in late 2009 and into 2010, dealers started to take another look at e-contracting, Granados says. "Dealers are very focused on contracts in transit," he says.
Outpacing sales gains
In 2011, DealerTrack, an industry leader in electronic credit applications for dealers and dealer management systems, saw a 20 percent increase in electronic contracts while overall U.S. vehicle sales rose about 10 percent, he says.
Forteleoni, at the Miami Nissan store, says a byproduct of more e-contracting is that banks are paying quicker even if they don't accept paperless contracts.
He says he has seen finance companies that insist on paper forms reduce their pay periods from five to six days to two to three days because of competition from e-contracted, same-day payouts.
Jon Strawsburg, vice president of product planning at Reynolds, says a key reason why so few dealers use e-contracting is that few banks have set up the infrastructure to accept it.
Many of the automakers' captive finance companies as well as big financial institutions such as Chase Auto Finance and Capital One are hustling to get on board, he says. Among the captives making progress are those for the Nissan, BMW, Mercedes-Benz and Volkswagen brands.
But many banks had the same issue as auto dealers during the recession: Their priority became survival rather than rolling out products that could wait, such as e-contracting, Strawsburg says.
"The vast majority of banks today do not accept electronic contracts with signatures," he says.
Reynolds' O'Loughlin says dealers are hesitating to jump into paperless contracting when most banks can't or won't accept the method.
'One set of documents'
"Dealers don't want a deal jacket that's part paper and part electronic," he says. "They want one set of documents that they can keep in one place."
Michael Kanzleiter, senior marketing manager for Mercedes-Benz Financial Services, says one of the clear benefits of e-contracting is a reduction, even elimination, of errors in the filling out of the contracts.
More than 90 percent of Mercedes-Benz's 355 U.S. dealers use what the company calls an e-validation tool that flags errors in contracts whenever numbers don't add up or boxes are missed, Kanzleiter says.
Last year, Mercedes-Benz identified 80,000 "data discrepancies" in contracts that were automatically flagged, preventing the contracts from being rejected or sent back for more information, he says.
That's a crucial fail-safe for dealers because of the inconvenience and damage to customer satisfaction that comes with having to redo a contract or contact a qualifying customer over a clerical error, Kanzleiter says.
In some cases, dealers might have had to eat the difference over errors, say, by typing in a wrong residual on a vehicle or other oversight not worth upsetting a customer over, he says.
Mercedes-Benz Financial finances three of every four vehicles sold or leased by Mercedes-Benz in the United States.
Says Kanzleiter: "We've tried to make the validation process as convenient as possible."
You can reach David Barkholz at dbarkholz@crain.com. -- Follow David on 
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