Dealers prying payments from some lenders

Errors, complexity can slow cash flow; software may help

Open Dealer Exchange's Steve Luyckx says dealers should expect a 48-hour turnaround.

Published in Automotive News Sept. 8, 2014

Dealers are still seeing big differences in how quickly lenders pay them on contracts in transit, despite awareness and technology campaigns aimed at speeding payments to dealers when retail customers finance vehicle purchases and leases.

Wesley Chapel Honda north of Tampa, Fla., usually receives payment within 48 hours from the local banks and credit unions that finance its customers' vehicles, said Joe Barba, the store's used-car director.

Conversely, he said, it typically takes five to seven days to get paid for a clean contract without errors on deals financed by Honda's captive finance unit, Honda Financial Services.

Tim Wynacht, general manager of Kathy Fowler Chevrolet and Kathy Fowler Chrysler-Jeep-Dodge-Ram in Lakeport, Calif., reports similar disparities in payment speed among lenders.

On the other end of the spectrum, Mercedes-Benz dealers can get paid ahead of submitting contracts to Mercedes-Benz Financial Services if they use software provided by the captive that electronically validates information in the deal jacket.

The e-validation system allows for fast pay by minimizing document errors, improving throughput in the finance and insurance department and aiding customer satisfaction, says Geoff Robinson, M-B Financial's vice president of marketing. "From our point of view, it is well worth it," he said.

Big stakes

Big money is at stake in contracts in transit -- deals that lenders have committed to but not yet paid.

Wynacht said in any given month he has $100,000 in transit. By comparison, AutoNation Inc., the largest U.S.-based dealership group ranked on 2013 new-vehicle retail sales, reported contracts in transit of $370.6 million at the end of its fiscal second quarter, according to its quarterly financial filing with regulators.

Barba, of Wesley Chapel Honda, said that for every day he has to wait for payment after a car is sold or leased, it costs the dealership about $45 for a used vehicle and about $20 for new one.

The used-car cost includes the money the dealership paid to buy the car and its depreciation on the lot awaiting delivery, Barba said. The cost on new cars includes the interest the dealership pays on floorplan loans used to buy the vehicles from the manufacturer, he said. "Cash flow is a huge deal when there's lag time in the funding process," Barba said.

Honda Financial Services declined to comment on its payment performance.

Several factors can contribute to slow pay, including the desire of lenders to hold on to the money to earn interest on it, said Steve Luyckx, general manager of Open Dealer Exchange, a portal linking dealers with lenders.

The company is a 50-50 joint venture between dealership software giants Reynolds and Reynolds and ADP Dealer Services, soon to be known as CDK Global.

"There's often no incentive for a lender to expedite payment," said Luyckx, who served years ago as a senior manager at the old Chrysler Financial, now TD Auto Finance.

He said dealers should expect a 48-hour turnaround on getting their payments on error-free, completed contracts.

Fast funds
Dealerships have some control over how quickly they are paid by lenders that finance customers' vehicle purchases and leases. Stores can

• Adopt electronic contracting software to reduce re-contracting, speed funding and drive up customer satisfaction scores.

• Understand lenders' buying behaviors and tailor document requests for each applicant.

• Stay on top of all support documents needed for contract acceptance to reduce contract processing time and speed payment.

Source: Dealertrack Technologies

Frequent errors

Mistakes on submissions, however, are commonplace, stretching out the time needed for payment, Luyckx said.

Over the years, the incentives offered by manufacturers on vehicles have added complexity to deals, increasing the potential for mistakes on contracts, he said.

Moreover, auto leases accounted for nearly 26 percent of new vehicles sold in the second quarter, Experian Automotive reports. That exacerbates the complexity of purchases. That's because more factors have to be included in contracts, such as residual values, excess mileage penalties and possibly disposal and acquisition fees, he said.

When documents, signatures or items such as income verification are missing from deal packages, lenders frequently will hold up payment until the issues are resolved. The typical contract and support documents in a deal jacket can number 13 to 15 items, Luyckx said.

To minimize mistakes, Open Dealer Exchange has software that integrates with a dealership's main operating software to check contracts for completeness and errors automatically to avoid payment delays.

Among other vendors with comprehensive dealership software to smooth deals and check for compliance are Dealertrack Technologies and RouteOne.

Dealerships are able to get payment from credit unions affiliated with Credit Union Direct Lending (CUDL) within a day of submitting contracts, said Jerry Neemann, executive vice president of automotive solutions at CU Direct Corp. CUDL, a brand of CU Direct, is an online portal and software provider that promotes credit union loans through dealerships.

Using CUDL's SmartFund system, a dealership can scan contracts and email them to a participating credit union and expect payment in 24 hours, Neemann said.

About half of the 99,000 auto loans transacted by CUDL's 11,000 participating dealerships in July used SmartFund, he said. That represented about $1 billion in auto financing, he said. Every year the number of participating dealerships and credit unions grows because of the cash flow benefits of quick pay, Neemann said. CUDL is a vendor to about 1,100 of the nation's 6,500 credit unions nationally.

You can reach David Barkholz at dbarkholz@crain.com -- Follow David on Twitter: @barkholzatan

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