Dealers would have suffered deeper hits from the economic downturn and retail credit crunch had it not been for loan aggregators. Aggregators are a relatively new phenomenon. They combine technology and relationship building with lenders so that dealerships don't have to do all of the legwork to get customers financed. We'll look at loan aggregators who make a difference in the next six issues of the Finance & Insurance Report, starting today with RouteOne.
RouteOne has bucked a trend in the economy in the past year: It has hired more people.
It's not just that business is up -- although the credit applications that RouteOne handled in August jumped 11 percent from August 2009, when numbers already were high because of the federal government's cash-for-clunkers program. Driving the changes in staffing were changes affecting its owners.
RouteOne was founded in 2002 by four major captive finance companies: GMAC, Ford Motor Credit Co., Chrysler Financial and Toyota Financial Services. In the past year, GMAC Financial Services was replaced by Ally Financial, and Chrysler Financial cut way back.
"In the past, we relied primarily on owner sales forces to promote and sell our products in the field," says RouteOne CEO Mike Jurecki. "Now, we're transitioning to more dependency on ourselves." So the company has doubled its sales force and added staff to its service center.
RouteOne is one of the oldest and largest finance aggregators. About 20,000 franchised dealerships have contracts with the company, and a little more than half of those are active at any one time, says Jurecki, 51. They are concentrated on the East and West coasts.
RouteOne has exclusive agreements with its founding four captives, meaning RouteOne is the only company that can arrange indirect financing for dealers from those captives. Ally recently joined DealerTrack, so dealers affiliated with Ally now can use either RouteOne or DealerTrack.
But the majority of RouteOne's business comes from noncaptives -- largely banks, finance companies and credit unions. It works with more than 500 lenders, sending them 800,000 loans a month.
But being so closely affiliated with the captives has meant upheaval. Five years ago, 80 percent of RouteOne's business went to the four captives. That has plunged to 30 percent today.
As captives cut back their indirect lending, RouteOne added more noncaptive lenders, including many that do used-vehicle financing. As a result, RouteOne's used-vehicle business has grown from 10 percent of overall business five years ago to 51 percent now. Route One also is adding more independent dealers, now at 300 and growing.
Core is free
RouteOne's core product connecting dealers with lenders is free. Dealers can choose to pay for other products, such as access to credit bureaus or used-car guide values.
Loan applications typically go to about two lenders -- a figure intentionally kept low. "When we're in a tight credit environment, those banks handling applications are incurring costs," Jurecki said.
If a loan application is approved, it often takes just seconds for a decision, depending on the capabilities of the lender's internal systems. If the application is rejected, banks sometimes prefer to call.
RouteOne does handle lease applications, but leasing's share of the business sank from 25 percent in September 2006 to 5 percent now as the leasing market has shrunk.
Jurecki sees electronic contracting as RouteOne's next big growth area. "There are going to be a number of captives entering the market" as early as next year, he said.
As for the overall credit market, Jurecki has been in the business long enough to be cautious.
"Credit is starting to loosen a little bit but at a very slow rate," he said. "We're starting to see more entries and re-entries into the indirect credit market, but [lenders] are more selective about where they do business."