Could electronic vehicle finance contracts finally become a dealership norm as giants Toyota Financial Services and Ford Motor Credit Co. join other captive finance companies in adopting e-contracting?
Are e-contracts finally catching on?
Electronic contracts are speedier than paper, which helps dealerships get funded faster. And they're more accurate because customer data must be entered only once to populate multiple fields, thus reducing typographical errors. Record storage is easier, too.
E-contracting has been around since at least the mid-1990s, but the practice has been slow to catch on despite the benefits. Lenders didn't want to switch to e-contracts until dealerships were willing to sign up, and dealerships didn't want to sign up with only a few lenders participating. That situation is starting to change.
"For us, this is brand-new," says Mike Groff, senior vice president of sales, marketing and product development at Toyota Financial Services.
Toyota Financial Services, which services the Toyota, Lexus and Scion brands, is signing up dealers and rolling out e-contracting nationwide this year after launching a pilot program last year. Development work took place over the past two to three years, says Groff, who will become CEO of Toyota Financial when George Borst retires at the end of this month.
The captive's monthly electronic vehicle finance contract volume this year grew from about 500 in January to 15,000 in June, or about 15 percent of total volume, he says.
Groff says several factors have slowed industrywide adoption of e-contracting, including:
- Costs for dealers and lenders to develop processes, especially during the recession.
- Ease of use and integration with multiple computerized systems.
- Lack of e-contracts for leases at some lenders.
- Lack of electronic documents related to a vehicle sale other than the finance contract.
Also hampering widespread adoption of e-contracts has been a perception on the part of auto buyers that their personal information is safer when documents are signed in person, F&I experts say.
But Brad Rogers, COO of RouteOne, says the outlook for e-contracting is improving. The company, which routes credit applications electronically between dealerships and lenders, also offers e-contracting.
Rogers says RouteOne's e-contracting volume more than doubled in the first half of this year to about 250,000, from fewer than 100,000 in the 2012 period. Through mid-August, booked e-contracts were more than 300,000, with 3,721 dealerships enrolled, the company says.
"We will blow past half a million e-contracts in 2013," Rogers said in July, although he declined to break out volume by lender. RouteOne is a joint venture among Ally Financial Inc., Ford Credit, TD Auto Finance and Toyota Financial Services.
Ford Credit rolled out e-contracting nationwide last year, after starting with a pilot program in 2006. The company doesn't disclose e-contract volume, spokeswoman Margaret Mellott says.
Ford Credit should easily book more than 1 million finance contracts in the United States this year. Through the first half, the company originated about 540,000 loans and leases, representing 37 percent penetration of Ford and Lincoln dealer volume.
Other captive finance companies are adopting e-contracting, too.
BMW Group Financial Services says more than half its 339 U.S. BMW-brand dealers have signed up for e-contracting. BMW stores that participate used e-contracts for about 75 percent of their volume in 2012, says Steve Swecker, BMW Financial's general manager of sales analytics.
GM Financial, General Motors' captive, offers e-contracting through DealerTrack Technologies and is implementing it on the RouteOne platform, spokeswoman Chrissy Heinke says. However, "dealer adoption is poor" she said last week, and e-contracting makes up "1 percent or less" of GM Financial's volume.
Mercedes-Benz Financial Services, as a preliminary step to e-contracting, adopted a system for electronic documents last year called eValidate. The system reduces data-entry errors and increases the accuracy of information on vehicles and pricing.
VW Credit Inc., the captive finance company for Volkswagen and Audi dealers, is planning to roll out e-contracting software to dealers in some states by year end, the company says. VW Credit originated 404,947 contracts in 2012.
Some banks also are doing some e-contracting. Regional auto lender SunTrust Banks Inc. of Atlanta said e-contracting via dealers has picked up in the past 18 months after being introduced several years ago.
"There has been a slow but steady ramp-up in the use of this option," says Rocky Waldrop, senior vice president for dealer finance. He says e-contracting still represents a "small percentage" of total consumer auto finance contracts.
Chase Auto Finance uses a validation tool as a precursor to eventual e-contracting similar to Mercedes-Benz Financial. But Chase Auto doesn't offer e-contracting as such, a spokesman says.
Still, RouteOne's Rogers says e-contracting is reaching critical mass.
"If you've got a dealer's captive, that's -- what? -- 25 to 50 percent of their business depending, plus another four or five lenders that each do 10 percent of their business," he says. "Now, it's significant enough to a dealer's business."
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