Digital auto loan process needs buy-in to truly work

LAS VEGAS — Digital brainpower provides fast, intelligent solutions in auto lending. It's the human element that can sometimes gum up the works.

That was the experience of Vince Rice, COO of Hyundai Capital America, when the captive lender ramped up e-contracting in March 2020.

"I was a little nervous about this presentation because I decided to share some of my failures," Rice said during a panel discussion at the American Financial Services Association Vehicle Finance Conference & Expo in Las Vegas this month. He was quick to add that Hyundai Capital has since fixed the problems.

The e-contracting experiment began well. Comparing April 2021 with March 2020, Hyundai Capital roughly doubled its contract volume to 100,000 per month and more than doubled the percentage of contracts that were e-contracted to 69 percent, Rice said. That was the good news.

The bad news was, in the same period, the amount of time it took the captive to fund contracts got worse instead of better — going from one day to as many as eight. Dealer satisfaction dropped from average to "bottom tier." The percentage of contracts without errors got better, but not as much as expected, Rice said.

What happened? Fundamentally, Hyundai Capital didn't sufficiently think through how business actually got done before e-contracting and didn't anticipate how dealers would react to the change, he said.

Rice said that to get a car "over the curb," Hyundai dealers would phone a live representative who could make small exceptions to the rules that typically could be straightened out later. For example, a customer's name might appear different ways in the same file, such as with or without a middle initial.

E-contracting is supposed to eliminate mistakes like that by automatically preventing a contract from moving forward until all customer data is internally consistent.

"What e-contracting is good at is eliminating mistakes," Rice said. "What human beings are good at is making exceptions."

The net effect was "channel conflict," he said.

Instead of embracing e-contracting, dealers tried to circumvent it, swamping the captive's call center to seek exceptions. That, and the increase in contract volume, made wait times longer and longer.

"Why would they hold on the phone for 30 minutes? They were willing to wait to speak to someone who could make the exception instead of using this great self-service tool I had provided them," Rice said.

Crucially for dealers, the longer funding times meant they weren't getting paid in a timely manner.

"Our dealers were livid," Rice said. "The council meetings were no fun to attend. Believe me, I heard about it."

Hyundai Capital realized it hadn't sufficiently trained dealerships that e-contracting benefits customers and dealerships, too, not just the captive, he said. By December 2021, e-contracting was up to 85 percent of contracts, Hyundai Capital was back to a "top tier" dealer rating, and funding times were down to two hours, Rice said.

"We didn't spend enough time training the dealers that where we were going was to lower the consumer's time in your dealership and to get it right the first time. To them, it just looked like something we were forcing on them," Rice said.

"Not everything has to be about technology," he said. "Even in digitization, it's process that has to come first."

Another panelist, Chad Collier, CEO of CarSaver, told lenders at the conference how they could mine the data they have on their auto loan customers, encourage customer loyalty and get dealer buy-in at the same time. CarSaver is an automotive e-commerce platform based outside Nashville.

He said automaker captive finance companies retain less than half of customers on their next auto loan. Reasons include borrowers switching brands for their next vehicle, unhappiness with the vehicle or the lender, quality issues with the vehicle — or a combination of them all.

Dealer loyalty is even lower — less than 25 percent on average — for many of the same reasons, plus the fact consumers may relocate and find another dealer in their new town.

But noncaptive banks experience even lower loyalty on average, at less than 10 percent, he said. In the indirect-lending model, it's harder to retain customers because the dealership has a big role in which lender the consumer chooses, Collier said.

A consumer may go into a purchase with a lender in mind and get "flipped" by the dealer to a different lender, he said.

To combat that, Collier suggests automating the process of identifying consumers who qualify for a loan on a new vehicle for the same monthly payment as their current loan.

"We obviously love being upgraded, right?" Collier said, referring to airline upgrades. "Upgrade loyal customers to a new car and new loan before they defect."

Besides checking for positive equity, lenders have other data on their borrowers that dealers don't that tells them whether a borrower is in a good position to be upgraded. They can also integrate data from insurance companies, he said.

"Lots of dealers do equity mining," he said. "They have no idea if you've made those payments on time. But the lender does. Connecting that data into the ecosystem is really important," he said.

Another example is, maybe a customer's credit rating has improved, Collier said.

Consumers are open to the idea of trading before their loan is paid off, but few consumers are aware of when their trade-in is worth more than the remainder of the loan. This is especially important as loan terms get longer, he said.

"No customer signs an 84-month loan expecting to pay it off in 84 months," Collier said. "Nobody wants to make a commitment that long. But they do" to achieve a lower monthly payment.

Dealers should welcome lenders approaching customers directly for a new loan because they get a sale and a trade-in that can be resold, Collier said. "Dealers get sales, not just leads. Dealers don't like leads," he said. "They've got a small number of cars and a large number of leads. So a lot of leads are being ignored today."

Collier emphasized to the audience their biggest asset is their existing loan portfolio.

"You have tons of automobiles in your auto portfolio that dealers would love to have on their lots," he said.