Digital contracting on steep rise in 2nd quarter

Dealerships and other auto finance companies continued to handle more deal paperwork digitally during the second quarter, according to information and software provider Wolters Kluwer.

Wolters Kluwer said July 20 its Auto Finance Digital Transformation Index found a 78 percent increase in electronic documentation between the first and second quarters of this year. Year-over-year, the use of e-contracting over paper-based processes increased 144 percent in the second quarter compared with a year earlier.

In fact, the volume of digital content so far this year has surpassed the amount for all 12 months of 2021 — by 13 percent, Wolters Kluwer said.

Wolters Kluwer's head of auto strategy, Tim Yalich, said the index counts digitally executed auto finance contracts, such as a lease or a retail installment sales agreement. The metric would include digital transactions conducted remotely, such as an online car sale, and in-person, such as a customer completing paperwork using a dealership's iPad, he said.

The digitization trend and index received a boost last quarter from what Wolters Kluwer called a "significant" client moving its platform into the cloud.

However, Yalich told Automotive News data showed e-contracting would still have increased significantly over the first quarter of 2022 and second quarter of 2021 even without that client's switch. The number of digital transactions during the first half of 2022 also would already be close to the full-year 2021 result, he said.

"The trends were still in the green," he said, noting this occurred during a time of reduced vehicle sales.

A Wolters Kluwer April survey of more than 3,000 auto dealership, lender and service provider professionals found 85 percent plan to either add more digital finance tools or take steps such as finding a partner toward that end. Only 8 percent of the companies polled were on a completely digital footing.

Nearly one-third of the professionals polled weren't sure if electronic contracting or electronic signatures would accelerate a transaction. But according to their peers, digitization adds speed. Sales take more than a half-hour if the buyer must sign physical paperwork, according to 74 percent of the respondents. Transactions span 10-20 minutes using digital signatures, 76 percent reported.

"We still have a very paper-driven culture in automotive," Yalich said in a statement July 27.

External pressure might hasten the transition.

Captive finance companies have offered incentives to dealerships to make the switch, according to Yalich. He said lenders prefer to have indirect contracts be either all digital or all paper rather than have to manage both, Yalich said.

"It doesn't blend very well," he said.

The proportion of digital transactions within the bundles of auto finance deals sold to investors has also grown significantly, Yalich said. Eventually, the market for such bundles will demand digital assets because of the additional insight this facilitates, he said. "There's a high interest growing of that benefit," he said.