Lenders hungry for more digitization in auto finance

Electronic auto deal contracting volume barely rose year over year in the first quarter of 2023. But the overall trend line is positive, and an appetite remains among lenders to digitize more of their auto finance processes this year, according to document e-vault provider Wolters Kluwer.

The volume of deals transmitted digitally by a dealership and accepted digitally by lenders in the first quarter rose by around 0.5 percent compared with the first quarter of 2022. But the 2023 first-quarter numbers were 12 percent higher compared with the fourth quarter of 2022, according to Wolters Kluwer.

Automotive e-contracting typically increases more in the first quarter than in other quarters, mimicking the seasonal pattern shown by auto sales, according to Tim Yalich, head of automotive strategy at Wolters Kluwer Compliance Solutions.

This 0.5 percent first-quarter e-contracting growth rate was far below what the Automotive News Research & Data Center calculated to be an 8.5 percent increase in new-vehicle auto sales during the first quarter.

However, that sales growth was driven significantly by fleet business — deals Yalich said typically do not involve e-contracting.

Wolters Kluwer can measure the volume of e-contracting, but Yalich in March said it was difficult to tell what percentage of auto deals overall are digital.

Jessica Gonzalez, director of winning strategies and account management for Informed.IQ, in April estimated about half the deals reviewed by her company's are digital, and the other half are paper contracts. Paper contracts might be prepared digitally rather than filled in by hand, but it's still ultimately printed out and submitted as a sheaf of papers, she said.

The franchised auto retail world was already heavily digitized, according to Yalich. He said some captive finance companies describe more than half of their contracts as electronic and plan to grow that proportion to 75 percent or more. Some captives were already at 90 percent digital. Major prime lenders also are often digitized.

"Everybody else, tier 2 through 4 lenders, is where all the adoption still needs to come from," he said.

But progress is likely to continue. Wolters Kluwer in January reported a survey of about 275 auto lender professionals found 82 percent of them planned more digitization in 2023.