Lithia Motors Inc. will instantly pay customers who sell their cars to the dealership group via its Driveway digital retailing platform, collaborator U.S. Bank said last week.
Lithia is piloting the immediate electronic funds transfers in Portland, Ore., and the approach is expected to be expanded to Driveway nationwide after that pilot is complete. Mike Jorgensen, U.S. Bank senior vice president of emerging solutions and strategy, told Automotive News last week that no regulatory barriers existed to expanding it to all 50 states.
Driveway customers selling vehicles to the dealership group currently receive electronic payments through the Automated Clearing House Network and have to wait 24 to 48 hours for their money to arrive, according to U.S. Bank. A paper check could take several days.
"We go as fast as seconds," Jorgensen said.
And while ACH is limited by banking hours, which means extra delays for holidays, the new real-time payments approach, which uses the Clearing House's RTP network, can occur year-round at all hours, according to U.S. Bank.
According to the bank, Lithia asked it to create a faster payment process last year. Jorgensen said Lithia positioned it as important because customers were anxious about handing over their vehicles but having to wait what could be as long as 72 hours to receive their money.
Lithia CFO Tina Miller said cutting the process from a day or two to instantaneous will give Lithia an edge against the competition in securing inventory.
"Procurement of the scarce, high-demand inventory is always key, especially in older vehicles like our Value Auto (units over 8 years old)," Miller said in a statement to Automotive News last week. "Integrating RTP into the Driveway SELL experience is a competitive advantage for us. As we see consumers comparison shop between offerings, RTP will enable us to source incremental inventory, which is especially beneficial with the current inventory dynamic, while also being an attractive experience for customers."
Miller said the ability to make payments in the evening and on the weekend will allow Lithia to be more responsive to customers "when they are trusting us with the sale of their vehicle."
Lithia has the option of introducing a business model that gives customers the choice of waiting for payment or paying an upcharge to receive their money immediately, Jorgensen said.
Other retailers could adopt Lithia's strategy. Jorgensen said U.S. Bank's real-time payment product is not exclusive to the dealership group.
Future real-time payment applications could include indirect auto loan funding and dealerships sourcing inventory from automakers, according to Jorgensen. U.S. Bank has seen dealer interest in the latter, he said.
"We're actively working on that right now," Jorgensen said.