Sign on the Electronic Line
Faster funding has always been a key selling point for dealers when it comes to econtracting. That could change as the industry pushes for a fully online transaction.
November 2015, F&I and Showroom - Cover Story
Hudson Toyota in Madisonville, Ky., is one of the 1,300 or so Toyota, Lexus and Scion dealerships now econtracting with Toyota Financial Services. The captive processed its one millionth electronic contract last October. Today, 75% of the contracts it receives are submitted electronically.
Since plugging into Toyota Financial Services’ (TFS) econtracting system, Danny Van Gesen, F&I director at Mark Miller Toyota Scion in Salt Lake City, says the biggest benefit has been quicker funding. “Now deals fund incredibly fast,” says the 16-year industry veteran. “I can submit a deal at 10 a.m. and have it done by 2 p.m.”
Since connecting the system at his two Toyota stores — Madisonville, Ky.’s Hudson Toyota and Tennessee’s Johnson City Toyota — David Hudson says the reduction in contract errors has been one of the biggest benefits. “What the [TFS system] does, and why I’m a big fan, is it reduces a lot of mistakes,” notes the 20-year industry veteran and third-generation dealer of Hudson Automotive Group. “The [system] forces you to do things the right way. And you don’t forget forms.”
Comments like that are not uncommon among the 1,300 or so Toyota, Lexus and Scion dealers econtracting with TFS, which launched its RouteOne-driven system in January 2013. Last October, the captive processed its one-millionth electronic contract. Today, 75% of the contracts it receives are submitted electronically.
“Customers seem to think that we’re more progressive and technically advanced because we do things this way,” says Dave Nappa, president of South Brunswick, N.J.’s Dayton Toyota, which became the first Toyota store in the New York metropolitan area to adopt TFS’ econtracting system in the spring of 2014. “It gives them a better feeling about the dealership.”
By now, econtracting should have revolutionized dealership back-office processes. Instead, the decades-old technology has been stuck in a debate between dealers and finance sources — each side claiming the other is responsible for driving adoption. But RouteOne, one of the purveyors of econtracting’s promise, says the technology is now ready to move beyond that “chicken-or-the-egg” dispute. And comments like Nappa’s have helped convince people like Todd Mason that the technology could play an important role in the industry’s pursuit of a better in-store experience.
“This year, we’re working on developing an app that will make it much easier for a consumer and dealer to be able to sign an econtract on a tablet device,” says Mason, RouteOne’s chief product and marketing officer. “We’re looking to bring that electronic contract process forward and make it possible to do it remotely very easily.”
A New Selling Point
Since 2012, RouteOne’s econtracting volume has increased almost sevenfold. Last year, the company processed 1.55 million contracts electronically and doubled the number of finance sources integrated into its econtracting systems from six to 12. Mason says there are a number of reasons adoption reached a tipping point in 2014.
Pictured is the showroom of Salt Lake City’s Mark Miller Toyota Scion. The dealership began econtracting with Toyota Financial Services the same day the captive rolled out its RouteOne-driven system nationally in January 2013. Quicker funding was the immediate benefit of the system.
“That happened because the right things happened last year,” he says. “We had incredible support from Ford Motor Credit and Toyota Financial Services while we worked with their respective dealerships. A number of new finance sources also came online, including Bank of America, Capital One, GM Financial and SunTrust. We also launched a product that made it easier for finance sources to come on board.”
The product Mason refers to is DiscountOne, a simplified version of econtracting. Launched in the middle of 2014, the solution allows finance sources to deliver econtracting to their dealers without integrating it into their loan-origination systems. By year’s end, four noncaptive finance sources were plugged in: Space Coast Credit Union, 1st Community Federal Credit Union, Texas Dow Employees Credit Union and San Antonio Credit Union. Two additional finance sources have signed on since then and Mason says the firm expects to have more than 20 by the end of 2015.
For dealers, econtracting has been billed as a tool that could provide speed, consistency and organization to F&I by streamlining the credit application-approval process and reducing contract errors. But the biggest selling point for dealers has always been quicker funding. That could change, however, with the industry focused on shortening the car-buying process.
Sonic Automotive’s drive toward the under-an-hour transaction under its One Sonic-One Experience is just one of many examples of how dealers are turning to technology to enhance the car-buying process. “And that drive to better leverage technology is gaining strong momentum,” Mason says, noting that AutoNation also changed the conversation when it announced early last year that it was considering shifting its digital marketing investments away from third-party lead providers and toward its own website.
“It was a call to dealers that they need to think strategically about the role third-party websites play, the role their own websites play and the role OEMs have,” Mason says. “There are going to be some dealerships or dealership groups that don’t want to play on third-party websites and there are going to be a host of others that do. Whatever the case, we want to be the catcher’s mitt.”
Toyota Financial was eyeing a competitive edge and a better connection to its dealers when it began piloting its econtracting system at four dealerships in 2012. By the end of that year, the system was installed at 40 of its franchised stores. But the conversation changed in March 2013, when the Consumer Financial Protection Bureau (CFPB) issued its controversial guidance on dealer participation policies. Not only did it put finance sources on notice, it ushered in a new era of regulatory pressure.
South Brunswick, N.J.’s Dayton Toyota became the first Toyota store in the New York metropolitan area to adopt Toyota Financial Services’ econtracting system in the spring of 2014.
“What we see as one of the biggest benefits is compliance, and we can all appreciate that regulations and compliance are a serious part of our business,” says Gary Rainey, national manager of sales operations and planning at TFS. “As we move forward, econtracting will be the pillar of that strategy and approach.”
The path to econtracting wasn’t easy, however. Rainey admits the captive benefited from other finance sources that had already traveled down that path and were willing to share their experience. “So when our process was designed, we were able to design it around what we learned,” he says. “That’s one of the reasons we’ve seen rapid adoption.”
With its course set, Rainey says, the captive worked with Fiserv to ensure that its loan-origination system could execute its configured business rules against the specific contract data entered by dealers through the RouteOne portal, process that data and automatically send back the validated contracts to the dealer for the customer’s electronic signature.
There was also the issue of ensuring that the system complied with state contract and disclosure laws. According to Jason Zahorik, sales planning manager for TFS, the captive had to treat each state as a “mini project.”
“We brought in the right people and legal counsel,” Zahorik says. “We’re also lucky to have field reps who are familiar with the state regulations governing the paper process.”
Now, if a state says dealers must use a new form by a certain date, TFS simply notifies dealers and turns on the form through its econtracting system. The captive also created a monthly newsletter to communicate any changes it makes, which has been key any time it reacts to change requests from its governance board.
“Our goal from the onset was to take away anything we saw as a hindrance to dealer adoption,” Rainey says. “So we take those requests from the board seriously.”
Toyota Financial’s six-step econtracting process begins with the generation of the finance contract. If a co-buyer is involved or the F&I manager sells a TFS-branded F&I product, the system will automatically generate the required documents. For non-TFS-branded F&I products, RouteOne offers an upload feature that allows F&I managers to electronically attach the associated contracts if TFS requires the documentation.
The F&I manager then reviews all the documents with the customer to validate the data. He or she then clicks a button to electronically submit the data to TFS, which conducts its own contract validation to ensure there’s no missing data. The captive then returns the validated response to the dealership through RouteOne. If there are no issues with the contract, the customer can sign using an electronic signature pad or compatible tablet.
“The F&I manager then prints the forms for the customer and then sends them back to TFS,” Zahorik says. “From a technical perspective, the dealer can run the entire process on a compatible tablet, but most are using the desktop machine.”