The dream of having an electronic world is close to becoming a reality. Many people use PDAs and notebooks for everyday purposes, vast numbers of music lovers own iPods and the majority of computer-using citizens have wireless broadband Internet access. Likewise, auto dealers and financing institutions have recently initiated e-contracting technology to automate and modernize their office procedures.

According to an informal estimate by BenchMark Consulting International, 5 percent of current auto loan contracts are being processed electronically. DealerTrack, which services 24,000 dealers, claims that 10 of its 110 online-connected finance sources are now offering e-contracting. The company also expected the number of dealer participants to grow by 2,500 by March 25. Assuming that 50 percent of these dealers actually use e-contracting in their offices, the number represents only 2 percent of the total number of business offices doing e-contracting today.

Automotive lending aggregators such as DealerTrack, RouteOne, BIGFNI and Curomax provide the integration platforms for eProcessing solutions. At its simplest level of functionality, e-contracting allows dealers to use electronic contracts instead of paper contracts; customers’ signatures are taken via an electronic signature pad or ePad. At higher levels, and depending on the system into which the dealership is integrated, the level of functionality may go beyond simply generating and storing the electronic contract; it may extend to electronic submission of the complete contract package to lenders for funding.

Electronic contracting technology is improving, dealer participation is growing and e-contracting is evolving steadily towards its goal of producing an altogether paperless process. However, industry leaders say that the system may need several more months to become fully operational.


Industry Perception

Going paperless with e-contracting presents both advantages and disadvantages for automotive dealers and finance companies. While many banks are already aware of the benefits — efficiency and speed provide them with a competitive advantage over non-e-contracting sources — other independent financial institutions are slow to adopt the protocol. Finance companies state concerns regarding the flexibility of the systems and the costs incurred by having to maintain both paperless and electronic processes during the transition process, and also regarding the level of adoption by dealers.

Many dealers share this concern and are waiting on their financing sources to more widely adopt e-contracting. It becomes a catch-22, as each business waits for the other to accept this office system modernization.

For many dealers, the advantages of implementing an e-contracting system are not quite clear-cut. They are taking a wait-and-see approach before signing on. The protocol will change the way in which they conduct transactions. They want to determine how much their business will benefit from using e-contracting, citing that it depends on several circumstances, including the number of contracts originated and the labor hours required to maintain the paper contract documentation. Regardless of these conditions, they realize the benefits are many.

How it Works

In a typical non-e-contracting environment, the finance manager must print out supporting documentation and send this paper copy to a finance source to complete a sale. The documents go back and forth several times and may take hours or even days. According to Dean Bello, finance manager for a North Carolina Kia dealership, going electronic has vastly improved this scenario.

Bello signed up with DealerTrack several months ago and now establishes approximately 30 e-contracts per month. He explains the process:

1. He receives a transaction from the sales department and recalls the transaction from Reynolds and Reynolds.

2. He uploads the sales information and any pertinent buying numbers and then electronically submits it to his finance source for approval.

3. He receives the transaction approval from his finance source via an icon that verifies an e-contracting status.

4. He receives an eVerification summary with a bar code to track the transactions.

5. He has the customer/buyer sign the ePad, and the e-contract is then forwarded to the finance source.

6. He faxes supporting documents — such as odometer statement, title application, and agreement to provide insurance — through the portal; they are digitally scanned and then traced by utilizing the bar code provided during eVerification.

7. Upon verification of the transaction and supporting documents, the finance source is clear to fund the dealership.

Fewer Mistakes, Faster Funding

A dealership that reduces a reliance on paper will experience numerous benefits: less tracking of documents, less time and space required for maintenance of physical contract files, decreased courier fees, less time spent in taking hard-copy documents to and from the bank, increased efficiency and accuracy, and happier customers.

Another benefit of e-contracting is that finance managers cannot mistakenly modify or inaccurately misstate term, APR or sales figures, thus minimizing contract errors. Lessening the likelihood of contracting errors can potentially save the dealer thousands of dollars each year.

Perhaps the greatest benefit of e-contracting, according to Bello, is the speed of funding. For subprime deals, the documents the provider requires are digitized and electronically submitted to the finance source after the customer agrees to the sale and signs the ePad. Upon receipt, the finance company usually verifies the information and funds the loan within 24 hours, as opposed to the usual three- to seven-day funding delay when completing a paper contract.


The next generation of e-contracting will have the customer electronically sign each form before the supporting documents are forwarded to the lender in a complete package. Supporting documentation — title information, agreement to provide insurance, damage disclosure forms and ancillary product documents — will be provided via a template library available for downloading. The ancillary forms, which will be updated and held in a template library and then uploaded to the station if needed, makes it virtually impossible to submit the wrong product form to the bank.

E-contracting Spot Deliveries

Despite knowledge of the benefits, ramping up to e-contracting will continue to be a challenge for many dealers, who are concerned about the ability to spot-deliver vehicles, which increases customer satisfaction and limits liability.

Spot Shop, a program DealerTrack is preparing for a spring 2005 rollout, may help dealers who engage in spot deliveries or shop the loan. As with conventional financing, customer information is uploaded from Reynolds and Reynolds and the finance manager places the contract.

Once the finance manager selects the bank of choice, the shop program reviews the transaction for bank guidelines and proper structure, alerting the finance manager if they are outside the bank’s criteria. If the transaction is denied approval by the bank but the dealer still wants to spot-deliver the unit, the program provides a way for the finance manager to put the customer on either a generic or custom bank contract and await approval. Once the lender approves the spot, the customer is assigned to the appropriate finance source and funding is generated that same day.

Currently, e-contracting does not allow this feature. The vehicle must be approved by a finance source before the finance manager can e-contract the customer.

Dealers have been contracting since the 1970s and converting to a paperless contract system will require going outside this comfort zone, but it can be accomplished through training and continuing education. Although the electronic office may remain a dream for the immediate future, it is just a matter of time before e-contracting becomes the norm for the day-to-day practices of most dealership financing.

F&I Management & Technology will conduct an ongoing survey of dealers about e-contracting through its Web site, It will be monitored and reported on quarterly. The final results will be tabulated in November at the F&I Conference & Expo, and then used as a tool for examining the need for e-contracting at the dealership level.

Thanks to those who provided resource material for this article: Jack Stose, vice president of sales & marketing for eOriginal; Marguerite Watanabe, auto finance practice manager for BenchMark Consulting International; Mike Dunn, president and CEO for BIGFNI; and Rich McLeer, vice president for DealerTrack.

Rebecca D. Chernek is president and CEO of Chernek Consulting Inc. dba FYIFI Inc. Chernek has been consulting on menu sales and F&I since 1996 and has been in the auto retail industry since 1985. Visit Chernek Consulting at or e-mail [email protected].

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