Dealers weren’t the only ones on the frontlines of the economic downturn; credit-platform providers also had a front-row view. DealerTrack’s Robert Granados, RouteOne’s Justin Oesterle, and Open Dealer Exchange (ODE)’s Marty Zwolan discuss a host of issues in this virtual exchange.
F&I: Robert, with lending practices having shifted over the last 12 months, what has DealerTrack done to help dealers better understand what finance sources are buying?
RG: We actively engage with our dealers to educate them on what lenders are doing in their area and how to maintain and expand their access to financing. Our platform incorporates reporting features that help dealers understand where their business is headed and how best to manage it.
Our Website, www.dealertrack.com, also provides dealers with a free tool that allows them to look for lenders in their area. We also provide an announcements function that enables lenders to message dealers on new financial product offerings and program updates. It also alerts dealers to new lenders that become available in their area.
As I’m sure you’re aware, DealerTrack connects more than 18,000 dealers with more than 750 lenders — from captives to national banks, regional banks and credit unions. And by simply entering their ZIP code, dealers can find active, indirect lenders in their region.
F&I: Justin, what is RouteOne doing differently to assist dealers and finance sources sell and finance vehicles in this challenging economic environment?
JO: Our core philosophy has not changed, as we continue to provide access to the greatest funding capacity in the industry at no charge to our dealer customers. Although we certainly manage to a budget, we continue to make investments in our system to increase the ease of use for both dealers and finance sources.
We also continue to be as flexible as possible during these economic times. For example, dealers can cancel a RouteOne agreement at any time; some competitors either lock their customers into a long-term commitment or advise them they can be relieved of their obligation if they go out of business. Although we’re conscious of the times and work aggressively to do everything we can to help our dealer customers, it didn’t take an industry downturn for us to do the right thing.
F&I: Has the recession had any effect on product development?
JO: Recessions do not impact our commitments to security, compliance, or support, as these are the basic costs of conducting business. While the economy does necessitate an aggressive evaluation of discretionary investments, we continue to enhance our system. We are dedicated to responding to our customers’ feedback on their expectations. Further, we support whatever changes we make through complimentary Web and live training provided by our sales staff.
F&I: Marty, ODE is relatively new to the credit platform arena. What are you bringing that’s new, and will there be an additional charge for ODE integration if a dealer is already paying for DealerTrack and
MZ: Open Dealer Exchange provides a direct connection from the dealer management system to the lender’s origination system, thus eliminating the need for a dealer to integrate into a third-party portal. This is a very similar concept to what economists call “disintermediation.” For dealers, that means the elimination of third-party DMS integration, as well as the cost and complexity that comes with it.
So, from a dealer’s perspective, we have eliminated both integration cost and the extra steps required to work with a third-party platform. In today’s tough economic times, that’s a cost savings every dealer can appreciate. From a lender’s perspective, we connect the credit system directly to the dealer’s DMS. In other words, lenders don’t need to rely on third-party integration. This is the fundamental difference between ODE and other platform providers, as ODE is custom software built specifically to run with your DMS. Most dealers already have a credit application residing on their DMS systems, so there’s no additional cost. We are also bringing the strength of our owner’s relationship with several captive finance companies, including Volkswagen and Mercedes, to the mix.
F&I: Justin, what are some key factors dealers should consider when selecting a credit application platform?
JO: Ultimately, dealers require a system that will provide maximum value through compliant and complete access to credit application processing with their captive and non-captive finance sources.
In our experience, this value is provided through delivering a single system that enables access to financing across the entire credit spectrum from captive and non-captive finance sources. It should also provide compliance tools that allow a dealer to execute credit processes for all customers. It’s also about open integration. Most important, it should provide management tools, such as contracts-in-transit and F&I reporting, that allow a dealer to obtain a full view of their complete book of business.
F&I: Let’s go back to the lending side of things. Robert, with credit unions taking a greater share of auto loans, how do you envision dealers working with all lenders in the future, and what will their mix be moving forward?
RG: The dynamics of the market have been quite volatile. Some lenders pulled out of the auto finance market, some retrenched and reduced their footprint, and others saw their ability to originate loans severely hampered due to capital constraints. The data shows us that credit unions stepped up and provided some relief to the dealer community, increasing their market share and filling some of the void. As the perception of credit unions as a reliable source of financing has grown, they have become a more important part of the lender mix for many dealers.
Currently, access to capital is clearly improving. Key lenders, captives, and finance companies are starting to grow their businesses again, so dealers will have the opportunity to broaden their lender mix once more. However, dealers have come to better understand the benefits that their local credit unions can provide, and we think those relationships will continue to grow.
F&I: With the Red Flags Rule going live this month, have you seen any impact on credit management procedures or sales?
RG: Dealers and lenders are now more aware of the need for due diligence when it comes to ID verification. The days of just making a photocopy of a customer’s license and barely looking at the photo are over. Within our customer base, there has been no adverse impact to the sales or credit process. We have heard from many dealers that they historically viewed compliance as an unnecessary burden imposed by the government, but now see it as a mandatory piece of the sales and F&I process that actually strengthens their business. Dealers have become more diligent in screening their customers, but they also see the process as an opportunity to educate them about identity theft and protecting their personal information.
F&I: Marty, what are finance sources saying in regard to the low adoption of e-commerce, specifically the contracting model?
MZ: E-contracting’s adoption has gone slowly because dealers and lenders need to be able to transmit the complete funding package electronically in order to realize the return on their investment in software and process change. There are a number of lenders that have expressed a definite interest in taking e-contracting to the next level. Today, there are a few finance sources that receive the retail or lease installment contract electronically, but ODE defines e-contracting as the electronic transmission of all documents necessary for the vehicle deal. And outside of Chrysler Financial’s AutOrigination program, no lending institution is involved in e-contracting the way ODE defines it.
There are a variety of other variables that need to line up before complete e-contracting can take place. You need digitized forms, electronic signature pads and laser printers deployed in the dealer’s F&I office. We feel that ODE is uniquely positioned to facilitate all of this. And as you know, ODE has a partnership with a vaulting solution, and ADP and Reynolds & Reynolds have the ability to deploy printers, signature pads and their respective e-forms libraries.
F&I: So what can dealers do to push e-contracting along?
MZ: If retailers express to lenders their willingness to get on board with full e-contracting, then lenders would have a much greater appetite to create a full solution. Dealers have strong relationships and tremendous influence with their lender partners. It is advantageous for lenders to drive inefficiencies from the process and improve the overall experience for the dealer.
Dealers should ask their lender partners what technical advancements they are planning to implement that would improve workflows for both the dealer and the lender. Dealers can call the lenders they work with and explain the value of reducing time to fund, eliminating mistakes that cause held contracts, and finally realizing the clear efficiencies of a paperless contracting process. If you can improve efficiency and reduce cost, why would you wait?