By all accounts, e-contracting’s paperless future should have been realized long ago. Unfortunately, any advances it has made in recent years have been muted by the economic downturn. But with the industry reemerging, BMW Financial Services, which began rolling out its e-contracting platform last November, believes that future might be now.

Brian Blum got his first peak at the new e-contracting system about nine months ago. The business manager at Ramsey, New Jersey-based Prestige BMW was one of about 50 people, mostly personnel from other dealerships, who were flown out to the captive lender’s Ohio-based facility.

“They gave us a tour of the facility and sat us down with individual credit analysts and department managers,” recalls Blum, whose dealership was first turned on to the system last November. “We learned how they are approving deals and it gave us an idea of their current lending appetite — what you should steer away from and what structure they are comfortable with.”

Sometime between meeting with credit managers and sitting through the company’s review of its F&I products, Blum was shown the testing lab where the captive’s retail solutions are put through their paces.

“It was a very impressive tour,” he says. “I know how cautious they are when launching something, so I knew [its e-contracting system] had been through tremendous hurdles before an end-user like me had a chance to use it. What impressed me was how interested they were in our feedback and how that feedback was actually utilized.”

Prestige BMW was one of 28 dealerships in Illinois, Maryland, Michigan, New Jersey, New York, Pennsylvania and Texas to be plugged into BMW Financial’s new e-contracting solution, which the captive lender spent three years developing.

“To say the project has been challenging would be an accurate statement,” says Shaun Bugbee, a sales and marketing executive with BMW Financial Services. “But at the end of the day, we feel it’s the wave of the future and how transactions will be executed at the point of sale. So, we didn’t look at it as a risk, but more of an investment.”

Based on a study of New Jersey dealerships, the system has so far reduced the average 30-minute transaction time by 30 percent. Bugbee does throw out one caution, however: “I think we will see some regional differences. So, before we’re claiming a victory of 30 percent across the board, I’d like to see how the system performs in different markets.”


Delayed Reaction

By now, digital contracting, a concept pioneered by the founding of DealerTrack in 2001, was supposed to have increased efficiencies, cut down on errors and improved cash flow for dealers. That has yet to come to fruition, but there have been some success stories, such as AutoNation.

“The opportunity is absolutely huge,” says Kurt Hornung, a regional F&I director for the dealer group. “I think it’s a lot slower than we thought. What we need is availability with banks.”

Hornung served as a panelist at the National Automotive Finance Association’s annual conference in June (see page 28), where e-contracting’s progress was addressed. The consensus was that the credit crisis and the economic downturn that followed have slowed the technology’s progress. In fact, e-contracting was nonexistent in the NAF Association’s annual survey of below-prime lenders. None of the respondents indicated that any of their originations were e-contracted in 2008 or 2009.

BMW Financial began piloting its system about three years ago, but didn’t officially begin rolling it out until late last year. The company plans to be in 17 states by the end of 2011.

Blum, who had e-contracting experience with another dealership, says the BMW system is saving him 10 to 15 minutes per deal. What has impressed him the most is its accuracy.

“It’s almost a foolproof system, so you don’t make an error,” he says. “It absolutely speeds up the time spent sitting and working with the customer, allowing me to spend more time explaining the value of the different products and services we offer.”

Speed and accuracy are definitely important, but the same-day funding the solution delivers is the main reason utilization of the system at Blum’s dealership stood at 73 percent through May. And the only paperwork he has to fax are supporting documents such as the customer’s driver’s license, title work and other stips. The simplified process also has delivered savings in reduced overnight mail costs.

Building an E-Contracting System

BMW Financial, which typically eschews adopting solutions from third-party software providers, spent nearly $3 million to create its proprietary e-contracting system. “We have a strategy of exclusivity as it relates to dealer-facing systems, so it made more sense for us to continue down that path than it would have to partner with DealerTrack or RouteOne,” Bugbee says.

The company has invested millions of dollars into other finance-related software, such as credit apps and self-serve funding applications, which are housed, along with its e-contracting solution, at “Infobahn,” BMW’s proprietary dealer computer network.

Bugbee says the company’s e-contracting solution is only available to BMW dealers using Reynolds and Reynolds’ dealer management system, although dealers who use ADP Dealer Services’ DMS will be online beginning in September when dealers in California and Florida come on board. Christopher Morris, senior director of product planning for Reynolds and Reynolds, says the partnership with BMW was successful because the companies shared similar goals.

“Part of what has made this a success is that the strategy is correct,” Morris says. “The notion that both Reynolds and BMW want to bring dealers a better point-of-sale solution to help reduce errors, improve efficiency and, ultimately, improve CSI for dealers.”


Increasing Utilization

Jason Baker’s Mount Laurel, N.J.-based BMW dealership was one of the first stores in that state to pilot BMW Financial’s new solution. Like Blum, he appreciates the fact that the system reviews and validates all contract information in real time.

“It helps prevent funding holds because all of the information is in there properly the first time,” notes Baker, who reported year-to-date utilization of 81 percent through May.

What impressed Baker the most is that the system blends seamlessly with his F&I menu. “It seems to flow nicely when we do the product presentation onscreen and then we can convert the contract on the screen as well,” he explains.

It’s feedback like that which has Bugbee excited about the system’s potential. His hope is that the new solution will drive incremental business to BMW, including contracts that normally go to noncaptive lenders. His goal is to increase the number of new nonsubvened vehicle retail contracts by 3 percent by the end of the year.

“Dealers have to see and understand the benefits before they change their process at the point of sale,” he says. “That’s probably one of the biggest hurdles that we continue to face. I’m not worried about the solution working; it’s really about selling that message and getting the dealers to recognize that value.”

Reynolds’ Morris agrees, but cautions that captive and noncaptive lenders, in general, have also been slow to accept e-contracting. “We have had e-contracting and e-funding applications on the Reynolds roadmap for a number of years, but the general lending community is taking a wait-and-see approach,” he says. “At some point, critical mass is going to be reached.”

He believes captive lenders, which tend to pursue a wider spectrum of credit to serve their dealers, have the most to gain from e-contracting systems. They can leverage their existing relationships with dealers, encourage the use of e-contracting, generate more accurate contracts and fund more deals.

The one segment that doesn’t seem to need convincing, says Blum, is the customers. “People are more used to and, actually, more comfortable these days looking at a computer screen. It seems a little more trustworthy. … I’ve never had any complaints because it works faster,” he says. “Most people would prefer to do all the paperwork that way. I feel the same way, but that’s a long way down the road.”

And for customers who feel intimidated by the process, Baker offers this advice: “For customers who get confused by it, I just liken it to going to the grocery store and signing a credit card receipt, because it’s really the same thing.”

Regardless of whether the industry ever realizes its paperless future, Bugbee believes BMW Financial’s e-contracting system has the company on the right track. “I would say, to this point, it’s certainly a success,” he says. “And it certainly fits within our strategic footprint of what we’re trying to do as a captive provider.”