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.
“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.
“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.”
Mark Miller’s Van Gesen, Hudson Automotive’s Hudson and Dayton Toyota’s Nappa describe a similar experience during the onboarding process — TFS demoed the system a month or so before sending in a team of up to four to five people and the local area sales manager to train their F&I teams.
Because their dealership management systems integrated with the RouteOne system, installation was seamless for Hudson’s two Toyota stores and Nappa’s Dayton Toyota. Nappa says he was familiar with the onboarding process since his group’s Ford store had installed Ford Credit’s econtracting system six months prior. And during the installation of the TFS system, Nappa says he decided to contract with RouteOne to take advantage of its data archiving capabilities.
“We probably archived more than half of the docs and 30% to 40% we still print,” Nappa adds. “I think the ones we print out are odometer statements and titling documents. It’s hard to go cold turkey after you’ve saved all these docs for so long.”
The store also equipped its F&I offices with a second computer screen to make it easier for customers to follow along as finance managers review documents.
The onboarding process didn’t go quite as smoothly for Mark Miller Toyota. The store’s Dealertrack DMS didn’t integrate with the RouteOne system — an issue that delayed the store’s ability to electronically contract finance deals by two months. Leasing is still problematic, but the process, Van Gesen says, was well worth the trouble.
“I don’t have to break down deals. I just have to package them together,” the F&I director says. “And what it allows us to do is be organized so we don’t miss anything.
“I would not want to go back,” he adds. “I just wish everybody was doing it.”
And so would TFS. The captive likes the electronic connection it has with dealers who send a majority of their deals its way, but Rainey says the company realizes that adoption of econtracting by other finance sources would drive up utilization of its system.
“In order for econtracting to be widely adopted [by dealers], it has to be accepted by both captives and banks,” Rainey says. “Initially, banks made a foray into econtracting but admitted that it would take captives to get the ball rolling. Now that you have some strong captives, such as us, Ford and Nissan, in the marketplace, the banks are coming in behind us and adopting econtracting as well. More national banks will join in and it will flow to the regional banks.”
Adopting the captive’s econtracting system was a no-brianer for Dayton Toyota, which directs 95% of its deals to TFS. Nappa notes that his F&I offices are much tidier now that the reams of paperwork F&I managers must organize between customers are now gone. The only items the dealership still faxes are pay stubs and other stips.
“I remember they were already booking contracts and getting paid on the first day,” Nappa says of his two-person F&I team. “So the immediate benefit is cash flow. The average used to be nine days between contract signing and getting money for a contract. Now it’s one day.”
Plugging into TFS’ econtracting system was also a no-brainer for Hudson, with a majority of the contracts coming out of his two stores being direct to TFS — the rest financed through local credit unions. Also factoring into his decision to econtract was that he floorplans with TFS.
“We like that they net fund,” he says. “So if we’re financing a deal, they just fund us the balance after our floorplan is paid off. It eliminates a step or two for our admin office.”
Also eliminated were the paper checklists his two Toyota stores required with each deal. “For years we’ve used F&I paper checklists, but things can still be skipped due to human error. This makes it foolproof, and we don’t have to chase stuff down for a contract,” he says.
“Our people realized quickly that system was going to make their lives easier, so getting buy-in was easy,” he adds.
Hudson is now looking for new ways to improve the speed and ease of his F&I process. At his Hudson Nissan store in North Charleston, S.C., he’s testing an F&I menu system that operates on an Apple iPad. But he makes clear he has no intention of phasing out his F&I department.
“The things we do today don’t look like what we did five years ago, but we’re evolving,” he says. “It could certainly change some, but I think dealerships will always have a need for an F&I manager or director.”
Shortening transaction times was a top-of-mind topic at this year’s National Automobile Dealers Association (NADA) Convention & Expo in January. The thought is to move more of the car-buying process online, but dealers say state and federal regulations could hamper those efforts. Vehicle OEMs also have specific requirements for how vehicles are delivered.
“There are some unusual state and federal laws that govern contracts and where they can be signed,” Hudson points out. “We’ve done business in some states where a contract immediately becomes active once it’s signed. So it’s impossible to do it online from start to finish with the tools available today.”
Dayton Toyota is also brainstorming how to reduce its current transaction time, which averages two hours and 20 minutes, to less than an hour, and Nappa says he isn’t opposed to moving more of its sales process online. He just thinks consumers aren’t ready to take that digital step.
“I think a majority of the population still likes to pick the car, smell it and drive it — even if they don’t want to haggle for it,” he says. “But we’d like to shortcut the painful process so you have more time for the fun stuff.”
Van Gesen also isn’t opposed to moving more of his store’s process online. In fact, he wishes there were more online options available to dealers and customers. But he points out that states also represent a challenge to making the digital transaction a reality.
“What we need are all the states onboard, especially if dealers are still responsible for titling vehicles,” he says. “The other problem is if a dealer takes trade-ins. If a customer misrepresents a trade, it’s the dealer’s problem.
“But I’ll go for online if everyone wants to go in that direction,” he adds. “I’m not afraid of it.”
Toyota Financial’s Rainey says the captive’s ultimate goal is to achieve 100% electronic-contract submission. The immediate goal is simply to make its system even better. “As we move forward, we’re looking at other parts of the finance process that we can simplify or streamline using the econtracting platform and process,” he says. “Anything we can do to make the process smoother for dealers is what we’re after.”
It’s a goal shared by RouteOne. In fact, Mason says the firm already has customers utilizing econtracting for remote deliveries, a process in which a dealership rep drives the vehicle to a customer’s home and has them sign the required documents on an iPad. But for that to become the norm, the surge in adoption must continue.
“For the dealership, there’s obviously a learning curve,” Mason says. “Anytime something new comes along, you have to get used to it. And that’s what we saw last year. Not only were more and more dealers beginning to use it, more and more dealers were becoming comfortable making it a part of what they do on a daily basis.
“So as it happens, it becomes the new habit and you really see the efficiencies,” he adds. “And you won’t want to go back once you adopt it.”