E-contracting’s Mass Appeal: Not a Matter of If, Only When

By Keith Tuber

British naturalist Charles Darwin’s theory of evolutionary selection, developed more than 150 years ago, changed for many individuals the contemporary thought process concerning the origin of life.

Darwin, who had planned to enter the ministry, wrote that variation within species occurs randomly and that the survival or extinction of each organism is determined by that organism’s ability to adapt to its environment. He further wrote that evolutionary change was gradual, requiring thousands to millions of years, and that the primary mechanism for evolution was a process called natural selection.

What does Darwin’s theory of evolution have to do with the automotive industry, you ask?

More than you might think.

In the scope of history, the automobile business remains in its infancy. In the United States, where the industry is as sophisticated as it gets, it’s only been 113 years since Charles and Frank Duryea built the first gasoline powered car in America. In many developing parts of the world, where emerging economies are just now entering the modern age, the automotive industry has yet to leave the commercial womb.

As of Jan. 1, there were 21,640 franchised new-car dealerships in the United States, according to the National Automobile Dealers Association. That’s 145 less than a year ago and NADA expects moderate consolidation to continue.

Is this survival of the fittest? Maybe. Competition is fierce, and profit margins are thin. Today’s dealers are looking for an edge in the way they do business to increase CSI and improve their bottom line.

Some have done just that, thanks to electronic contracting.

“I think it’s just evolution,” says Chuck Smith, first vice president and director of lending for San Antonio Credit Union. “The process of auto finance is evolving, and this is just one more step in the evolution. I wouldn’t call it revolutionary, but it is evolutionary.”

Improvements Seen In Dealership Efficiency, Document Security

E-contracting is a paperless system that greatly speeds the funding process. It is a computer-driven delivery system that transports electronic retail installment sale contracts, or ERISCs, which effectively replace the more cumbersome paper-based retail installment sale contracts (RISCs). ERISCs, by law, contain the same disclosures and formatting requirements as the paper version. However, the electronic contracts are considered safer for the consumer, as security measures lock the contract in place once it is signed. That means it can’t be altered from that point forward. Signatures can’t be added later, there are no couriers involved in transporting the documents and the electronic chain of custody is clearly documented.

Currently, e-contracting accounts for only 10 to 15 percent of SACU’s business, Smith says. If that figure were 80 percent, it would mean the credit union could continue to expand without adding substantially to its workforce.

“That’s the whole point of it,” Smith says. “I want to continue to grow and build my economies of scale, but I just don’t want to add more and more people. So how do I get more efficient?”

Smith says the company’s front-end operations are as efficient as possible, but the back end could be improved with e-contracting.

While there are distinct advantages for lenders using e-contracting, dealerships are the big winners in the process. E-contracting enables dealers to greatly reduce and in many cases, nearly eliminate contracts in transit. And fewer contracts in transit means better cash flow. Deals are closed more quickly, and with fewer mistakes. There is no more waiting for approvals to arrive by fax, no more overnight FedEx packages leaving the dealership, and no more unhappy customers returning to the finance office to re-sign paperwork. The process is accomplished electronically, safely and securely, and with lightning speed.

“If somebody’s sitting at a car dealership right now,” Smith says, “and they sign the documents and get them over to me electronically, they’re going to get their money today. I mean, they’re going to get their money before 2 o’clock this afternoon, versus if they paper it out. Then they’ve got to FedEx it to me or send a runner over if they’re in town. It gets here, it gets logged in, and then somebody has to go get it and work it up. Whereas when an e-contract comes in: it’s in a queue, they grab it, it’s funded and gone.”

The first captive lender to participate in e-contracting is Nissan Motor Acceptance Corp., and executives there are bullish on the