By Ray Birch
PHILADELPHIA—Credit unions have invested in technology to speed up their front-end decisioning on auto loans, and now new data suggest they should doing the very same thing on the back-end dealer funding side to stay competitive.
A new report from Wolters Kluwer shows dealers are making big changes on their transaction processing to digitize paperwork and quicken the pace of deals. Much of the trend has been brought on by dealers having to do business remotely with customers due to the pandemic.
Tim Yalich, head of auto strategy for Wolters Kluwer, said the company’s latest study reveals 85% of automotive professionals said they either plan to adopt more digital finance tools this year, or have plans to better understand and find the right partner for implementation.
‘Significant Uptick’
“We've been talking about digital transformation (within the automotive industry) for a lot of years, but just in the last year or two we've seen a significant uptick in the adoption rate of these type of digital platforms,” said Yalich. “We certainly had consumer influence there for some time and the pandemic certainly drove this market forward because it's demanded more touchless engagement in order to get the vehicle to a completion stage.”
Yalich said this trend is most apparent when compared to the current rate of new vehicle sales, which is well off traditional levels again this year.
“We are in a down market—everybody has had to adjust their sales volumes down significantly. Yet, we’re still seeing the adoption of these digital platforms by dealerships. That's what's really compelling,” he said.
144% Growth
Tim Yalich
Second quarter data from Wolters Kluwer’s Auto Finance Digital Transformation Index—a performance index that tracks the rate at which auto dealers, service providers and lenders are seeing growth in the evolution from paper-based finance back-office processes to digital—shows a growth rate in this area of 144% over the last 12 months; a 282% growth rate comparing Q2 2022 to Q2 2021; and a growth rate of 78% when comparing to Q1 of 2022.
“2022 has already exceeded 2021 year-to-date volume by 13%,” Yalich said.
Yalich emphasized it is “critical” for dealers and lenders to digitize their back-office functions.
“What's important to understand is all those elements of contracts—all those registration forms title registration forms, power of attorney documents—that are executed during the purchase have to be shared with somebody outside of the retailer,” noted Yalich. “They are being shared with a state agency or even aftermarket companies. Dealers are moving away from FedEx and lenders now have to be prepared to handle these documents digitally. Dealers are using less and less paper.”
Building Processing Tools
It's not only about lenders being able to receive and send documents digitally with dealers, they also need to begin using data tools that take people out of the back-end review and decisioning processes.
Yalich pointed out that lenders have done this on the front end, using auto-decisioning tools to give consumers speedy answers.
“It’s about actually building processing tools that can do what a human does—such as managing look-to-book, making sure documents and addresses and other needed information is there and correct,” explained Yalich. “This is the new wave of automation—we've already seen it in the world of online credit applications, where you can put in a bunch of credentials and pretty much get an approval almost real time. This same type of capability is being applied to the funding cycle so lenders can receive these packages and then turn around a funding decision—maybe not even putting human eyes on the documents unless they get kicked out of the process because they did not pass one of the rules…
“Back in my dealership days it could be 10 days for the dealer to get funding,” he continued. “Now, there are some lenders who can do this in 10 minutes—that's crazy. But that’s a big benefit to these dealers because they need cash flow now more than ever.”
Compliance Issues
Yalich added that automation could help dealers with compliance.
A recent online survey presented to more than 3,000 automotive professionals across the U.S. revealed that 42% are either not in compliance with all current regulatory requirements for paperwork, or they aren’t sure, Yalich said.
“This digital transformation helps automotive professionals keep compliance top of mind proactively with changing regulations and mandates, rather than leaving it on the back burner and opening up to exposure in a paper-based environment,” he said.