In digital age, paper contracts endure

As the auto industry inches closer to online transactions, one essential piece of the process is missing for some dealerships: electronic contracting.

Despite the cost savings and operational efficiencies that e-contracting can provide, going digital can be a worrisome notion for dealership employees who have been handling deals the same way for decades. Small-town banks and slow-moving state bureaucracies that still require handwritten signatures also can be hindrances.

But the fact that so many auto retailers continue to settle these complex, expensive transactions by shuffling reams of paper through the finance office and in the mail seems wildly anachronistic in an era when technology lets vehicles talk to each other and drive themselves.

With e-contracting, dealerships fill out and send most forms to lenders and product providers digitally, rather than shipping off thick envelopes the old-fashioned way. Dealerships that have adopted e-contracting say they get money faster, make fewer errors that can require redoing contracts and spend less time dealing with finance and insurance matters during a customer's purchase.

E-contracting potentially can save tens of thousands of dollars a year and earn dealerships preferential treatment from lenders, advocates say. They also say it's critical to navigating the mounting regulatory burdens being imposed on dealerships.

"There's no way that we're going to be able to keep up unless we go digital," said Jamie Cramer, compliance director for Feldman Automotive Group, a Michigan dealership group that sells Chevrolet, Hyundai and Kia. "The world is moving. We need to get on board."

The hitch is that e-contracting disrupts a longstanding process that dealerships, systems vendors, lenders and product providers have designed their businesses around.

There is an artistic component to the traditional, paper-contracting method, said Jason Barrie, associate vice president of market performance at Dealertrack.

F&I managers "know how to work a deal with their eyes closed traditionally," Barrie said. "There is an elegance of working through that deal. How does a dealer weave in e-contracting to the current process today?"

Depending on the lenders and F&I product providers that a particular dealership uses, making that leap can be tough. Automakers' captive finance companies and most large lenders accept digital versions of financing documents and retail installment contracts, but many credit unions and local banks do not.

In the past few years, though, e-contracting has become far more common. Six years ago, there was an average of just one lender available for each dealership that e-contracted with Dealertrack. Now there are nearly six lenders per dealer, Barrie said.

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