Fiercely Competitive

As the popularity of web-based finance and insurance aggregators grows, so does competition among the main players, DealerTrack Inc., RouteOne LLC and Bankers Integration Group, and looks to become fierce in coming months.

Mark O'Neil, Mike Jurecki and Mike Dunn, the CEOs for their respective companies, are throwing sharp elbows as they posture for the lead position in the market place.

The basic services offered by these aggregators are similar in that they make the electronic process of submitting auto loan applications faster and more efficient.

F&I departments no longer have to enter customer information and send it multiple times by fax, phone or email to their different lending sources. After the information is keyed in once, it populates the appropriate credit applications, then is sent to the dealership's participating financing institutions — all with one click of the mouse.

Each company's core product is free for dealers. In fact, Bankers Integration pays dealers to send applications through its system. Each company makes its money from lenders based on how many credit applications are generated. (Bankers Integration charges lenders based on the number of loan applications actually approved.) Dealers also can pay for extra services that are offered.

DealerTrack, based in New York, has captured most of the early business. Launched in January 2001 by J.P. Morgan Chase & Co., AmeriCredit Corp. and Wells Fargo & Co., DealerTrack has added more than 70 lenders to its program and claims to have 95% of franchised car dealers in the U.S. using it to send credit applications.

“One-third of all of the cars sold in the U.S. in the first quarter went through our system,” claims DealerTrack CEO Mark O'Neil.

Nevertheless, O'Neil says RouteOne will be a formidable foe, although it has been slow out of the gate. So he's not letting his company rest on its early success. Having worked at Intel Corp., O'Neil says he has applied that company's model of constant innovation to DealerTrack. “Innovation and execution are the building blocks to our success,” he says.

DealerTrack has launched several new services for dealers, such as PaymentTrack, that allows dealers to compare different leasing and loan programs. Another service, WebSite Plus links the credit application on a dealer's website to DealerTrack. The information a customer completes online automatically goes into all of the appropriate forms, eliminating the need for multiple reentries.

By constantly launching new products, O'Neil hopes to force competitors to always be in a position of having to play catch-up.

DealerTrack is not leaving anything to chance, though. For instance, the company filed a lawsuit against RouteOne in January on the eve of the National Automobile Dealers Assn. convention, citing patent infringement.

RouteOne CEO Jurecki questions the timing of the lawsuit and calls it “curious.”

He adds: “They've known about our plans for a couple of years before filing the suit. We've researched the patents and are confident that we have not violated any patents.”

Jurecki says questions about the lawsuit do come up, especially from lenders, but insists it has not hampered RouteOne's progress in signing them. The company expects to have at least 20 independent lender partners by year's end.

O'Neil declines to say much about the pending litigation.

“We wouldn't be engaging in this action if we did not believe it had merit,” he says. “There's been no history of us filing lawsuits. We've invested significant capital and time in our product and we're going to protect those resources and investment.”

RouteOne, created early in 2002 by Ford Motor Credit, General Motors Acceptance Corp. and Chrysler Financial (Toyota Financial has since come aboard), has yet to experience growth similar to DealerTrack's.

But the captive finance companies just started enrolling and activating their dealers in June. The company's progress has been slowed by the need to establish common technology standards to which the captive finance companies will adhere.

RouteOne also had to ensure each captive company's programs and data would remain proprietary — an issue the company has since resolved. Despite DealerTrack's early success, RouteOne remains confident. “We've learned that this is a marathon, not a sprint,” says Brad Rogers, RouteOne's director of sales.

Jurecki says RouteOne's affiliation with the four largest captive finance firms provides a compelling case for dealers to be on RouteOne's system.

Because those captive finance companies have a stake in RouteOne's success, they may not participate on DealerTrack's system. And that is a critical advantage for RouteOne, Jurecki says.

Right now, many dealers use both DealerTrack and RouteOne out of necessity. DealerTrack has the independents, while RouteOne has the captives, so dealers have to use both. RouteOne believes dealers find using two systems is inconvenient.

“Dealers already are demanding one system,” Jurecki claims.

Chuck Field, finance director for the Jon Agresti dealerships, uses both systems, even though Jon Agresti is on RouteOne's dealer advisory board.

“I don't have any problems using two systems,” says Field. “I would use one, though, provided all the banks and lending institutions were on one.”

Field also says that even though RouteOne was not first in the marketplace, the company is launching new services almost monthly.

O'Neil downplays the significance of not having the four largestcaptives.“They have some captives and we some captives,” he says, referring to Nissan MotorsAcceptance Corp., Hyundai Motor Finance Co. and Subaru American Credit.

Dunn, of Bankers IntegrationGroup, thinks the market will support multiple systems.

“The banks won't want to be held hostage to one system,” he says. “They'll want the competition to keep prices in check. And competition forces companies to keep bringing new products to the market.”

Bankers Integration has experienced moderate success, signing about 750 dealers when it debuted its system at the 2003 National Automobile Dealers Assn. convention. Dunn says the company now has more than 1,000 dealers.

He bristles when Bankers Integration is compared with DealerTrack and RouteOne. “I never felt we were in competition with them,” he says. “In fact, I look at us as augmenting the captives.”

Bankers Integration focuses on late- model used cars and is in the sub-prime market, something the other two companies avoid.

Another differentiator is that while the other two are true aggregation models where dealers shotgun credit applications to various lenders, Bankers Integration's system uses an automated decision-making process that matches credit applications with appropriate lending programs.

Dunn argues his system is better for lenders because it increases their book-to-look ratios — the number of credit applications approved vs. the number actually looked at. The average book-to-look ratio for lenders is approximately 40% for the overall market. Dunn thinks his firm can drive that average to the 50% level.

O'Neil admits lenders see their book-to-look ratios decrease when they first sign on to DealerTrack, but the ratios increase after approximately four months.

“Lenders provide us with their entire dealer database when they sign, including those dealers that haven't used them for a while,” says O'Neil. “Some of those dealers, when they see a lender they haven't used in a while is on DealerTrack, tend to give them another try.”

So the lenders are seeing more loans initially, but they might not be approving more. But that number levels off, O'Neil argues.

National City Corp. Vice President of Dealer Services Gary Marquiss admits his company's book-to-look ratios have dropped since signing onto DealerTrack.

“We look at it from a cost benefit,” Marquiss says. “It makes sense for us despite the decrease in our book-to-look. DealerTrack has helped streamline our back office operations — 27%-28% of our applications come from its platform. Also, it has made the process of submitting applications easier for our dealers.”

Despite all of the early posturing, Dunn says, five years from now, all three companies probably will hold significant share.