Connected at NADA 2024 Special Episode: eContracting with RouteOne CEO Justin Oesterle

Greg Uland: Hi, this is Greg Uland with Reynolds and Reynolds, and this is connected live at the NADA show here in Las Vegas. Excited about this conversation, I get to sit down with Justin Oesterle, the CEO of RouteOne. Justin, thanks so much for joining me.

Justin Oesterle: Real pleasure. Thanks for having me.

GU: Absolutely. So, RouteOne, I want to hear a little bit about your background. It's a company that, you know, is right in the middle of so much in the auto industry. So, wanted to hear a little bit about you, how you got into this role, and maybe even before that, how you got into automotive. If you don't mind sharing to start.

JO: Yeah, it'd be my pleasure. The way I got into RouteOne was second-hand through Deloitte Consulting, and specifically when I was at Deloitte, we had sold several engagements to Chrysler Financial. My project sponsor at Chrysler Financial was recruited to become the first CIO for RouteOne. Okay. And, he thought it might be a fun place for me to come and meet some people for a couple of years. And so I did. I planned to be at RouteOne about two years. That was 2002. And then I'd go back to Deloitte and make partner and everything be great and I’d ride off into the sunset.

GU: That was the life plan.

JO: Yeah, that was the life plan. But one thing led to another. And after RouteOne, which was a project at one point, became a company, right, I thought I'd get a few more years of experience because our CEO gave me the opportunity to run operations. It's about ready to go. And then he gave me the opportunity to run product development, and then sales, and then CIO. And then one thing leads to another. And I'm talking to you here today after 20 years at RouteOne. So it's been, it's been a lot of fun.

GU: No that's great. That's great. And like I said I mean, you know, really at the center of a lot when it comes to a car deal. Right? I mean, you're processing it. You probably can tell me off the top of your head, I mean, how many, how many car deals run through your system, your platform, each year?

JO: Well, we're in 14,000 dealerships who are very active for credit application. We have more than that signed up, but 14,000 use us for credit application and 10,000 for eContracting. So literally millions of deals. And we're partnered with Reynolds in a great robust way. So I think we have good visibility in the footprint that will be listening to this call. F&I is how cars get retailed.

GU: Yeah.

JO: There aren't that many cash buyers out there. When interest rates are high there are a few more, but with F&I we're excited to serve our customers. We’re excited to serve the market.

GU: Yep, yep. So talk a little bit, if you don't mind, Justin, about the evolution that you've seen in RouteOne since you've been there. So, you know, obviously, the last two decades have seen huge advancements in technology, right, and the ability to move things to a digital environment. So, talk a little bit about, from start to where we are today, what you've seen at the company and how things have changed.

JO: Yeah. I think the best way I can describe how things have changed is by describing our mission statement, which is to have a platform that allows our customers to present their value proposition at the point of sale to dealers, finance sources, OEMs, and to present their value proposition to customers at the point of sale. And by point of sale, what we say, what we mean by that is where decisions about finance are made. Okay, because that is a lot of how cars get sold with financing. And so when we were formed in 2002, presenting the value proposition at the point of sale meant basically: have a good platform for in-store use, in the F&I office in particular.

GU: Right.

JO: So we accomplished that mission relatively quickly. A lot of building to do, but we accomplished that relatively quickly. And it was a fairly straightforward process of building out credit application and then building out eContracting. Not easy, but straightforward. It was work to do and we did the work. Sawing logs got it done. But then over time, the point of sale was not just in the F&I office anymore, right, it was in the showroom. It went online. And so while our mission didn't change, our strategies about how to accomplish that mission very much did.

GU: Sure.

JO: And so there's been an increasing push for automation, for efficiency, and allowing for business to be conducted wherever customers are. Which more and more, is online.

GU: No, you're right, you're right. So what has that journey been like? Because it sounds simple, right? You have digital tools; the digital tools are in the F&I office. And then you move the digital tools to the sales floor, and then you move the digital tools to the website. But it's not that simple, right? I mean, there's so many different pieces to that puzzle. And, you know, as much as we want that process to be unified and seamless, in so many instances, it's not, right.

JO: Yeah, that's right.

GU: So, so what does that look like?

JO: Yeah. And I think maybe a good way to give an example of it is the method by which we integrate. So we are a real specific solution. We have a very specific mission in F&I, as I described. Right. But we know that we sit amongst a workflow. And so there are systems that precede us and systems that succeed us in the dealership process. And we manage those by integration. And just with Reynolds, we started out with a simple data integration from the DMS. Then Naked Lime existed, so we had an online presence, and Gubagoo existed, so we had that.

GU: Yeah.

JO: You built out docuPAD, we integrate to that. So we thought we accomplished the mission when we did data integration. But there have been three subsequent iterations of that to expand so that dealers are in a position to create efficiency for themselves and for customers as the market evolves. So that's a bit of what I mean, when I say that things evolve. Right. It's gone from 1 to a 400% growth in the number of integrations, right, to support that process. Just with that one important partner, Reynolds and Reynolds.

GU: Yeah, that's just one spoke of what you're doing really, right? I mean, you think about, to me, it seems like – maybe you have a different perspective – but outside looking in, it seems like the work that you probably have to do with lenders is the most intense, I would guess. I mean, that seems like the one that seems to be the most difficult to get locked in and get the lenders kind of dialed in. I mean, the big ones, sure, you have those in place, that's not a big deal. But as you try to onboard some of these smaller ones and credit unions and all these different pieces to that puzzle, that seems to be where it just gets more and more complex.

JO: It is a lot. It has been a lot of work. We have 1,500 lenders on the platform, and that's not something you're going to do in a year or two years or even five. It's been, we've been around for over 20 years and we're continually building on. And you're right that each one of them is a lot of work. However, we've, over time, built a bit of a playbook on how to do it. So we've been able to manage it. And we've also identified that in the cases that you described, a smaller credit union, they might need a simpler tool. So we have a very lightweight, partially integrated solution for some of the customers who don't have a large IT department. And then we have a much more sophisticated tool kit for those who do. And those enable different things in terms of customer experience. So we built that out. But I would say the point of complexity that I would share with you is, I mentioned that we started out just having a platform to deliver value in F&I.

GU: Yeah.

JO: And that was a mission. We had our own website, self-contained universe. But I mentioned the Gubagoo and docuPAD integrations. That is some real complexity. Oh yeah. Because what we're trying to do is allow for all of the decisions that a finance manager might make to either be conducted efficiently through configuration, or allow interplay with a different user interface than we built ourselves. So there is a lot of heavy lifting on the back end to make those things work, especially with docuPAD. Yeah. It's a lot of work, but it's very, very high value.

GU: Yeah, yeah. No 100%. And the more you can, you know, create that seamless experience for not only the consumer but for the dealership employee too, the more value you're adding. You know, I see it all the time where, yeah, we have a way to make it a great customer experience, but man, it's hard on the person in the store. It's just hard.

JO: That's right.

GU: And nobody in the store doesn't have the customer’s experience front of mind. Like, everybody's trying to give the customer a great experience. Sometimes they just don't have the tools in place to do it, you know, at the end of the day. So having those pieces tied together is important.

JO: It is 100%, and I would submit that an investment in making the process better for a dealership employee is also going to have a positive impact on what you do for a consumer, because if they're not in the business of swiveling between different systems, they're spending more time looking, engaging, reading body language, building a relationship so that they can create a deal that's profitable for the dealership and really good for the consumer. Make sure it's properly protected and just have a seamless process, hopefully less time because there's a direct relationship between customer satisfaction and time in F&I.

GU: Yeah. And the word you use, “swivel,” it's funny because it draws into, you know, line of line of sight, a true visual of somebody literally in a swivel chair. Yes, you got a monitor here. You got a monitor here. “Oh, one second.” Right.

JO: Like those phrases come from the real world. And when I'm doing either of those, I'm not focused on the customer. Right. And that's what we're trying to make right.

GU: Yep. So that's, no, that's a good call. So at this point, you know, well, I guess first let me ask this – so there are some smaller lenders out there that may not eContract yet or may not eContract with RouteOne yet. If a dealer has one of those, and they do want to encourage them to move to eContracting, what's that process even look like? Do they just, does the dealer say, “hey, reach out to RouteOne”? What does that process look like? How does it go? How long does it take? Like, is there an easy way to do it?

JO: There is a straightforward way to do it. Okay. Nothing's totally easy.

GU: Different word. Okay.

JO: Yeah. Especially with a full eContracting implementation. That's going to be work that needs to be prioritized. But you hit it right on the head. Dealers will refer to us and encourage their finance source rep to contact us. Sometimes they will contact us and ask them to contact their finance source rep. We suggest that they do both.

GU: Yeah.

JO: So the more places where we can create visibility for what the opportunity is for the finance source, the better we generally end up being. And right now we have finance sources on who comprise probably about 85 or 86% of the industry's funding capacity. Wow. The little thing that some folks are generally aware of, but I'll put a fine point on – financing gets micro market very fast. We have 1,500 finance sources on the platform. The top 100 of them probably represent 90% of funding capacity. And it gets micro market pretty quickly after that.

GU: Yeah.

JO: And I'm not saying that because they don't play an important role in the market. They very well may in the local market they serve. Those local credit unions, those are very meaningful for dealerships, because the way we see eContracting being the most successful is when they don't have to think about which lenders they can eContract with. Right. If I have a full portfolio, I have consistency of process, then I'm more likely to be able to train, direct, and be successful in getting that one process executed again and again.

GU: Yeah, well then it gives you more options, right? It really does. So we talk a lot about, in some of our reporting that that we offer to our dealers, we'll sit down and talk with them and say, okay, let's look at your finance sources. Let's look at your contracts in transit. Right. Look at your average days across all your lenders. Who's paying you the fastest? Who's getting the money in the bank the fastest? Whose response times are the fastest? And you can kind of go through and then you can say, okay, are all the other elements equal? Right. Are the rates equal? Is everything similar? If so, why wouldn't you point the deals to the lender that's going to pay you the fastest? Yes. So having the ability to look at various lenders when you're doing that, that's a big value add and being able to make an educated decision of where to send the contract.

JO: Yeah, huge. And contracts in transit now, there's always a value proposition for it. But with the interest rates that we're seeing right now, we have a calculator and the value proposition that we can demonstrate to a dealer of just money waiting, sitting on the table for them to take – for reinvestment in their store, reinvestment in their processes, there's an incredible value proposition just on that. Before we get into some of the other things that are pain points related to the physical aspects of paper contracting.

GU: Yeah. Yeah. For sure. So at this point, you know, you mentioned paper contracting, and I do want to circle back around on that. But at this point, there's not a lot of dealers that aren't eContracting on some level, right? Most of them are doing it fairly regularly, if not trying to be entirely in an eContracting environment. I mean, you're going to have deals where you have to go through a specific lender for different use cases. But for the most part, I was in, I was in a room, we were talking before we started recording, I was in a room yesterday with 150 dealers and I asked a question. I said, “okay, show of hands, who's preferred lender is not eContracting?” and no hands went up. Right. So for the most part, everybody's there. But that doesn't mean that they're all doing it the same way, or that it's efficient or that it's not difficult. So, from your perspective in what you see, what are some of the biggest hurdles, when dealers are eContracting? Whether it's with the dealer, whether it's with the lender, or some somewhere in between, what are some of those big hurdles to look out for that can maybe be overcome?

JO: Yeah, I think the, the biggest single thing, it's a boring answer, but people who work in dealerships will hear it a lot, is just how hardened end processes are and how resistant to change things can be when those processes are so well adopted over a long period of time. It's not always obvious to an operator that there could be a better or more efficient way. And even if they get the idea of a better or more efficient way as a concept, putting the work in to do it can be a challenge. Yeah. So some of the ways we measure things are reflective of that. When we have a dealership who does one eContract, we don't consider that they are converted over for eContracting.

GU: Right.

JO: There's magic number of ten per user. Okay. If we can get an individual user to have done ten, they generally see it is more efficient, better for them, better for the customer. Sure. But if they do one or two and then they get in a hurry and they go back to the old way, it takes some time to get them back. So it is resistance to change, I think is the biggest thing. And again, it's because people are busy on the one hand and they know how to operate it on the other. Getting over that objection, once we get them to that tenth, eContracting gets pretty sticky. Yeah. And to your point, I think there's enough of a track record now at the industry level in terms of adoption. We are demonstrating value. Right. People don't adopt things for fun. People adopt things because they can do it better or it makes them money. Right. One of those two things, in this case, it's both. Yeah. So there's a lot of energy I think, in the market. But I would say just to, to frame it a bit in terms of where we are with adoption, about two thirds, a little more than two thirds of dealers are taking advantage of eContracting. Okay. That's pretty good adoption. Yeah.

GU: I would have guessed higher, honestly.

JO: But there is still opportunity. Yeah, there is still opportunity to go further. And some OEMs are at 90%.

GU: Sure.

JO: Toyota's there. Ford is there. Hyundai is very close to there. So there are some lenders who have demonstrated it and gotten it well adopted in their dealer body for the deals that are done with the captive. Everybody outside of those captives, we measure them separately. So if you exclude the big guys, it's about 70% adoption of eContracting overall. 70%, seven in ten deals that could be eContracted, are. Yeah. So again, that's a pretty good number, especially since we started at zero several years ago. But there's still opportunity, we believe, to further penetrate and just capture the value that's on the table for dealers and for finance sources.

GU: Yeah. So you mentioned Hyundai. So I'm curious what your perspective is. They just announced their deal with Amazon, right? Where they're going to move to kind of a full e-commerce model that's available online, coming this probably spring/summer time. It’ll be interesting to see how it all shakes out and how it works. They've had a partnership for a while, but they want to move to this true retail environment. And I don't know all the details. I don't know how much you're involved in it, but, you know, when you think about financing the deal, my assumption is it'll all be through the captive lender. And are there any wrinkles there that you could, you could imagine where there might be issues or just maybe even things to look out for? I'm really intrigued by this, and I'm most intrigued by how it's going to fit in with the dealer body. But we'll work through all that, we always do. But when you think about the eContracting piece and the financing piece online, there's just a lot of complexity to it when that person is not sitting across from you. So I don't know if you have any thoughts on it at all that you want to touch on?

JO: Yeah. And I'll generalize away from Amazon in particular and just talk about digital retailing in general. You are right that getting the dealer engaged in the process, from our perspective, has been key to the more successful implementations. So we support literally dozens of digital retailers with our services, everything we do in store, very high level, everything we do in store. We have service enabled so that we can support digital retailers’ workflow, and credit application is a mature service. We have an F&I widget to plug in for protection products, and we have an auto eContracting service that we can plug into third parties as well.

GU: Okay.

JO: And I'd say the biggest challenge right now, to move from really sophisticated lead gen in shopping, which is where many entities are, into actual transactions, is getting a sufficiently customer-friendly experience for identification of risks and pairing of protection products in F&I, because dealers don't really want a customer to go off the lot without the benefit of protections. It's an important profit center for the stores, and it's very important for the customers to make sure that the vehicles they’re purchasing are protected. So until that's really fully adopted, I think, while we have the technical ability to do eContracting online, I think it would be wise for dealers to have an off ramp so that they can engage with customers and make sure it's a package that makes sense for them.

GU: Yeah.

JO: So the technology, it's not perfect, but it is there to facilitate an online transaction. The other elements of it that I described of whether a customer is really well positioned to fully create the deal on their own. Right. They usually benefit from the help of a professional to get there. Yeah. That's what we've seen so far.

GU: Well, and they see value in it even, right? So you talk to consumers. We've done a lot of studies and surveys with consumers. And one of the things that gets called out is, you know, that that conversation with an F&I manager is really valuable. Even, let’s say it is remote, having that video conversation, that Zoom call with somebody to explain things to you, to be transparent with you, to help you understand what you're buying and what you're not buying, and making sure that you're clear on it. Consumers, love it or hate it, see value in it, right? And that's where, you know, that dealer body, I think in the F&I process at least, that's one of the key elements where they're adding value. And consumers, frankly, are willing to pay more for it because they appreciate the professionalism of an F&I manager.

JO: Yeah, I 100% agree. It's a confidence builder. It is the second largest purchase that most people ever make, and it is difficult to get there entirely on one's own without the benefit of a professional. So again, the technology is there. I think it will continue to get adopted well. The configurations are very complex because F&I managers make a lot of decisions and they engage with a human being, the customer, as they're making those. Some of that can be straightforward to configure. Some of it's more of a challenge. And all of it is what we're trying to support, both with Reynolds and with the general market.

GU: Yeah, yeah. So thinking about eContracting Justin, in general, and do you see a point in time where eContracting is going to be not preferred, but required by lenders? Is that coming down the pike at some point?

JO: Yeah. Funny timing for you to ask, excuse me, short answer is yes. I do think that there will be more and more encouragements and maybe even inducements by finance sources to have dealers do eContracts. One of the largest OEM captives out there is going to be announcing within a couple of months a specific dollar amount that has to be paid for every funding package that is not eContracted because of the fiscal processing that has to be done is not economical for them, and there is a way that they can make the dealer better and save the dealer money and make themselves more efficient. So they're going to start charging for paper.

GU: Yeah.

JO: And there's another OEM that did it a couple of years ago. So, I think a few years ago it would have been maybe a little bit of a difficult sell if we were doing this in 2012. Sure. I think it could have been difficult to say “you have to do this” and lay down a hammer hard. As we sit here in 2024 with the adoption numbers that I shared with you, we've demonstrated that it's possible to do substantially all of the deals in an eContracting fashion, and I do think that the market will benefit as those OEMs apply a little bit of pressure, that's going to lift up everything. So it's not just that they're going to get more eContracts, it's just going to be in those stores, I think there will be a natural lift from that. That was a long “yes,” I do think we're getting there to the point where it will be required with that in quotation marks, that meaning there will be a -

GU: “Heavily incentivized.”

JO: “Economic incentive” to do it the right way, with “right” being eContracting.

GU: Yeah. Okay. No, that's good. I actually forgot about the fees that will be coming for certain.

JO: Yeah, and individually they add up. And you know, the funny thing about it is, it's a bit of a double whammy. If you have to send in a physical package, you're paying to do that. Right. So that's one nice, several nice, things about eContracting. You mentioned one earlier with the contracts in transit – that goes away. But you got to pay for a funding package to get somewhere.

GU: Well you pay for the paper, you pay for the toner, you pay for the expedited shipping.

JO: Yes, all of it goes on. And then if you get charged again for the entity who received it, I mean, at what point are we – it’s just, there's so many obvious value proposition points. Goes back to my long “yes” to your prior answer, “are we getting to the point where it's going to be required?” I do think it’s getting there.

GU: Well, and I think it's important too, as this comes down the road, that everybody makes sure to realize this is a good thing, not a bad thing, right? There's, you think about all the different parties that it impacts. You have the consumer, they just want a fast and easy deal process. Check. You have the lender, who wants eContracting, because to your point there's less risk, there's fewer people, it takes less time. Why wouldn't they do that? And then for the business, for the dealer, you know, you have just faster cash flow, right? Speed it up and have things more accurate, and you have fewer expenses, like you were just talking about. So the positives are all there. It's not, it shouldn't be viewed as a punishment.

JO: It's not a negative inducement. There's a positive story. And we and others who have eContracting services generally will walk into a prospective store who does not yet know the wonders of eContracting and will create a scorecard to demonstrate how much physically they can save. And that's very important tactically, it's an important story and I think worth making a conversion on its own. There’s that much benefit. I would also say that the customer experience is superior. Yeah. And the ability to deliver a 2020’s process here in 2024, I think is going to become more and more of an expectation. Yeah. It's, seeing a big pile of paper getting shoved your way as a, as a customer doesn't feel great. Might be what I'm used to the last, you know, 3 or 4 cars I bought. But there's a different way to do business that everybody knows exists in this industry. I'm so excited that we're bringing this technology out and helping Reynolds dealers get to where we all want to be.

GU: Yeah. I am too, I am too. It's a fun, I mean, we've come a really long way, and it's just continuing to get better and better and better. So, well, Justin, anything else you want to touch on or anything else you want to chat about before we hop off air?

JO: Yeah. The other thing I'd just say is, I don't want to get too much into promotion of Reynolds services. Sure. But I can't help but share the work that we've been doing with the Reynolds team to not just have good integration with docuPAD, and it's been out there for a while, but we've further integrated it to create a workflow where a dealer never has to do any of that swivel chair. Even with the best integrations we've had. There is some of that, we have made that go away with Reynolds, and I think it's going to be to dealers’ benefit, it'll be the customers’ benefit, and I'm excited about creating a win for the industry.

GU: No, that's great. Well, Justin Oesterle, CEO of RouteOne, thank you so much for joining me today and have a great show.

JO: Real pleasure. Thank you so much.