Accelerating car-loan process Credit Connection service by CMSI keeps dealers rolling

December 26, 1997|By Ted Shelsby | Ted Shelsby,SUN STAFF

There was a time when cars had fender skirts, window vents and wraparound windshields, and it took a day, maybe more, to have a car loan approved.

Not anymore.

How about a minute?

"Today, in a totally electronic transaction, credit approval usually comes in under 60 seconds," said James R. DeFrancesco, president and chief executive of Columbia-based Credit Management Solutions Inc.

And in the vast majority of cases, your car loan is not approved by a banker in a pin-striped suit sitting behind a mahogany desk, but by a computer that indicates whether you are a good loan prospect.

Credit Management Solutions, or CMSI as it is called, is emerging as the industry leader in the business of electronic credit processing, according to Neeraj K. Vohra, an analyst with the investment banking firm of Friedman, Billings, Ramsey & Co. Inc., in Arlington, Va.

It develops and sells software that lets lenders automatically check the credit history of prospective borrowers and applies the lender's standard criteria for approving or rejecting loan applications.

Vohra said CMSI became a major force in the industry in September, when it reached an agreement with General Motors Acceptance Corp. to make GMAC credit financing available to GM dealerships through its Credit Connection operation.

"That's a big deal for a couple of reasons," said Vohra. "First, GMAC is a large lender. Second, GM and GMAC are industry leaders and what they do affects others. This could snowball with other so-called captive lenders signing up with CMSI."

Credit Connection is an online computer service that links auto dealers with credit bureaus and lenders via CMSI's computer in Columbia.

DeFrancesco said the service collects a wealth of information on borrowers, including their mortgage and credit-card debts. The information is stored in a database and is used to determine a customer's risk factor and the interest rate on a loan.

"A lender may take a more risky loan, but charge a higher interest rate," DeFrancesco said.

A dealer uses a computer terminal to submit a customer's loan application. The answer comes back, usually in less than a minute, along with the term of the loan, interest rate and amount borrowed.

DeFrancesco said Credit Connection represents 28 financial institutions making auto loans. They include: Bank of America, Chevy Chase Bank, NationsBank, Nissan Motor Acceptance Corp., and Wells Fargo.

He said Credit Connection service is still fairly new, having been initiated this past summer. As of this time, he said, 35 auto dealers are using the service and another 200 are waiting to be brought online.

One of those online is Dick Smith Nissan in Columbia, S.C.

Craig Ellis, the finance and insurance manager at the dealership, said Credit Connection has made his job much easier.

"Credit Connection allows you to eliminate all the paperwork," Ellis said. "It allows you to bring a customer in, make a decision and deliver the deal. That's our job and that's what it does."

Not all Credit Connection customers sell new cars.

One of the first dealers to sign up for the computer service, DeFrancesco said, was CarMax, the used-car sales arm of Circuit City Stores Inc., that opened its largest store in Savage in August.

CMSI earns it money, DeFrancesco said, from both the dealers and the lenders.

He said dealers pay a fee for each credit application submitted.

Lenders pay a fee for each application received.

For average dealers selling between 150 and 200 vehicles a month, he said, "they are probably spending between $800 and $1,200 for the service."

DeFrancesco said the company hopes to expand into a nationwide network of dealers, primarily the larger, more sophisticated, high-volume outlets that want to speed their loan-approval process as part of keeping their customers satisfied.

"It's not for the mom and pop dealers," he said.

DeFrancesco said auto dealers are trying shorten the time it takes to purchase a car to less than an hour. "Once a transaction goes over an hour, customers' satisfaction begins to deteriorate," he said. "Customers become frustrated and the dealer could lose a sale."

The Credit Connection system allows loan decisions to be made automatically, even in off hours and holidays.

The service can provide a car buyer with loan information from several lenders so that the borrower can pick the best interest rate.

If a loan application is rejected by one lender, the system automatically routes the request to another lender.

To help boost its penetration in the industry, CMSI has signed agreements with two of the nation's three largest companies that supply computer software to auto dealers.

Under terms of its agreements with Automatic Data Processing and Universal Computer Systems Inc., the two companies will integrate the Credit Connection system into the software systems it supplies to dealers to process their payroll, print contracts and inventory parts.

Automatic Data and Universal supply software to about 60 percent of the nation's auto dealers.

Those were important agreements, Vohra said.

"There is not a lot of competition in this business and those agreements make it more difficult for someone to compete with CMSI."

CMSI went public a year ago this week. It raised $27 million to help finance the launch of Credit Connection.

Sales jumped from $3.9 million in 1994 to $10.2 million in 1995 and $14.2 million last year. It posted a profit of $294,968 last year.

It currently employs 220 workers, up from 41 in 1994.

Pub Date: 12/26/97

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