The Dealer Floorplan Audit Pilot (“Pilot”) is spearheaded by MOBI’s Finance, Securitization, and Smart Contract (FSSC) Working Group (WG) with contributions from Accenture, Altaventure, Amazon Web Services, BMW Bank, CEVT, Connections Insights, CO-OP Financial Services, ConsenSys, D.E. Consulting, DENSO, DMI, Ford Credit, Global Debt Registry, GM Financial, Honda, IOTA, Itochu, National Automobile Dealers Association (NADA), Nissan Motor Acceptance Company, On the Road Lending, Orrick, Quant Network, Quantstamp, Reply, RouteOne, Southeast Toyota Finance, Spring Free EV, Stellantis Financial Services, Tezos Foundation, Toyota Industries Corporation, Trade Log, and USAA.
A significant portion of newer vehicles is factory-equipped with telematics devices capable of capturing accurate data about the vehicle’s condition, location, and other important information. Telematics data is invaluable for stakeholders across the vehicle value chain and its market is projected to reach USD 155 Billion by 2028. Integrating telematics such as vehicle performance, use, distance traveled, and location into services such as insurance, product passport, etc. is emerging. However, the issue of data privacy still remains.
When a vehicle is sold, leased, or loaned to a customer, its geolocation is considered personally identifiable information (PII). Regulations such as the EU’s Global Data Protection Regulation, or GDPR, (2016) the California Privacy Rights Act, or CPRA (2020), and the White House’s Federal Zero Trust Strategy (2022) place strict provisions on the storage and exchange of data in government and enterprise environments — restrictions which, in the absence of adequate technological infrastructure and planning, these stakeholders would not be able to meet the strict privacy requirements of the regulations mentioned previously.
When dealers buy vehicles from manufacturers (OEMs), they finance the purchase with the vehicle as collateral for the loan. To ensure that the collateral is safe, lenders perform audits to verify that the vehicles expected to be at the dealership are actually physically there — hence the name, dealer floorplan audit. If a vehicle is sold, the loan must be repaid under the lender’s terms. This is similar to the housing market where you must immediately pay your mortgage lender if you sell your house. In the housing market, mortgages are repaid out of escrow as part of the sales process. Dealer floorplan loans have no similar escrow process, so lenders currently employ human auditors (usually third party service providers) who provide a trust service to guarantee that their unsold vehicles are on the lot and that the sold vehicles are being paid according to the lender’s terms.
Floorplan auditing requires an extensive amount of manual work as auditors must physically go to dealer lots to count and verify that the vehicles are on the lot or otherwise accounted for. Furthermore, these audits are not done frequently enough to catch all potential errors. Therefore, lenders hold reserves to compensate for the risk, thus increasing the cost of the loans for dealerships.