Best Practices For a More Profitable Lender and Dealer Relationship

In DataScan’s ongoing effort to provide useful information regarding the automobile floor plan industry, we occasionally call upon our clients to help bring perspective to a subject.  As such, we came across this great article written by NextGear Capital.  It is an informative piece on floorplan lending best practices for the independent auto dealer.  When followed, these fundamentals and best practices allow the dealer to have a more profitable and manageable relationship with the lender.

Automotive Floor Plan Management Best Practices:

 Getting Started

Once a dealer is cleared to use an automotive floor plan, they instantly have access to more capital to aid in purchasing inventory. However, along with that instant access to more capital is a new set of management responsibilities. Keeping these best practices in mind will help dealers integrate their new capital into their current business plans, allowing them to use their floor plan more effectively.

Fit the floor plan to the dealership
Dealers need to be aware of their own business numbers in order to optimally manage an automotive floor plan. What is the dealership’s average inventory turn time? How many cars need to be sold in order to meet operating expenses? What is the average profit margin per car? Knowing the answers to questions like these can give dealers key insights that help establish where they were, where they are going and how long it will take for a dealer to reach their goals. The answers to those questions can also provide clarity on how an automotive floor plan can fit into the current shape of the business.

Use floor plans for discipline
When a dealer uses cash or a regular business loan, there is no incentive to sell a car or profit quickly. Additionally, a dealer’s initial investment will depreciate depending on how long the vehicle stays on their lot. Floor planning can help provide a dealership with discipline. Dealers have a given amount of time available until they have to pay a vehicle off. Use that deadline to the dealership’s favor.

If a dealer hasn’t received a profitable offer on the vehicle due for payoff, that approaching deadline can jump-start their inventory exit strategy process. Whether that exit strategy includes selling the car at auction, working with other local dealers or holding out for a more profitable offer, the floor plan deadline ensures that a dealer doesn’t just let their inventory, and their initial investment, depreciate.

Always floor plan responsibly
A dealer’s business data combined with a floor plan can lead to excellent dealership profits. However, dealers need to make sure that they floor plan responsibly. If a dealer uses their entire line of credit and those vehicles haven’t sold once payoff time arrives, that dealer is going to have a pretty hefty bill. Space out inventory purchases. That way, payoff dates are spaced appropriately for dealership cash flow, just in case inventory hasn’t sold before payoff time.

Used together, these best practices allow dealers to purchase the inventory needed, provide incentive to profit and allow for manageable floor plan payments.

See the original Nextgear article at here.