Floorplan lenders see boost as banks pull back

Independent dealership floorplan financing providers First Business Bank and NextGear Capital ’s floorplan financing portfolios have grown year to date as some banks pull back in asset-backed lending and dealers increase their floorplan credit utilization. First Business’ floorplan portfolio year to date (YTD) as of early December has grown 40% year over year on a dollar basis, Jeff Widholm , president of floorplan financing, told Auto Finance News . While Widholm did not provide updated portfolio specifics, he previously told AFN that First Business Bank’s floorplan lending portfolio sat at about $100 million as of September 2023. The bank’s commercial and industrial loan portfolio increased 8.4% YoY and 4.3% MoM to $1.2 billion in the third quarter due in part to an uptick in floorplan financing, according to First Business Bank’s Oct. 24 earnings release. “We’re picking up some [volume from] others that have pulled back or left the space completely ,” Widholm said, noting that the growth is due to a combination of increased utilization and more dealers switching to First Business for floorplan. “Word has gotten out in the industry that we're a good alternative.” NextGear portfolio up 15% Meanwhile, NextGear Capital ’s floorplan outstandings YTD through the end of November are up 15% YoY on a dollar basis, President Scott Maybee told AFN , without providing specifics. The lender serves more than 22,000 dealers. As of July 31, NextGear’s total receivable balance stood at $2.8 billion across all asset types financed and more than 14,000 dealer accounts, according to an S&P Global presale report of the lender’s Oct. 3 floorplan asset-backed securitization (ABS) issuance. The average utilization rate stood at 51.8%. NextGear is seeing growth in floorplan lines of credit $2.5 million and larger, Maybee said. “We're hearing in the marketplace about banks pulling out of the independent space , and we're the recipients of those relationships,” Maybee said. “We’re seeing many dealers come over to us because banks are getting out .” “We’re seeing many dealers come over to us because banks are getting out.” -- Scott Maybee, NextGear Capital The lender in February loosened standards for floorplan financing as demand increased due to bank pullback, Maybee said. “We bought deeper, we were more aggressive with who we would loan to, and we looked at pricing to [be competitive],” he said. Floorplan usage up The pullback in the asset-based lending space isn’t the only driver behind First Business’ floorplan growth. “We're seeking out high-quality, financially sound, well-managed dealerships,” Widholm said. “We're also seeing increased utilization, particularly in the fourth quarter, by our dealers on their floorplan as they load up an inventory for the spring selling season.” Industrywide used-vehicle inventory sat at 45 days’ supply at a total of 2.2 million unsold units as of Nov. 4, up 1% month over month but down 6% YoY on a unit basis, according to a Nov. 14 release from Cox Automotive . Used-vehicle retail sales ticked up 12% YoY and 6.7% MoM to 1.4 million vehicles at the end of October. Monthly used-vehicle retail sales volume [caption id="attachment_58347261" align="aligncenter" width="1024"] (Courtesy/Cox Auto)[/caption] At the same time, floorplan ABS issuance YTD as of today more than doubled to $7.8 billion compared with $3.6 billion total in 2023, according to Finsight , which monitors securities. As rates and costs come down, dealers are using more of their floorplan credit lines, Maybee said, adding that NextGear is investing in technology to make the process easier for dealers as more come on board. More than 80% of dealers that work with NextGear use the lender’s mobile app , launched in June 2023, to track floorplan credit availability, interest costs and how long vehicles have been in inventory, Maybee said. The lender also is seeing strong dealer use of the app to digitally complete self-audits of inventory, a capability launched nationally in November, he said. Sentiment improves headed into 2025 Floorplan credit use is likely to increase in the fourth quarter as dealers prep for the spring selling season amid a projected decline in interest rates. There is also improved optimism in the industry following the finalization of the presidential election, First Business Bank’s Widholm said. Independent dealers indicated that market conditions are weak but are improving in Q4 compared with Q3 and Q4 2023, according to Cox Auto’s latest dealer sentiment index survey published Dec. 11. The survey was conducted shortly after the election. “Coupled with the potential for supportive measures, such as tax rebates and the possibility of lower interest rates, dealers are feeling more hopeful about the road ahead as we move into 2025,” Jonathan Smoke , chief economist at Cox Auto, said in a release. Register here for the free Auto Finance News webinar "Tapping Aftermarket Products to Improve Dealer Relations and Profitability," taking place on Tuesday, Jan. 14, at 10:45 a.m. ET.

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