Paying dividends: A look inside GM Financial’s floorplan penetration program

GM Financial has set its sights on gaining more floorplan market share at franchised General Motors dealers, and the newest iteration of its Dealer Dividends program — which offers cash-back rewards in exchange for retail loan penetration — has served as a tipping point, turning longstanding wholesale relationships on their head as the captive stacks its ranks.

At its core, the program is akin to a tiered cash-back rewards program on a credit card. Dealers who finance their inventory with GM Financial are rewarded for sending GM Financial new- and used-retail installment contracts. The more contracts GM Financial buys, the higher the dealership climbs on the rewards tier and the more cash the dealership earns.

“The Dealer Dividends program is an opportunity for [dealers] to earn through different tiers all the way up to the Platinum Plus level,” Kyle Birch, president of North American operations at GM Financial, told Auto Finance News. “That’s where they really start to reap the benefits [of the program] and can use those dividends however they see fit. They can put it to the bottom line, they can reduce their floorplan rate, they can use it to add incentives on vehicles. It’s their money; they earned it.”

The program is the latest step in the evolution of GM Financial’s floorplan offering, a line of business the captive has been building out over the past 12 years following General Motors’ acquisition of subprime lender AmeriCredit in 2010, Birch said, noting that the program has changed through the years in response to dealer feedback and adoption.

“One of the things that GM wanted us to do when they bought [AmeriCredit] was to build a commercial floorplan offering that they could have for their dealers in good times and bad times,” Birch said.

By the numbers, GM Financial’s floorplan offering has been a success. At the end of 2012 — the year the captive first began offering floorplan financing to franchised dealers — GM Financial had 100 net dealers financing their vehicle inventory with the lender. Fast forward to the end of Q1 2022, and that number has skyrocketed to 1,764 dealers, a 41% penetration rate. Not to mention GM Financial has continued to add dealers to its floorplan program over the last five quarters, even as balances drop to unprecedented lows amid constrained inventory.

“By far, 2021 was really when we captured the momentum,” Birch said, noting that GM Financial added 282 new floorplan dealers to its book of business, the highest annual increase to date. “We didn’t just add small and medium dealers, but some really large dealers in the GM family came over to partner with us, and they saw the value of the floorplan program along with Dealer Dividends,” he said.

By GM dealer accounts, too, the Dealer Dividend program has been a success. “It’s a huge game-changer, and any [dealer] not on this program is leaving a lot of money on the table,” Mike Bowsher, owner and president of Carl Black Auto Group, told AFN. Carl Black Auto Group operates three Buick, Chevrolet and GMC dealerships in Florida, Georgia and Tennessee.

Switching to GM Financial for the dealerships’ commercial financing was “one of the greatest decisions this company has made in the last 20 to 25 years. They are absolute partners in helping Carl Black sell more cars, hit all the GM programs, and penetrate the market. It’s been a win for both companies,” Bowsher said.

Test drives: Not just for consumers

The momentum GM Financial captured in 2021 first started in 2018, when the captive added 199 dealers to its portfolio, Birch said, evidenced by rising floorplan outstandings on the lender’s balance sheet. GM Financial had $10.4 billion of commercial receivables at the close of Q1 2018, and by Q3 2019, balances had increased 27.9% to $13.3 billion before tapering off amid coronavirus-spurred manufacturing closures and pent-up demand for vehicles in early 2020.

In fact, the pandemic helped entice more dealers to floorplan with GM Financial, Birch said, noting that word of mouth among GM dealers has been a key driver in the growth of floorplan accounts.

“GM Financial was one of the first [lenders] to market with floorplan assistance — the deferred interest help, the curtailment help — and our dealers who were floor-planned with us at the time were really pleased with us, but that really got momentum with some of the other dealers” on what the lender could offer as a captive, Birch said.

Another driver of growth in floorplan accounts was the ability for GM dealers to “test-drive” the program for 60 or 90 days, Birch said, noting that the test drive period has fluctuated over the years as the program has evolved.

Essentially, the test drive allows dealers not floor-planned with GM Financial to assess the program’s benefits without having to immediately commit to becoming a floorplan dealer. “They get the benefits of the program [for that time]. We educate them on the Dealer Dividends program, we educate them about our buying practices and what we can do for them as a floorplan captive lender, and they earn during that test drive,” Birch said.

Dealers who ultimately decide to move their floorplan financing to GM Financial retain the earnings they accumulated during the test drive period.

“If you had any doubts as a dealer — maybe they had a little apprehension or maybe they had a great relationship with their existing floorplan dealer, but they know that we’re the captive and they wanted to take a look at us — it’s not a hard sell. We just put them in the program and earn their business.” Birch said.

The test drive, too, has been successful, he said. “North of 60% of the dealers that went on test drives ultimately moved their floorplan business over to us. The conversion rate was phenomenal.”

A difficult decision

The automotive industry is all about relationships, whether between the dealer and consumer, consumer and lender, or dealer and their floorplan provider. As such, the decision for many GM dealers to switch from their previous floorplan provider to GM Financial was not an easy one.

But in the end, money talks.

D’Iberville, Miss.-based Mandal Automotive, for one, switched its floorplan to GM Financial after 20 years with another provider, Bo Mandal, president and chief executive of the dealership group, told AFN. Mandal Automotive operates three Buick, GMC, Chrysler, Jeep, Ram and BMW dealerships in the state.

The decision to switch floorplan providers last year “was the hardest things I’ve ever had to do in my entire 25-year career,” Mandal said. “Everything that I’ve done and all the decisions I’ve made, [switching floorplan providers] was the toughest one, but it was certainly the right one” from a business perspective.

Similarly, Carl Black Auto Group’s Bowsher said his decision to move the dealership’s floorplan line to GM Financial didn’t come easily, he said, noting that the deal was sealed when GM Financial began offering cash back as a perk.

“When they finally got the Dealer Dividends program perfect, that’s when I jumped,” he said.

It’s a huge game-changer, and any [dealer] not on this program is leaving a lot of money on the table — Mike Bowsher, owner and president of Carl Black Auto Group

At Jacksonville, N.C.-based Marine Chevrolet, the test drive was the tipping point, when Dealer Principal Mike Alford was finally convinced to switch to GM Financial in July 2020, he said. “The dividends program propelled me to do the test drive with GM Financial. It’s what got me to look, but the other aspects of execution have to be there to go forward.

“The dividends program is working, but GM Financial is also working,” Alford said. “They’re helping us put deals together, they’re helping us sell cars, they’re working together with us and they’re truly listening. I do think I’m going to see the benefits of being with GM Financial only grow as our inventory situation starts to get better.”

Driving retail penetration

The Dealer Dividends program may be designed to increase the captive’s floorplan share among GM dealers, but the program also is intended to drive retail financing penetration in a market marked by record-low incentive spend from OEMs amid constrained vehicle inventory.

In fact, General Motors’ incentive spend as a percentage of manufacturer suggested retail price — which historically has helped drive retail penetration at its captive — has plummeted over the last two years, according to data from Cox Automotive. Incentive spending from the OEM was estimated to be at 3.81% of MSRP in April, down from 13.13% in April 2020. Still, GM Financial’s retail penetration at the end of Q1 2022 landed at 46.1%, up from 43.8% in the same reporting period in 2021.

Mandal Automotive’s Buick-GMC dealership in Biloxi, Miss., for example, retails about 175 to 180 units a month and sends upwards of 40% of those contracts to GM Financial, Mandal said, noting that before they became a floorplan dealer the dealership financed somewhere around 12% to 15% of contracts with GM Financial.

“When you’re a floorplan dealer, you’re what I call an all-in dealer with GM Financial,” Mandal said. “You get a different buying center than non-floorplan dealers do. You get better rates, more aggressive rates, you get better calls, you get better terms and conditions. And you’re able to penetrate a lot more contracts with consumers.”

Similarly, Carl Black has seen its retail penetration increase since switching its floorplan to GM Financial, Bowsher said.

“When we flipped the switch to GM Financial, I think the very first month we penciled 450 deals with them. We’ve hit 500 deals with them. Now, with the inventory situation, we’re averaging 375 to 400 deals with them out of 700 to 750 vehicle sales a month. It’s a no-brainer,” he said.

Becoming a full-fledged captive  

The Dealer Dividends program might be the impetus for dealers to floor with GM Financial, but it’s the service the lender provides that keeps its dealers in the fold, Marine Chevrolet’s Alford said.

“They’ve got a great team,” Alford said. “They know our people. Their service and analytics are exceptional. They’ll go through every deal we tried to work with them — the ones we weren’t able to get done and the ones we were able to get done — to make certain that neither one of us are missing opportunities.”

At the end of the day, GM Financial’s success in bringing more dealers onto its commercial line signals the lender’s arrival as a full-fledged captive, Alford said.

“What I’ve been pleased to articulate is where GM Financial has come from in the last 8 to 10 years from the AmeriCredit acquisition to an incredibly well-functioning, full-fledged captive that is supportive,” he said.

“I doubted they could grow into a full-fledged captive from the acquisition of a secondary company,” Alford said. “I’m so happy I was wrong.”

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