A de novo dealership floorplanning continues to move toward an initial public offering — albeit a small one. Today, Lincoln Floorplanning Co. Inc. filed its fifth amendment to its first IPO filing in December. No offering date has been set yet for Lincoln.
Lincoln is a new venture. Daytona Beach, Fla.-based Lincoln has never earned a penny of revenue from operations and it won’t until capital is raised. The company had about $7,500 in its bank account at the end of last year.
And yet, the company is a sign of something brewing in auto finance, and that is expansion in the used car segment. According to the company’s offering documents, “Lincoln’s strategy is to market its services to smaller dealers, auto auctions, and independent used auto dealerships where larger banking and financial
institutions are not interested. Approximately 4,000 potential customers meeting this description exist in the states of North Carolina, South Carolina, Georgia, and Florida. Lincoln will fund floorplanning of used car inventory. After establishing its floorplan operation, it intends also to buy used car purchase contracts from buy here pay here dealers who are using Lincoln as the dealer’s floorplan financer.”
There’s been more of a buzz around the used car market lately, especially since there are expectations that some spurned Chrysler and GM dealers may find their way to the independent dealership scene. Lincoln lists as its competitors Bank of America, GMAC, and Chase, as well as “smaller floorplan finance companies” Auto Use, DSC, and Flex Funding.
Lincoln is being founded by Timothy L. Kuker, Steven G. Salmond, and Ronald S. Worl. Kuker and Worl together own a dealership called T&J. T&J has been testing Lincoln’s products and services.
Lincoln is looking to raise $2 million of which Lincoln wants to extend $1 million in floorplan financing. The company says it needs $160,000 to cover its 12-month cash burn rate.
Lincoln expects to have attracted a minimum of 25 dealerships upon completion of the first full year in operation. Here are the numbers: The 25 dealerships are expected to generate $781,500 in annual gross revenue for Lincoln, of which $357,000 is from processing, $394,500 is from interest and $30,000 is from auto audit fees.
According to the prospectus, after $200,000 for the cost of money at 8%, G&A expenses of $123,840 and audit fees of $30,000, Lincoln is expecting to net about $428,00 per year. In other words, Lincoln thinks it can make money in floorplanning, and with all the negativity surrounding auto finance over the last year or two, that’s a welcome sentiment indeed.
* Lincoln Floorplanning Co. Inc.’s amended S-1 dated June 22, 2009
So do we bail out Porsche driving Wall Streeters and not the American Auto Worker? Do you not see that a failure would have a domino effect on the entire industry at a time when it could take the entire economy down at the same time?
Roger Penske has an idea. I want to make it clear I don’t endorse this, I am merely putting it out there! From Dealer’sEdge.
“Roger Penske’s ideas for aiding carmakers
Would recognize automakers as a “strategic industry”
(11/21/2008)
DealersEdge Daily Headlines
Roger Penske has been successful in just about every venture he has tried, and that’s especially true of his automotive businesses. So when Roger Penske speaks of things automotive, people tend to listen. Here’s what he had to say to USA Today on the subject of government financial aid to domestic carmakers.
Roger Penske thinks he’s found a simple answer to bailing out Detroit’s automakers — a restructuring fee that would be added to the price of every new car.
Instead of government loans to try to bridge General Motors, Ford Motor and Chrysler through their financial crisis, Mr. Penske said Thursday that he likes the idea of a fee levied on every foreign or domestic vehicle sold that could raise billions a year for automakers.
Proceeds from the fee — he suggested $200 or $500 per car — would help relieve automakers of their health and retirement burdens. It could also go to buying out under performing auto dealers. Laws in many states prevent automakers from closing dealers outright.
He gave credit for the idea to Tom Dekar, of accounting firm Deloitte & Touche. Mr. Dekar said he only wants to float the idea as his personal view to enhance discussion to solve the crisis.
The proposal would recognize automakers “as a strategic industry,” Mr. Dekar said. “Everyone is beating up the Big Three.” But he says the criticism is unfair because Detroit’s trouble can be traced largely to taking care of their workers in the industry’s heyday.”
Mr. Penske says he thinks even foreign makers would line up behind a fee because they have already said the Big Three’s survival is critical to their ability to maintain their base of key suppliers.
They are going to get the stuff that bankers with good underwriting do not want (and few good banks do used car flooring for existing new car dealers unless there is something special in it for them). This should hold true for the dealers that lost the new car franchise because a good banker could do a deal that underwrote well and only charge the dealer a reasonable interest rate because they also get the benefit of compensating balances. This floorplan would benefit used car dealers that do not qualify under good bank underwriting.
The great thing about America is that we have the opportunity to present ideas to the unwary or greedy and sometimes get money from them – and sometimes things do pay off.
Risk is commensurate with reward – For this type of deal, I would think that any investors are expecting to get 25%+ returns in exchange for the risk.
I wish them well.
JJ,
If you remember the morale of Jurassic Park , “Life will find a way…”. Capitalism is the same. Americans will find a way, we always have. Capitalism is that spark of DNA that has allowed our nation flourish. Good luck to Timothy, Steven and Ronald.
Can you spell “adverse selection”?