UsedCarNews.com
May 7, 2018
Floor Planners Meet Challenges of Rates, Tech
Photo courtesy of ADESA STOCK MARKET: Dealers bid on vehicles in the lanes at ADESA Chicago in Hoffman Estates, Ill. Many of these dealers make their purchases with floor plan financing. The cost of financing is rising along with interest rates.
By Ted Craig
Rush - Dated Material
Rising interest rates mean higher costs for dealers loor planning their inventory. Typically, loor plan rates are prime-plus. So as the Federal Reserve hikes interest rates, loor plan costs rise. For some dealers, this is a new experience. The Fed started its process of increasing rates in December 2015. This was the irst increase in almost a decade. Since then, rates have risen ive times, with the pace accelerating in the past year.
Jim Money, president of Automotive Finance Corp., said the Fed is doing a good job in handling the increases. “It hasn’t been knee-jerk reactions from the Fed,” Money said. “It’s been very scripted and they’ve been very minimal.” Dave Horan, NextGear Capital’s vice president of inance, said his irm’s clients are being more selective about inventory and loor plan purchases, but remain optimistic. “Although rising rates cause loor plan costs to increase, our dealers expect overall used-car demand will improve as payment-con-
scious consumers move from new auto purchases or leases to less expensive used vehicles,” Horan said. Jim Neubauer, chairman of Vehicle Acceptance Corp., said the impact on dealers is determined mainly by the way their loor planner calculates rates. VAC uses a ixed rate interest loor plan, while others ofer variable interest rate contracts. One of the biggest changes for loor planning since the last interest rate hikes is where dealers buy their vehicles. In addition to sourcing more vehicles online than from traditional sources, dealers are buy-
ing cars for a wide variety of venues, ranging from mobile sales to new Internet oferings. For example, Money’s AFC loor plans purchases of vehicles at ADESA auctions, Insurance Auto Auctions salvage sales, the online sales for both and on TradeRev, which ofers short duration sales online. “Sellers located long distances away, selling to unknown buyers using unique methods require that the buyer has inancial credibility in order for the buyer to get the best possible price from that seller,” Neubauer said. Continued on page 8
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