Floorplan Financing What You Need to Know

Joe Keadle UCDMagazine.com

In today ’s marketplace, your dealership’s profit centers are being squeezed from multiple angles. Many dealerships turn to a floorplan provider to have enough liquidity to acquire the right inventory and stock their lots at the right level.

A floorplan provider should be viewed as a tool for success and must be managed and understood to benefit your dealership’s bottom line.

A floorplan can be a key to your inventory management and acquisition strategies. It’s vital to consistently evaluate your floorplan options to maximize their value.

Begin by analyzing both indirect and direct costs, including the level of service, cash flow flexibility, inventory acquisition options, interest and fee structure, along with recurring ancillary fees.

Maybe you’re thinking, “This is starting to sound like work:’ But floorplan expense is typically the second-largest expense item for an independent dealership, behind only employee costs. and direct costs can help you understand the relationship between your floorplan provider and your dealership’s bottom line.

That said, it’s unwise to evaluate a floorplan provider on a straight cost basis alone. The ability to source the inventory that best fits your dealership’s needs at the lowest cost and with the least difficulty is not a straightforward effective interest rate question.

It’s also a question of service.

Level of Ser vice

Cost alone does not determine which floorplan provider is the best fit for your dealership.

Review your business model and identify specific characteristics that impact your dealership.

Ask yourself:

• Can I floor the type of inventory

I typically stock or are there restrictions on the age, mileage and floorplan advance (amount the provider will floor per unit) of your inventory?

• What are the costs and/or advance restrictions on where you source the vehicle (auction, trade-in, wholesale, etc.)?

• What’s the policy for floorplanning a trade-in? Can the provider help fund the customer’s payoff to preserve your cash flow? • Is the floorplan easy to use and transparent on its billing statements?

• What are the audit guidelines? What is the audit experience like?

Floorplan providers’ service characteristics vary greatly. Determine which best suits your dealership’s business needs. In today’s marketplace, floorplan capital is limited and providers are conservative in their lending approaches. Develop a strong relationship - a partnership - with your provider. Keep in touch and develop relationships up and down the organization, not just with a single person.

Protect your floorplan relationships by:

• Proactively managing your floorplan, communicating promptly and frequently.

• Being timely with your payoffs.

• Having clean audits and being a low-maintenance client.

• Helping your provider realize partnering with you and helping you grow more profitable and stable decreases its risk.

• Once you’ve assessed the service level and potential fit for your dealership’s needs, evaluate the cost involved with receiving that service level.

Direct Costs

Operating a dealership is a cashintensive business, so review the

effects of your floorplans on your dealership’s cash flow.

• When is your first principal reduction (curtailment) due?

• How much are the curtailments per unit: 5 percent, 10 percent or more of the principal balance?

• When does that aged unit become due for full payoff?

• What time frame does the floorplan provider allow for you to pay off a sold unit?

• Are there time allowances for a unit you have not received loan funding for?

• Can you source inventory beyond floorplan-affiliated auctions?

• Can you floorplan trade ins and other vehicles acquired outside of auto auctions? If so, are there advance restrictions that could tie up some of your cash flow?

The simplest way to analyze multiple floorplans is to review the direct costs to determine the total cost for each provider. Often the base terms of a floorplan are easily understood but other related fees are not readily apparent.

Review your entire billing statement and request the floorplanner’s standard fee list to ensure all initial floor fees, monthly audit fees, curtailment fees (paid in addition to the actual curtailment), payoff fees and additional floor fees for outside auction purchases are included in your calculations.

Indirect Costs

Review the time involved in managing a floorplan and allocate the average hourly cost of the employee(s) involved. That expense is directly related to your ease of doing business with the floorplanner.

Can you source inventory without hurdles and roadblocks? Does your provider have restrictions that impede your ability to make inventory acquisition decisions to improve your dealership’s profitability?

You might find having multiple floorplan providers works best for you because the different providers fulfill different inventory needs. But check with your provider to see if it allows multiple floorplan lines or if a particular provider requires that its line holds the first UCC-1 position.

Those simple assessment methods can help you determine the best value for your specific needs based on service and cost.

As many of us have said while selling a customer a vehicle, the lowest cost does not necessarily mean the best value.