Almost every dealer has a preferred type of capital they use when purchasing inventory. Some prefer cash, a standard bank loan, or a floor plan, and others use a mix of all three capital types. However, for dealers that don’t currently use an auto dealer line of credit, consider the advantages that a floor plan can provide.
Dealers that take advantage of an auto dealer line of credit have one of the simplest means of acquiring financing to purchase inventory, and one of the most flexible ways to free up dealership cash flow.
Typically, most dealers have a set amount of savings on hand to pay for inventory and dealership expenses. The additional flexibility a floor plan provides means that dealers don’t have to use dealership savings to purchase vehicles to sell to consumers. With an auto dealer line of credit dealers don’t have to spend those savings purchasing inventory. Since those funds aren’t put towards purchasing inventory, dealers can use that additional cash flow to focus on growing other parts of their business.
In addition, compared to using cash, using a floor plan certainly gives a dealer more options when it comes to aged and depreciating inventory. When a dealer purchases inventory with cash, that capital is tied up in the vehicle. As the vehicle depreciates, so does the dealer’s initial investment. With a floor plan, dealers can pay off the amount of the car over a longer period of time, extend a vehicle or buy down the car’s depreciation. Without a floor plan line of credit, those options aren’t necessarily available.
Beyond giving dealers extra cash flow, many floor planning companies offer a number of other services that help dealers save time and headache on administrative tasks. For instance, floor planning vehicles at auction mean that dealers typically have less paperwork to complete to make a purchase.
Additionally, Since floor planning companies work so closely with auto dealers, floor plan providers develop many solutions made specifically for dealers. Some of these solutions include state-of-the-art online and mobile account management tools, title services depending on a dealer’s state, records management and collateral protection.
Using a floor plan can be an extremely beneficial business strategy for dealers. If your dealership doesn’t currently use a floor plan, consider how one can work alongside your other methods of inventory payment to increase your dealership’s purchasing power and cash on-hand flexibility.