Keeping your dealership in business isn’t easy, but you love the work. You find in-demand cars with decent margins, and your customers are satisfied with their purchases and your additional services. However, you frequently find yourself struggling to pay all the bills and purchase that next unit at auction. Cash flow is key to maintain dealership success, and one of the best ways to obtain extra funds is to use automotive floorplans.
The more vehicles that sell, the more cash flow you need; especially considering the extra time it often takes for a customer’s lender to pay you.
Think of it this way. Let’s assume a dealer sells 6 vehicles per week and spends an average amount of $10,000 cash per vehicle. To keep cars on the lot, this dealer needs an average of $60,000 per week just to maintain current inventory levels. Additionally, any extra time it takes for a customer’s lender to pay further compounds this dealer’s cash flow needs.
If it takes three weeks for a customer’s lender to pay, that’s $180,000 in needed cash flow just to maintain inventory. That doesn’t include other expenses or payroll either.
The NADA estimates that the cost of holding on to a vehicle and letting it sit on a dealership lot is about $28 per day. If a dealer purchases inventory in cash for $8,000 and hopes to sell it for $10,000 and it sits for 30 days, they will have essentially spent $8,840 just to let the vehicle sit on their lot. Additionally, when and if that vehicle sells, there’s not a lot of room for those profits to pay for expenses.
That’s just one vehicle. Consider how much capital is tied up in inventory when applying this scenario to an entire dealership lot.
By using a floor plan, dealers will be able to see profit almost immediately. If that $8,000 piece of inventory sells to a consumer for $10,000, dealers can pay off the original loan value plus any fees, all while having the flexibility to use dealership capital for other expenses.
Grow your cash flow and build a thriving dealership with the help of a floor plan line of credit. Contact us to find out how a NextGear Capital floor plan can help supplement your dealership’s current cash flow.