Dealership profitability is often guided by a dealer’s ability to balance vehicle acquisition costs, dealership turn times, holding costs and any additional profits made through the service department. Though each of these components plays an important role in a dealership’s overall revenue, maintaining adequate cash flow can be difficult without dealership floor plans in place.
Thinning margins and inventory acquisition costs mean dealers can only expect to make a set amount of profit on each vehicle. Unfortunately for dealers without a floor plan, their funds are tied up in the vehicle until the car is sold. Of course, once the car is sold dealers get their funds back plus a little extra profit. However, it can be difficult to grow a dealership if you are solely relying on selling vehicles to fund and grow operations.
For many dealers, using a floor plan can substantially alter dealership profitability. Instead of using dealership savings to buy inventory, floor planning dealers can use their line of credit to buy vehicles and leave their savings in the bank. Often, the extra buying power and cash flow from a floor plan give dealers the boost they need to take their dealership to the next level.
Consider what your dealership cash flow could look like with a floor plan.
Dealers purchasing inventory with a floor plan line of credit don’t initially owe anything until their first contracted payment, a minor portion of the total vehicle cost. In theory, a dealer spending $15,000 on a vehicle that will sell to a consumer for $16,500 won’t owe more than a small payment after a contractually determined number of days. Since a dealer doesn’t have to spend that initial $15,000 on inventory, that cash can be used for other expenses.
Additionally, once the vehicle sells to a consumer for $16,500, the dealer can immediately pay back the initial loan and fees, and earn profits from the sale all while keeping the $15,000 they would have used to purchase that vehicle in dealership savings.