Car dealers frequently develop and utilize systems and processes to maximize profitability. Dealer success can often be found when dealers find a system that works, and when dealers stay disciplined and stick to that system. An advantage of utilizing an auto dealer floor plan compared to cash or a regular bank loan is the added structure and rhythm it can add to a dealership’s operations.
An auto dealer floor plan is a line of credit formulated specifically for dealers to purchase automotive inventory. To simplify the concept a little more, auto dealer floor plan companies essentially allow dealers to borrow funds to purchase vehicles. The advantage of a floor plan line of credit is that dealers have purchasing power available at their fingertips without the need to utilize a dealership’s savings and cash on hand.
As vehicles are sold off of a dealer’s lot, dealers pay back the amount of the loan used to purchase that inventory. If it takes a while for a vehicle to sell, dealers only will owe a minimal fee after a contractually determined number of days. This arrangement lets dealerships use their cash on hand for other expenses, such as overhead and facility maintenance, and curb against vehicle depreciation.
Some dealers use that first floor plan payment on a unit to re-evaluate a vehicle’s selling strategy if the car hasn’t sold within the contracted number of days. Is the unit a bad buy for the dealer’s particular market? Was the vehicle delayed from being front-line ready by taking too much time to be reconditioned? Is the pricing strategy for the particular unit appropriate?
Dealers that take advantage of their utilize this strategy are able to transition from using a reactive strategy, to a proactive strategy to sell vehicles. Establishing proactive strategies and tactics such as using your auto dealer floor plan structure and developing an aged inventory exit strategy allows dealers to develop systems to maximize profitability.
If you are interested in learning more or getting an auto dealer floor plan, we’ll connect you with your local representative, and they’ll help you get started!