Many of the best dealerships develop processes and routines that result in overall dealership profitability. A lot of that success can be attributed to dealers who stay disciplined in adhering to the processes they’ve created. One of the many benefits of utilizing an auto floor plan as opposed to cash or a standard bank business loan, is the structure and added discipline it can provide to a dealership’s operations.
With cash or a regular business loan, a dealer will have extra capital on hand to purchase inventory, but there isn’t quite the same incentive to stay involved and motivated to sell vehicles.
Think about an auto floor plan as if it is a credit card built solely for a dealer to purchase inventory from auctions and other sourcing options. As a dealer sells the vehicles on their lots, they pay back their floor planning lender the amount of the loan. If a dealer uses a floor plan line of credit to purchase a vehicle and if the vehicle doesn’t sell in a contractually determined number of days, dealers are charged a small fee.
A number of automotive dealers prefer, and aim to have their contracted floor planning terms match or align with their inventory turn times. Let’s say a dealer’s preferred time frame to sell a vehicle is 60 days, and they have the floor plan terms mentioned above. If a vehicle doesn’t sell within a dealer’s preferred time frame, the second fee could trigger a review of the vehicle and initiate additional action items for a dealer. Was the unit a bad buy? Was time wasted during reconditioning? Was the unit not priced appropriately? Does the unit need to be retailed at auction? This secondary review of an unsold vehicle helps to create a proactive, instead of a reactive, situation for an auto dealer, where they can make an informed decision on what to do with the unit.
Developing processes to maintain dealership profitability is essential to dealer success. Using the structure of an auto floor plan line of credit to the dealership’s advantage and staying disciplined in acquiring inventory can greatly benefit a dealer long-term.