How Many Cars Should Be on Your Auto Floor Plan?

Dealer figuring out how many vehicles to put on his auto floor plan

Dealer figuring out how many vehicles to put on his auto floor planThe key to operating a profitable dealership is finding out how to balance cash flow with current inventory. Figuring out the ideal number of vehicles to put on your lot can be complicated and take quite a bit of time. Luckily, there are several auto floor plan formulas that can help dealers determine how much inventory they should stock and how many sales they should be making monthly. 

How many vehicles should you stock? 
In order to determine the number of vehicles a dealer should stock, they need to have a realistic monthly desired sale goal. This monthly sale goal needs to be realistic because it is one of the key factors in the inventory formula. For example, let’s say a dealer wanted to sell 60 units per month. Assuming the average turn time for vehicles on a dealer’s lot is 40 days, a dealer would turn their lot 9 times over the course of 12 months. The formula is as follows: monthly desired sales divided by how many times a lot is turned per year, multiplied by the number of months in a year. 


In this example, a dealer would need to stock 80 units based on 60 desired sales per month and a 40-day average turn time. Adjust the formula with your average turn time to get the most accurate numbers. 

How many sales should you make based on stock? 
Determining how many sales a dealer should strive for based on the current stock can help a dealer refine their sales per month goal. Knowing the target sales number, you should be working toward based on inventory can also help a dealer avoid over-stocking. Let’s say a dealer has 108 units in stock. Again, let’s assume a turn time of approximately 40 days (nine times per year). To figure out the number of desired sales, multiply the number of units in stock by nine, then divide that sum by 12. Here’s the formula break down:

Based on this example, the dealer should aim to make 81 vehicle sales per month. 

Purchase inventory with an auto floor plan 
After determining how about how much inventory your lot needs, it’s time to purchase! Dealers have a few options on what type of capital they use to purchase inventory. Some use the cash they have on hand, while some take advantage of an auto floor plan. 

There are many great benefits in choosing an auto floor plan instead of cash. One major benefit is that with a floor plan, dealers do not have to convert inventory to cash. If a dealer only uses cash to purchase inventory, a dealer can only get that cash back if they sell the vehicle, either through a consumer or through other channels such as an auction. Selling a vehicle to a consumer for extra cash takes time, and sometimes dealership expenses can’t wait. 

With an auto floor plan, if a vehicle hasn’t sold after a contractually determined number of days a dealer only has to pay for a small portion of the car’s value. Once the car sells, the dealer pays back the amount they initially bought the vehicle for. 

At NextGear Capital we recommend a dealer’s budget for stocking inventory to be at least a 70/30 mix of their auto floor plan to cash, respectively. Using a floor plan correctly to stock inventory ensures a dealer can buy enough vehicles to meet the needs of their market, and the cash on hand ensures a dealer can pay for their expenses. 

If you’re concerned your dealership doesn’t have the right balance of inventory and cash flow, contact us. 

How to Get a Custom Floor Plan Financing Program

A dealer learning about auto dealer finance requirements

A dealer learning about auto dealer finance requirementsNo two dealerships are exactly alike, and their floor plans shouldn’t be either. Unfortunately, some floor plan finance companies do not offer a variety of plans for their dealers. A large, established dealer may need a floor plan provider to help with title management while they expand their business, but a smaller dealer may need more flexible terms to acquire lower-priced inventory to fill their lot. There are several reasons why it is important to get terms that fit your business model, and luckily, there are a few options that can provide dealers with custom dealer floor plan financing programs. 

So, what makes a floor plan better than cash? 
Floor plan financing empowers tens of thousands of dealers worldwide to stock their lots with the inventory consumers want. Dealer Floor plan financing programs give independent dealers more buying power, since their cash is no longer tied up in inventory. The increase in cash flow gives dealers the freedom to use their cash for other aspects of the business. For example, the cash a dealer used to spend on inventory can now but put forth into new dealership signage, advertising, or even a service center. 

With a custom floor plan, a dealer will get all the benefits of a standard floor plan and much more. A floor plan provider that takes the time to speak and individualize floor plans can ease concerns and help grow business.  

What makes a floor plan customizable? 
One of the first things a dealer looks at when deciding on a floor plan provider is rates, or cost. The cost of a floor plan can vary significantly dealer to dealer. Dealership size, credit score, and a variety of other factors go into determining the terms of a floor plan.  

At NextGear Capital, we offer Tiered Pricing. This is a unique feature that bases floor plan fees on purchase price, not fixed or promotional terms. For example, a dealer who floors a $2,000 unit does not have the same flooring costs as a dealer who floors a $12,000 unit. This keeps cash on hand versus tied up in inventory, creating a more profitable way to manage a dealership. Tiered Pricing has been a success since it was launched, with dealers seeing savings up to 65% on their flooring costs. 

When looking at floor plan providers, it’s important to determine if they offer a wide range of dealer floor planning options that support remarketed unit purchases with short and long-term solutions. For the dealer looking for something individualized, a company that offers revolving lines of credit and non-traditional lending options should be top of the list. 

Another thing to consider when looking at dealer floor plan financing programs, is their staff. It’s important to find a company that focuses on forming relationships with their dealers. Unfortunately, floor planning services offered by banks and local lenders aren’t always consistently loyal to dealers. Over the years, several financial institutions have been in and out of the floor planning business, and support and attention for those efforts waver depending on the profitability of the bank or local lender’s floor planning program.  

Financing inventory for dealers is the sole focus of a floor plan company. Beyond just a consistent record of providing funds to car dealers over the years, floor plan providers offer a partnership steeped in years of experience in the industry. Finding a customer-centric provider is key to ensuring you receive a dealer floor plan financing program tailored to your individual needs.  

Ready to partner with NextGear Capital to build a custom floor plan? Apply now or contact us to learn more. 

 

Enjoy Faster Turn Times with a Car Floor Plan

This dealer is improving her turn times with a car floor plan

This dealer is improving her turn times with a car floor planAfter acquiring a vehicle at auction, there are quite a few steps a dealer must take before that vehicle gets to their lot. After purchasing, transporting, reconditioning, and posting vehicle details online, it’s easy to see how it could take a while to get a vehicle back to the lot. Unfortunately, taking too long to put inventory on the lot and post it online can hurt a business. Luckily, there are ways to improve turn times using a car floor plan. Taking advantage of a floor plan gives dealers the additional capital and hours needed to refine processes that improve turn times. 

Know your holding costs 
Before a dealer can begin the process of improving turn times, it’s important to understand holding costs. The average dealer takes around seven to 10 days to make a car customer-ready. That being said, the top dealers are able to get cars ready in less than four days.  

As every dealer should know, it costs money to keep a car on a dealership lot, even if it is just sitting in a parking space. Figuring out the dealership holding cost per unit per day is a beneficial metric that can help dealers keep their inventory balanced. Dealers that are interested can use these three floor plan finance formulas to figure out what individual unit holding costs per day are. 

Purchase Inventory With a Car Floor Plan 
Using a car floor plan means that dealers don’t have to use their dealership savings to purchase inventory. The up-front cos

t to put a floor planned vehicle on a dealer’s lot is incredibly minimal, which is good for dealers looking to improve margins. Depending on a dealer’s contracted terms, a first fee (a small fraction of the original vehicle purchase price) may not be due until 30 days after the car was first purchased at auction. Since dealership savings weren’t used to purchase inventory, those funds can be used for other expenses and priorities which can consequently help to improve overall dealership turn times. 

For example, because a dealer utilized a car floor plan instead of cash to purchase inventory, they were able to make improvements to their dealership’s service department. As a result, the service department improvements decreased the amount of time spent getting vehicles customer-ready, which in turn, helped to improve dealership turn times. 

When a dealer decides to floor plan, it saves time at auction and reduces administrative tasks. For example, cash-buying dealers often must take additional steps and keep track of more paperwork at auction to ensure their new inventory is properly purchased. With a floor plan, dealers simply bid and put the unit on their line of credit.  

Car floor plan companies can also assist with titles. Because of the constant buying and selling of cars, dealers have the ongoing responsibility to manage titles for a variety of different vehicles. Though dealers need to have a process in place to handle titles, dealers that floor plan vehicles are often able to offset a wide variety of title management tasks. Additional title work from select states can also often be requested, leaving dealers free from an afternoon at the DMV. 

Post Vehicles Online 
One of the most realistic ways for a dealer to turn vehicles quickly is to list inventory online as soon as possible, perhaps even before leaving auction. Though that timeline may not be realistic for all vehicles or dealerships, the sooner those vehicles are posted, the sooner customers can see available dealership inventory, which can then help improve dealer turn times. Dealers should aim to have every vehicle online within 24 hours of arriving at the dealership. 

Transportation 
Another way to improve turn times is to evaluate current transportation options. How much time does it take to move a vehicle from auction to a dealership lot? Despite the minimum amount of time it might take to move a vehicle from point “A” to point “B,” dealers that take advantage of services from NextGear Capital and Ready Logistics have the additional ability to floor plan transportation costs, further optimizing dealership cash flow. 

Ready to improve turn times with a floor plan? Get started here. 

Dealer Floor Planning Guidelines for Success

dealer inventory

dealer inventoryWhen using a floor plan, dealers do not have to use cash to purchase inventory. They can put the inventory on their line of credit and have the flexibility to use their cash for other needs of the dealership. However, dealer floor planning comes with its own set of management responsibilities. When it comes to managing a floor plan, dealers should be aware of these general guidelines.

 

Communicate with Dealer Floor Planning Company

Communication is key in maintaining a successful dealer floor plan. Not able to make a payment on time? If so, dealers should get in touch with their floor plan financing company. If a dealer is proactive and honest, their floor plan provider will be more likely to work with them to resolve any issues or problems that they may encounter. Dealer floor plan providers also appreciate hearing what’s going right as well as any trouble you may be having with floor planning.  

Manage Cash Flow Properly 

Since floor planning relieves dealers of using their cash for inventory, dealers should have a plan for how to manage their cash flow. The extra cash should go towards other dealership expenses. Using dealership cash for a service center, advertisements or improvements are typically safe investments. Many dealers can increase their profit margins when they manage their cash flow properly and floor plan responsibly by spacing out inventory purchases. 

Understand Dealer Warning Signs 

Dealer floor planning providers keep a close eye on certain signs that can indicate that a dealer might be struggling. The three main signals floor plan providers watch for are collateral audits, insufficient funds, and inventory turn times.  

Floor plan finance companies conduct collateral audits to ensure that they can verify inventory. Floor plan auditors will typically conduct an audit based on a time frame that is determined in a dealer’s contracted terms. If a floor plan company can’t verify a dealer’s inventory, it can be seen as a red flag. Dealers should let their floor plan provider know if inventory needs to be moved from a lot to another location for repairs or for a sale– just to make sure that auditors can verify that information. 

To help combat this, NextGear Capital offers dealers a tool designed to empower dealers to take charge of their audits and unreconciled units through a simple three-step process. Once dealers log in to Account Portal, they’ll be able to easily see the vehicles that need to be cleared, select a vehicle, take and submit a few photos and clear their audit in real-time. 

Insufficient funds are an indication that dealers can’t make their payments on time. This is one of the biggest signs that there is an issue with a dealer’s account management, and it affects how the floor plan provider views their chances of being repaid. 

Floor planning companies also keep a careful watch on average inventory turn times. Holding on to a vehicle for an extended period of time, or aged inventory, is a drain on cash flow and dealer resources. An increase in aged inventory means that is a bit more difficult for a dealer to earn back the initial vehicle investment, which in turn can make it harder to pay a floor plan financing company back because aged inventory compresses profit margins. 

Don’t Floor Plan Irresponsibly 

Mistakes happen when dealers use their floor plan irresponsibly. Just because a dealer is cleared to use a $240,000 line of credit, doesn’t mean that a dealer should use that entire line of credit on one day. In addition, if a dealer purchases more inventory than what they can reasonably sell, they’ve put themselves at risk to not be able to make floor plan payments, especially if they use their entire line of credit. There are dealer floor planning formulas to help dealers decide how much inventory is right for their business and floor plan successfully.  

Don’t Ignore Your Floor Planning Company 

A floor plan company will want to know about the health and wellbeing of a dealer’s business. Not communicating potential issues to your dealer floor planning provider can make it harder to remedy potentially preventable issues. Eliminate any potential miscommunications by keeping regular contact with your representative. Responding to your floor plan provider in a timely fashion will also keep any potential issues at bay. 

If you’re considering NextGear Capital as a dealer floor planning partner please apply, or contact us or your dedicated representative with any additional questions. 

How to Begin a Car Dealership Floor Plan

image of aged used inventory vehicles on dealership lot

Dealer using a car dealership floor planFloor planning may seem daunting at first, but it’s really quite simple. To put it in the simplest terms, floor plan financing works like a credit card made solely for purchasing vehicle inventory. This line of credit relieves dealers from using their own cash. The increase in cash flow  allows dealers to use that money on other needs of the dealership instead of being tied up in inventory.

Most companies that offer car dealership floor plan options  want to make floor planning as easy and beneficial as possible for independent car dealers.  Before taking the plunge into floor planning, make sure you follow these guidelines.

Do your research

The decision to floor plan your inventory is typically not an easy one. It’s important to do some research to see if floor planning is right for your business. In most cases, dealers seek floor plan financing options for all the great benefits for their dealership.

Dealers commonly rave about how much time is saved with floor planning, in addition to the increase in cash flow, since deciding to floor plan. In most cases, dealers buying with cash have additional paperwork to keep track of to make sure their vehicles are properly purchased. When dealers finance a car with a floor plan, they simply bid and put the unit on their line of credit.

It’s also important to research floor plan finance options. You want to find a lender that will work with you and design a plan that fits your specific dealership needs.

Unfortunately, floor planning services offered by banks and local lenders aren’t always consistently offered. Over the years, a number of financial institutions have been in and out of the floor planning business, and support and attention for those efforts waver depending on the profitability of the bank or local lender’s floor planning program.

Luckily, there are a few floor plan finance companies who are solely dedicated to serving smaller, independent dealers with flexible terms that fit their business needs.

There are many factors that go into choosing a floor plan financing company. While some dealers are focused on getting the best rates, it’s also important to consider the resources each company provides.

For example, NextGear Capital floor plans come with many different dealer resources. Our dealers have access to over 1,000 live and online auction sources, Cox Automotive‘s Manheim Market Report and Kelley Blue Book valuations from the convenience of the Account Portal.

Apply

Once you’ve decided which car dealership floor plan lender is right for your business, it’s time to apply!

Some companies, such as NextGear Capital, allow you to begin the application process online. The application process varies depending on the company.

In order to qualify to use a car dealership floor plan, a dealer needs to have credit. Specifically, a history of using credit and paying down debt. Floor plan lenders want to see what a dealer’s credit history is like. A low credit score and some marks on a credit history won’t always prevent an individual from using a floor plan, but it will likely limit the amount of capital a lender is willing to give to a particular dealer.

Begin using your line of credit

Once your application is submitted and accepted, it’s time to start using your car dealership floor plan!

Many auction locations accept a number of car dealership floor plan companies as a payment option. This means that at auction, a dealer only really has to worry about buying inventory. With a floor plan, dealers don’t have to worry about handling back-end operations and details. All a dealer will have to do is bid and take blocked tickets to the correct department to complete their purchase.

Grow your business

Car dealership floor plans ensure that a dealer has the capital needed to purchase inventory, and frees up cash to pay for other expenses, such as facility upgrades. Floor plans ensure cash isn’t eaten up by depreciation, and dealers don’t have to spend extra time at auction or waiting for checks to clear.

Dealers will also gain access to any resources the lender offers. For example, NextGear Capital’s Account Portal. The Account Portal is accessible through any mobile device and shows dealer’s details of their account. They are able to manage audits, use Rapid Pay, and so much more.

Ready to join over 23,000 dealers and floor plan with NextGear Capital? Please reach out to your local representative or contact us.

 

 

 

 

 

 

3 Ways to Increase Sales with Floor Plan Finance

Dealer using mobile floor planning

Dealer using floor plan financeBefore diving into the benefits of floor plan finance, it’s crucial to understand the concept of financing dealer inventory. Floor plan financing is often compared to credit cards. In the simplest form, floor plan financing acts as a “credit card” made to purchase inventory to keep their dealership stocked up for consumers.

The floor plan finance company extends a line of credit to the car dealer. The dealer can then use the line of credit to purchase inventory.

So, how does floor plan finance benefit auto dealers and help them grow?

#1: More Inventory

Since floor planning relieves dealers from using their own cash to buy vehicles to stock their lots, dealers can purchase more and sometimes better inventory using their line of credit. With additional inventory, there will be more options for consumers, making sales more likely. Some dealer floor plan companies offer fewer purchasing limitations on inventory, making it easier to get the make and model of vehicle the dealer desires.

The increase in cash flow will give the dealer the flexibility to use cash for other dealership improvements, for example a service center. Enhancements like this can serve as another profit center for dealers that want to find ways to generate more revenue.

#2: Save Time

Running a dealership involves a substantial amount of time an effort, and a dealer’s time is valuable. Floor plan finance aims to save time.

For example, dealers buying with cash have to take additional steps and keep track of paperwork at auction to ensure their new inventory is properly purchased. With floor plan financing, dealers can simply bid and put the unit on their line of credit.

Since there is a constant stream of buying and selling cars, dealers carry the responsibility of managing titles  for a variety of different vehicles. Some floor plan finance companies offer title services and innovative online and mobile account management tools. Dealers spend less time managing titles, which means less time spent at the DMV.

#3: Increase Profits

It’s commonly said that most dealers make money when they buy a vehicle, not when it gets sold. By using a floor plan financing, dealers will be able to see profit almost immediately after a unit is sold. If a $9,000 piece of inventory sells to a consumer for $11,000, dealers can pay off the original loan value plus any fees, all while having the flexibility to use dealership capital for other expenses.

Some floor plan financing providers, such as NextGear Capital, offer the ability to guide dealers into making good buys.

NextGear Capital dealers have access to Cox Automotive‘s Manheim Market Report  and Kelley Blue Book valuations from the convenience of the Account Portal. Dealers can use these resources to reassure they are making good purchases.

Are you ready to start growing your business with floor plan finance options? Feel free to give us a try by applying for a line of credit , or letting us know if you have any questions or hesitations by contacting us, or reaching out to your region’s representative.

NextGear Capital to Hold Second Annual Thank You Month for Independent Dealers

Carmel, Ind., June 4, 2019 — Throughout the month of June, NextGear Capital will be thanking dealers across the country for their partnership by forgiving 20 loans and surprising four clients with customized golf carts. These efforts are aimed at recognizing the company’s independent dealer client-base for their continued partnership and contributions to the industry.

“At NextGear Capital, we are committed to investing in independent dealers. We truly believe that our client’s success is our success and appreciate the trust that so many of them place in us,” Shane O’Dell, president of NextGear Capital stated. “And although I’d like to think we celebrate our partnership all year long, we’re always particularly excited when June rolls around.”

As the largest independent inventory finance company in North America, NextGear Capital provides services and support to more than 20,000 dealers. Accompanying the month-long celebration by NextGear Capital will be a social media campaign focused on reinforcing the thank you messaging through shared reactions of those selected for loan forgiveness and golf carts.

NextGear Capital Thank You Month was established in June of 2018 when the company dedicated an entire month solely to thanking their independent dealer clients. Transitioning from prizes such as Apple TVs, Xbox gaming consoles and Amazon Fire Sticks, NextGear Capital will be focused solely on loan forgiveness in 2019 as the ultimate way to show its appreciation for dealers.

For more information plus terms and conditions for NextGear Capital Thank You Month, please visit nextgearcapital.com/thank-you

About NextGear Capital
NextGear Capital is the largest independent inventory finance company in North America, providing flexible lines of credit for auto dealers to buy used vehicles from over 1,000 auto and other vehicle sources throughout North America. With a client base of more than 20,000 dealers, NextGear Capital provides comprehensive services and support enabling dealers to buy and sell more inventory through self-service management tools, title services, records management and collateral protection. Headquartered in Carmel, Indiana, NextGear Capital is a Cox Automotive brand. For more information, visit nextgearcapital.com.

Common Myths of an Auto Dealer Floor Plan

A dealer learning about auto dealer finance requirements

auto dealer floor planning

When considering an auto dealer floor plan, there are often misconceptions associated with how it can affect the business of an independent car dealership. Sometimes dealers use cash to purchase inventory without knowing the full benefit of a floor plan, or what they may be missing out on by not using one. Below are the most common myths associated with an auto dealer floor plan. 

Floor Plans are too Complicated 

The issue for some dealers is that they just don’t know where to start. Not knowing what the application process entails and what documentation will be needed from them can be overwhelming. To get a NextGear Capital floor plan, all that is needed is a dealer license and credit history, or a history of paying down debt. With those two things, the next step is filling out an easy-to-complete application. Once the application is accepted, dealers will be given a line of credit amount based on their credit score and size of their business. This credit amount isn’t set in stone, dealers will have the opportunity to increase their line of credit as their business and inventory needs demand.  

Once activated as a client, dealers will have 24/7 access to tools and support to manage their auto dealer floor plan. One example of support is the Performance Manager system where dealers will have a representative in the area with market expertise and valuable insights to help in making smarter inventory decisions. Dealers also have access to Account Portal which allows them to easily make payments, see real-time data, manage audits, and more, ensuring that having a floor plan is anything but complicated. 

Floor planning also simplifies the auction process. Instead of dealers having to wait in line to pay off a vehicle after winning the bid, they can just simply put the vehicle on their floor plan. The dealer also doesn’t have to worry about making sure funds are available, whether that be from their own savings or from a different lender such as a bank. An auto floor plan puts time back in the dealer’s day so that they can focus on their business. 

Too much risk- there isn’t room to make a profit 

We often hear from people that are hesitant to use an auto dealer floor plan that there are too many costs involved and there is no room to make a profit, making it a risky proposition. Although there are some additional costs associated with floor planning, that mindset doesn’t consider how much it costs a dealer to not use a floor plan. Dealers’ time is valuable and using a floor plan allows them to make to the most of it. They don’t have to worry about standing in line at auctions or managing titles and can focus on tasks that make their business flourish. NextGear Capital dealers have even more time saving opportunities on non-auction purchases with Rapid Pay, a tool that allows for expedited funding on notice of a title. 

An auto dealer floor plan also allows for more cash on hand while affording the ability to stock additional inventory, therefore increasing profitability. When funds aren’t tied up in the inventory on the lot, dealers can disperse funds however they see fit, whether that be covering overhead, using it for unexpected expenses or investing it to expand or grow the business. 

Another way for dealers to increase profitability is by improving turn times and reducing holding costs. As stated previously, a floor plan allows for more cash to be kept when purchasing inventory. Dealers that are unable to sell inventory that they purchased with cash quickly, will end up having holding costs that will cripple the dealership. Another way to reduce holding costs is to make sure that the right inventory is on the lot. NextGear Capital dealers have access to many tools such as Manheim Market Report to make sure they are doing just that. 

Inventory financing doesn’t have to be complicated and the benefits can outweigh the risk if your floor plan is managed properly. If you have any additional questions about an auto dealer floor plan, please contact us.