5 Traits of Healthy Auto Floor Planning Dealers

Every dealer uses a few different metrics to evaluate the success of their business. A floor plan is a crucial part of your dealership’s operations, and there are a few key characteristics that indicate the condition of your auto floor planning account. Consider monitoring the following metrics to get a full view of your dealership’s overall health.

Turn Times
One of the key measurements of a healthy dealer is their average turn time, or annual inventory turn. How many times per year can your dealership sell out your entire lot? Most dealers typically turn inventory approximately every 60 days to avoid accumulating aged inventory.

On-Time Payments
Though it may seem like a basic tenet of running a business, making payments on time is a key indicator to a floor plan lender that you’re operating a healthy dealership. For NextGear Capital dealers, enrolling in AutoPay allows you to always pay on time and avoid late fees!

Utilization
Healthy floor planning dealers consistently utilize their floor plans to purchase the inventory their market demands, and keep their credit usage at appropriate levels. Typically, we recommend a floor planning mix of 70/30 of a dealer’s floor plan and cash on hand to ensure dealer overhead is covered.

Communication
The dealers that invest in an ongoing relationship with their floor plan lender get more than just a line of credit. Staying connected not only helps you to fine-tune your floor plan management, but it also opens the door to discussion of your dealership’s strategy, and suggestions to improve overall outcomes.

Consistently Cleared Audits
Most floor plan companies have an auditing process to ensure the funds supplied to dealers is used for vehicle inventory. On occasion when an auditor stops by, dealers will have a few units unavailable because they’re off-site getting repaired or reconditioned. The dealers that keep careful records of the location of these off-site units and have the ability quickly reconcile them, build additional trust.

Based on these traits of a healthy dealership, how does your dealership stack up? Do you see gaps in your relationship with your floor plan provider?

If you aren’t satisfied with your current dealership’s current numbers or auto floor planning relationship, contact us or reach out to a NextGear Capital representative. We’re dedicated to providing your dealership with buying power and partnership to help you succeed and thrive.

How Much Should you Stock on your Dealer Floorplan?

Dealership owner walking his lot with a customer looking at cars on his dealer floorplan.Maintaining dealership profitability relies on dealers to continually balance their inventory and cash flow. With a floor plan, dealers have more cash flow to stock their lots with needed inventory. However, what’s the optimal amount of inventory that should be purchased on a dealer floorplan?

First, take a look at your dealership’s key performance metrics including floor planning numbers, sales and average turn times. How much inventory do you currently sell per month? How much inventory would you like to sell per month? Be sure to select a realistic sales goal.

Then, consider how quickly your dealership turns inventory. If you turn inventory every 60 days, you completely sell your lot’s inventory 6 times per year. For dealers that turn inventory every 40 days, you’d turn inventory 9 times per year.

Let’s work through an example to figure out how much inventory an example dealer should stock on their lot.

If our example dealer wants to sell 30 cars per month, or essentially one car per day, that dealer has a desired sales goal of 30 cars. Simple enough, right? We also assume that this dealer currently has an average lot turn time of 60 days. So their lot gets turned 6 times over the course of the entire year. To figure out this dealer’s optimal inventory level, we take the number of monthly desired sales, divided by the dealer’s lot turn time, times the months in a year.

Monthly Desired Sales    30
Total Yearly Lot Turn (Assuming a 60 day average turn time)    ÷ 6
Months in the Year    X 12
Optimal Inventory Stocking Number    = 60 Units

In this scenario, our dealer should aim to have approximately 60 vehicles on their lot.

Plug in your dealership’s current numbers. Do you have the right amount of inventory currently in stock?

Keep in mind that the ability to purchase your calculated optimal amount of inventory will depend on the amount of dealership savings you have on-hand, or the line of credit your dealership is approved for.

Regardless of the amount of credit your dealership is approved for, be sure to floor plan responsibly. At NextGear Capital, the recommended mix of a dealer floorplan and cash on hand is 70/30, respectively. Plan to keep a balanced amount of extra credit and cash available to ensure your dealership overhead is covered.

Keeping the right amount of inventory on your lot is crucial to balancing your dealership’s overall cash flow. If you’re concerned your dealership doesn’t have the right balance of inventory and cash flow, contact us or reach out to a local representative.

How Automotive Floorplans Enhance Your Cash Flow

Vehicles on a dealer's lot bought with automotive floorplansKeeping 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.

Plus, when you add in the variables of cash-bought inventory, holding costs and depreciation, a dealer’s need for additional cash flow becomes even more apparent.

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.

Choosing Floor Plans or Bank Floor Plans

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

Image of a laptop and phone with account management tools for a bank floor plansTo help maintain current business, dealers will frequently realize they need additional funds, and quickly come to the conclusion that there are typically only a few main funding options available to sustain a dealership. Beyond just dealership cash and funds on hand, dealers are typically left with the choice of using bank floor plans or a floor plan line of credit. If you’re trying to select between a floor plan line of credit or a bank floor plan from a local lender, consider the following questions before making a final choice.

What is the purchasing process like?
No matter what a dealer’s funding source is, there’s a process involved in purchasing inventory from both auction and non-auction sources. However, there are key differences in what happens after a dealer purchases a unit when using bank floor plans versus a line of credit from a floor plan company.

With bank floor plans, dealers have to go through many of the same administrative actions required when using cash. That can include title management and waiting on funds to be released and cleared. This can take up significant amounts time and add on to the number of tasks a dealer needs to complete in a given day.

Buying cars with a line of credit from a floor plan financing company is a much simpler process . Once a vehicle is put on a dealer’s line of credit, funding and title management are all handled by a dealer’s floor plan provider. After floor planning a car, a dealer can essentially leave auction knowing that those other tasks will be handled on their behalf.

Can I buy the inventory I want?
Every dealer has preferences when it comes to buying inventory for their individual markets. However, some bank floor plans or local lenders have restrictions on the type of inventory dealers can purchase based on mileage, and year of a vehicle’s manufacture. Additionally, those type of lenders may not fund the whole amount to purchase a piece of needed inventory.

Floor plan companies often have fewer restrictions on the type of vehicles dealers can finance. That means dealers can get more of the inventory they want, without tying up the use of dealership cash.

Can I rely on my financing?
Dealers have to be able to rely on getting their funding for inventory when and how they need it. 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.

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.

Whether or not a dealer gets financing from a bank floor plan, local lender or floor plan financing company, every dealership needs a financing partner that fits their individual needs.

Have questions about using NextGear Capital as a floor planning partner? Contact us, or find your local representative to learn more.

An Industry-Best Floor Plan Audit Process

Dealer using Self Reconciliation to audit a carAudits can be an inconvenient, but necessary part of having a floor plan line of credit. In the near future, NextGear Capital dealers can look forward to even more transparency and control over their floor planning with upcoming Self Reconciliation technology combined with a number of audit process improvements that have already reduced audit-related interruptions by 80%.

Audit Self Reconciliation

First announced in June, Self Reconciliation is a solution 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.

Audit Process Improvements

Streamlining the auditing process has shifted how dealers connect with NextGear Capital. Dealers now spend less time chasing down units and have more time to spend on other more important priorities due to some of the following audit process improvements:

  • Consolidated Notifications: A reduced number of emails and phone calls that request dealers follow up on unreconciled vehicles mean that dealers can spend less time fielding calls and emails, and more time working toward other dealership objectives.
  • Reduced Account Locks: Account locks because of non-reconciled units are nearly eliminated. Vehicles that aren’t reconciled within the allowed timeframe, the vehicle balance is paid off through an automated ACH.
  • Extended Reconciliation Time: Dealers no longer have to feel rushed to reconcile units! With additional time to report on unreconciled units combined with a reduced number of messages, dealers can relax and reconcile units on their own time.
  • Propose Preferred Audit Scheduling: With the ability to suggest a preferred auditing schedule, dealers can potentially ensure that a floor plan auditor won’t stop by while out of the office. Dealers can rest easy knowing that their inventory won’t need to be accounted for during an inappropriate time.

Doing business shouldn’t have to be difficult or inconvenient. With fewer interruptions and more time to focus on other dealership priorities, NextGear Capital dealers have access to an industry-best combination of audit flexibility, functionality and convenience.

Have more questions about NextGear Capital? Let us know! Click here.

Choosing a Wholesale Floor Plan Financing Partner

Dealer looking at a potential vehicle to floor plan with their wholesale floor plan financing partnerThough there are significant differences between retail and wholesale dealer business models, the fact remains that both types of dealers have inventory financing needs that a floor plan lender can accommodate. However, when selecting a wholesale floor plan financing lender it’s crucial to ensure your funding partner understands and caters to the individual needs of your business.

For most wholesale dealers, selling inventory quickly is key to generating revenue, and any funding sources used must be able to keep up with the speed that wholesalers turn inventory. Beyond just keeping up with the speed of business, wholesalers also look for lenders with competitive term plans, and an exceptional team committed to customer success.

Besides those expected advantages with a floor plan provider, wholesale dealers with NextGear Capital can take advantage of a number of additional benefits.

Streamlined Transactions
Cutting a check and waiting for it to clear for a deal can take up time and administrative resources for both wholesale and retailing dealers. As one of the largest floor planning companies for independent dealers, chances are many of a wholesaler’s dealer customers floor plan with NextGear Capital. Two dealers that both have a NextGear Capital floor plan can simply request to move a particular unit from one line of credit to the other, and the difference will be deposited into the sellers account.

Title Handling
The pace that wholesaling dealers have to sell vehicles makes managing titles complex. Due to that pace, it’s often more convenient to have another party handle title management. With NextGear Capital, wholesaling dealers don’t often have to deal with a physical title, and can pay an additional fee to get title work done on their behalf. However, if a title is ever needed they can be quickly sent and are almost always available to view through a dealer’s account.

Account Transparency
Wholesaling dealers need to quickly and simply see information about the vehicles on their floor plan. With Account Portal, NextGear Capital dealers have the ability to see crucial data about their lots and inventory on their floor plan at a glance.

Wholesale dealers need a financial partner that can move funds as quickly as they move inventory. Want to learn more about wholesale floor plan financing with NextGear Capital? Reach out to your local NextGear Capital representative here, or ask us questions here.

What is Floorplanning?

Often confused with building layouts, a “floor plan” is essentially a short term loan that car dealers can use to stock vehicles on their lots. Though this is a simplified definition, what is floorplanning exactly and how can a floor plan work to improve dealership cash flow?

What is floorplanning?What is floorplanning?

Like a loan, a floor plan is a line of credit made specifically for auto dealers to fund inventory purchases from auction sources, trade-ins and other non-auction sources. Once inventory is purchased, dealers pay back the original loan amount plus interest and minor fees over the course of their individually contracted terms.

Every floor planning dealer has individual contracted terms personalized for their dealership. Floor plans are typically composed of an interest rate, term periods, floor plan fees and curtailments/extensions. For example, a dealer may have a term plan where they need to make a minor payment composed of those items at 30, 60, 90 and 120 days.

These minor payments at periodic intervals ensure that a dealer doesn’t have to purchase vehicles in full in cash, and assures the lender of a dealer’s ability to make payments.

How can a floor plan help improve dealership cash flow?

Some dealers prefer to use dealership savings to purchase inventory. However, many dealers find there’s sometimes just not enough funds to fuel dealership growth.

Let’s explore this concept with an example. If a dealer sells 6 cars per week with an average cash in deal of $6,750, each week our example dealer needs $40,500 just for inventory, let alone additional expenses. A customer’s lender may not always pay quickly either, further compounding the amount of cash needed to keep the business running.

Additional cash flow helps to fuel dealership growth. One of the biggest benefits of a floor plan is that dealers don’t have to use their funds on hand to purchase inventory to keep their lot stocked. This leaves dealership savings free to pay for expenses and expand other parts of the business.

With a floor plan, the funds that were previously used to purchase inventory, can be used to pay for expenses and grow other parts of the dealership. Additionally, those funds could be used to hire more staff, improve marketing and advertising efforts or improve service operations.

What could your dealership do with more cash flow flexibility? Apply now, or reach out to your local NextGear Capital representative with additional questions.

Inventory Tips for Dealers with Car Floor Plans

Using a car floor plan is one of the simplest means for a dealer to access additional capital to purchase inventory. However, the extra buying power that comes with a floor plan shouldn’t overshadow responsible inventory management.

Data-based decisions
Every dealer is looking to drive revenue and profits through the vehicles they sell. Often, in order to accomplish this goal, dealers have to be disciplined and unemotional about the inventory they acquire. Every market is different when it comes to what will sell and what’s in demand. Using tools like Stockwave, and gauging interest on AutoTrader should give dealers a good idea of vehicles that people in their market are looking for.

Additionally, dealers can use dealership data to determine if inventory strategy needs to change. For example, if a dealer has too much aged inventory and it’s affecting revenue, it’s best to examine aged inventory and be diligent about dropping prices until those units move, and make up the drop in pricing with more total sales volume, and more Finance & Insurance product sales opportunities.

In the same vein, if a dealer is overachieving on profit margin but not struggling with aged inventory, it’s likely best to be more conservative and protect profit margin with smaller pricing drops and hold onto the units longer.

Accountability
Balancing the correct amount of capital and inventory helps to keep sales and auction buyer teams accountable.

Simply because a dealer has extra funds available doesn’t always mean that they should purchase extra inventory. Sometimes, dealers make hasty buying decisions simply because they want to put more cars on their lots. Thoughtless purchases that age can be a drag on overall dealership capital and revenue. Unfortunately, when dealers buy too much inventory these issues don’t always easily present themselves, and can be difficult to diagnose.

For sales teams, excess of inventory can distract focus from aged units. Though recouping costs by sending a vehicle back to auction is an option, selling inventory to a consumer will almost always be preferable.

With a constant, vigilant eye on the balance of aged inventory and capital on hand, dealers that manage their inventory well will often find that the extra cash flow from a floor plan can help take their operations to the next level.

Floor Plan Financing for Used Car Dealers

man on car lot pointing out cars that used floor plan financing for used car dealersDealerships rely on a constant stream of inventory to stock their lots. Though dealership savings can be used to purchase inventory, one of the simplest means of acquiring inventory is using floor plan financing for used car dealers.

Acquiring a Floor Plan
Before lending funds, floor plan financing companies will often ask dealers to provide additional information and documentation to verify dealership details. Documentation will often include items such as a completed credit application, dealer license details and current financials. These materials give a floor plan company a cursory overview of basic dealership information, and help determine a dealer’s funding limits.

Have dealership documentation organized and accessible when applying for a floor plan line of credit. Dealers that have easily accessible documentation will often find the floor plan approval process is swift, and straightforward.

Using Floor Plans
Once approved for a floor plan line of credit, dealers can start using their new funds to purchase inventory through both auction and non-auction channels, depending on the capabilities of the floor plan provider.

Floor planning vehicles at auction is typically fast and easy through your chosen floor plan partner’s account management platform. These platforms let dealers manage their accounts anywhere, anytime, from a computer or mobile phone, with dashboards that present pertinent information about current credit.

Additionally, many floor plan providers have the ability to handle back-end operations after an inventory purchase. For example, floor planning dealers don’t necessarily have to worry about titles, since they’re sent directly from the auction to the floor plan company.

Expanding Your Dealership
Using a floor plan to purchase inventory gives dealers needed buying power and cash flow to use dealership savings for other expenses. When dealership funds aren’t tied up in inventory, those savings can go towards hiring more staff, getting additional operational tools or marketing vehicles to sell.

With the buying power and additional cash flow provided by floor plan financing for used car dealers, dealers can save time from reduced administrative tasks, the funds to purchase inventory, and get the chance to really focus on their customers.

Managing Cash Flow with Dealership Floor Plans

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.

If you need extra cash flow for your dealership, consider what a floor plan could do for your business. Apply for credit or contact a local NextGear Capital representative to get started!