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.

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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!

Used Car Dealer Floorplan Financing Fundamentals

A used car dealer floorplan financing partner will often give dealers the cash flow infusion they need to take their dealership to the next level. However, before integrating a new business partner, it’s crucial to understand the fundamentals of how the partnership can boost dealership growth and how operations may need to shift to accommodate that growth.

How does a floor plan improve dealership cash flow?
When a dealer acquires inventory they typically use their dealership savings. Until the vehicle sells, a dealer has no access to additional capital to purchase more inventory, improve operations, or hire more staff.

With a floor plan, dealers can use the funds supplied by their floor planning partner to buy vehicles. Consequently, dealers don’t have to touch dealership savings to buy inventory, and can use those funds for other expenses. In theory, a car could sit on a dealer’s lot for 30 days and only be required to paid a minor fee after a contractually determined number of days, a fraction of the price of purchasing a vehicle in full. This allows dealers to use dealership funds to grow operations in other areas.

How could a floor plan shift current operations?

Accommodating more inventory
Compared to just using dealership savings, using a line of credit to purchase inventory means dealers can purchase more inventory than usual. Additional inventory can mean more sales, but it can also cause a surge in activity for other operational departments. For example, buying more inventory can mean needing more parking spaces on your lot, or additional reconditioning work for your service department. Be aware of potential growing pains your dealership may face by bringing more cars to your dealership lot.

Shifts in title management
Managing titles is a daily job for dealerships. For some dealers, there are often concerns that utilizing a floor plan company limits immediate access to titles. However, many used car dealer floorplan financing partners offer the ability to view titles anytime through their account management platform. Additionally, depending on the state, some floor plan financing companies offer to complete title work on the dealer’s behalf, saving dealers time and overhead. Though dealer’s may have some reservations about letting a floor plan company assist in title management, there are a number of unrealized benefits of which dealers can take advantage.

Periodic accounting for vehicles floored
Any investor wants to be assured their funds are being used correctly. In the same way, many floor plan financing companies want to ensure the vehicles bought with floor plan funds are where they’re supposed to be. Periodically, dealers are audited to account for all vehicles currently floored. Dealers that organize bills of sale, repair invoices, and have records of where each vehicle is will have a much easier experience during the audit process.

Though changing ingrained processes can be intimidating, sometimes it is necessary to fully realize dealership growth. If you’re thinking about bringing in a floor plan partner, understanding a few fundamentals about how floor plan financing can grow and shift dealership business can help ease the transition and integration into current operations. Ask your local NextGear Capital representative about potential growth your dealership could see with a line of credit.

Improve Cash Flow with Independent Dealer Financing

Auto dealer chatting with representative about independent dealer financingShrinking margins put increasing pressure on dealers to buy in-demand vehicles at reasonable prices, and sell inventory faster than ever. Some dealers believe cash is the most economical way to ensure dealership profitability. However, they may not have the best understanding of how floor plan financing can work to improve dealership revenue.

Often, the combination of inventory acquisition costs, dealership turn times and individual holding costs for vehicles can dictate a dealer’s overall profitability. Once holding costs, inventory acquisition costs, turn time and depreciation are factored in, there’s a very real possibility the profit a dealer was expecting for a particular vehicle will be significantly depleted, resulting in stifled dealership cash flow.

An average dealer’s typical holding costs will vary based on a number of factors. According to the National Auto Dealer Association (NADA), the cost of keeping a used car in inventory is approximately $28 per day. So let’s assume that it costs our dealer $28 per day to keep a vehicle on their lot. Let’s also assume it costs our dealer $10,000 to purchase the vehicle, and they could potentially sell it to a consumer for $12,000. This dealer can only expect to make a maximum of $2000 in profits. If the car stays on their lot for 30 days, after calculating only holding costs, the dealer will have essentially spent an additional $840 just to keep the car on their lot! In total, this dealer will spend $10,840 just to let the vehicle sit on their lot for 30 days. That only leaves approximately $1160 of profit on the table to go buy more inventory, or pay for any other necessary dealership expenses.

Repeat this same scenario, but make minor adjustments to the inventory acquisition costs, profit per vehicle, holding costs per day, turn times and the costs involved to purchase additional inventory. After paying the bills, how much additional inventory could this example dealer realistically purchase if they paid for all inventory with cash? How is this dealer going to be able to effectively grow their dealership?

Every day dealers go out of business because they don’t have enough funds to effectively manage and sustain their operations.

Let’s see what happens when a dealer in the same scenario incorporates a floor plan into their dealership.

It costs $10,000 for a dealer to acquire a particular piece of inventory that could retail to a consumer for $12,000. However, instead of using dealership funds, the car is purchased with a floor plan line of credit. The $10,000 in dealership cash that would have been used to purchase the vehicle stays in the dealer’s bank account. Until the vehicle sells to a consumer, our dealer can use the extra $10,000 in their savings to potentially hire more people, grow operations or improve facilities.

Every dealer has different contracted terms, but for this example, let’s say a dealer’s first floor plan payment is due 30 days after acquiring the car, which is typically a small fraction of the initial vehicle cost. All in at this point in time, the dealer only “spent” $840 in holding costs plus a little extra for that first floor plan payment.

To compare, the dealer without a floor plan spent $10,840 in dealership funds just to let the vehicle sit on their lot.

If the vehicle sells for $12,000, the dealer using a floor plan is able to immediately realize profits, pay back the initial value of the loan plus fees, and had the added ability to use the $10,000 in dealership funds for other expenses the entire time the vehicle was on the lot.

Repeat this same situation across a number of different vehicles, and alter the amounts needed to acquire vehicles, holding cost per day and turn time. With a floor plan, there’s certainly a lot more breathing room for dealers when it comes to cash flow.

With a NextGear Capital floor plan, you get the buying power needed to succeed, and a variety of solutions made to complement current operations. Competitively priced terms and rates made to grow with your dealership ensure you’re getting the best available financing.

Additionally, with over 1,000 live and online auction sources, you can use your line of credit when and where it’s most convenient. Join the 23,000 dealers that have selected NextGear Capital as their floor planning partner.

Reach out to your local NextGear Capital representative, or apply for credit!

How Independent Dealers Can Fight Shrinking Margins

The rising costs of acquiring inventory mean compressed margins for dealers, and an increased focus on methods to improve profits. For independent dealers looking for a few operational actions they can take to help improve numbers, consider the following suggestions.

Source Smarter
It’s often easier for dealers to make their money at acquisition. Take note of the units that sell well and their typical margins. From there, determine an acceptable range that your dealership will stick to for acquiring similar units.

Beyond just researching inventory that sells well on your lot, consider the options available to source inventory. Physical auctions, digital auctions and a local dealer network are conventional inventory sources. Is there a particular channel where can you typically get the best deals to stock your dealership lot? Develop a dealership methodology to acquire units. For example, perhaps before going to a physical auction, check what’s available on OVE or Manheim Express.

Improve Speed to Market
Average dealers are typically able to get a vehicle front-line ready in seven to 10 days. Of course, there are a lot of factors at play that can add or decrease the time it takes to get a vehicle ready for customers. Transportation, reconditioning, and potential repairs are all common components that increase the overall time it takes to get a vehicle customer-ready.

Though these delays mean that units might not be on your lot right away, posting units on digital dealership platforms shortly after acquiring vehicles give potential customers a chance to digitally view inventory coming soon. The Cox Automotive 2018 buyer’s journey study found that a majority of car buyers that shopped online spent 60 percent of their time looking online for vehicles. It’s likely that by the time a customer wants to stop by to view a particular unit, it’s already front-line ready and available for a customer to test drive.

Have a Plan for Aged Units
Every vehicle at your dealership needs to have an exit strategy from the moment it reaches your lot. No dealer wants to take inventory back to auction or digitally wholesale it to another dealer. A defined strategy for aged inventory can ensure that units don’t fall through the cracks. For many dealers, there’s a tiered strategy with different courses of action at the 30, 45 and 60 day marks.

Operational changes don’t lead to results overnight. However, taking deliberate steps to improve overall operations will often help dealers realize additional profitability.

Cash vs. an Auto Floorplan

Dealer on using the computer and talking on the phoneFor dealers that purchase inventory with cash, dealership cash flow primarily hinges on a dealer’s ability to sell vehicles for more than the cost to acquire them. In theory, earning a profit and recouping costs should be a simple task. However, many cash-buying dealers eventually find that their dealership’s growth and ability to acquire inventory is often limited by their overall cash flow, which can be even further restricted by a slow season or issues making sales. Though it may often seem like purchasing inventory with cash is preferable to other options, the additional flexibility and cash flow afforded by an auto floorplan provider can assist in growing overall business operations.

Purchasing Inventory With Cash
A lot of dealers often prefer to use cash to buy vehicles. It allows them to own the vehicle in full, it doesn’t collect interest or fees, and when the car is sold all profits go to the dealership. However, dealers often don’t consider the full costs of using dealership savings.

Buying inventory with cash means that money will be tied up in the vehicle’s value. Those funds can’t be used for other opportunities that could potentially grow dealership operations. Like any business, there’s a set amount of cash set aside for a variety of expenses, like payroll, facilities and operational tools. If a dealer is using cash to pay for both inventory and regular operating expenses, how much is left over to really re-invest in the business?

Additionally, when a dealer purchases a car with cash, their cash depreciates along with the value of the vehicle. The longer a vehicle stays on a dealer’s lot, the more their initial investment will depreciate. By the time a dealer realizes that a vehicle has depreciated, it is often difficult to recoup costs due to overall holding costs.

Using An Auto Floorplan
With an auto floorplan provider, a dealer purchases a vehicle and has no personal investment in the vehicle until the first payment is due, which is typically only a small fraction of the original vehicle value. Depending on a dealer’s contracted terms, that could potentially be 30 days after acquiring the vehicle. For example, floor planning dealers aiming to turn inventory approximately every 60 days will have very little of their own cash tied up in a vehicle, especially if it sells within that time frame.

Even if a vehicle isn’t sold during a dealer’s preferred time-frame, dealers are able to use the extra funds that aren’t tied up in the vehicle to make payroll, pay the bills and keep the business up and running.

Improve your dealership’s purchasing power and cash flow flexibility with a floor plan finance solution. Connect with your local representative to learn more, or apply for credit.