Boost Profits & Turn Times With Floor Plan Lending

Dealer talking to a representative about floor plan lending with the aid of a tablet.Car dealers work tirelessly to protect and improve turn times and overall dealership margins. Over time, many dealers develop and implement a variety of strategies and processes to help improve turn times and maintain revenue. Though every dealer can make profitable changes to dealership operations, dealers that utilize a floor plan lending partner may find it’s much easier to improve turn times and margins compared to cash-buying dealers.

Keep Dealership Funds Flexible With A Floor Plan
Purchasing inventory with a floor plan means that dealers don’t have to use their dealership savings to purchase inventory. For dealers looking to improve margins, the up-front cost to put a floor planned vehicle on a dealer’s lot is incredibly minimal. 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 utilized 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 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 overall dealership turn times.

Other Methods of Improving Turn Times
Taking advantage of a floor plan often gives dealers the additional capital and hours needed to refine processes that improve turn times.

Average dealers typically can get a car customer-ready in approximately 10 days, and online in about 13 days. Keep in mind, each day that a vehicle remains unsold, it incurs dealership costs. The top 20 percent of performing dealers can get a vehicle customer-ready typically within a four day window. While that timeline might not be realistic for all vehicles or all dealerships, the overall concept stands: the faster a dealer can get a vehicle customer-ready, the less a dealer has to spend holding on to a vehicle before it sells.

One of the most realistic ways for a dealer to retail vehicles quickly is to list inventory online, 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 possible customers can see available dealership inventory, which can consequently help to improve dealer turn times.

Another method to optimize a dealership’s overall speed-to-market 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.

For dealers looking to improve turn times and profitability, utilizing a floor plan lending partner can be an effective business strategy.

The Advantages of an Auto Dealer Line of Credit

Almost every dealer has a preferred type of capital they use when purchasing inventory. Some prefer cash, a standard bank loan, or a floor plan, and others use a mix of all three capital types. However, for dealers that don’t currently use an auto dealer line of credit, consider the advantages that a floor plan can provide.

Dealers that take advantage of an auto dealer line of credit have one of the simplest means of acquiring financing to purchase inventory, and one of the most flexible ways to free up dealership cash flow.

Typically, most dealers have a set amount of savings on hand to pay for inventory and dealership expenses. The additional flexibility a floor plan provides means that dealers don’t have to use dealership savings to purchase vehicles to sell to consumers. With an auto dealer line of credit dealers don’t have to spend those savings purchasing inventory. Since those funds aren’t put towards purchasing inventory, dealers can use that additional cash flow to focus on growing other parts of their business.

In addition, compared to using cash, using a floor plan certainly gives a dealer more options when it comes to aged and depreciating inventory. When a dealer purchases inventory with cash, that capital is tied up in the vehicle. As the vehicle depreciates, so does the dealer’s initial investment. With a floor plan, dealers can pay off the amount of the car over a longer period of time, extend a vehicle or buy down the car’s depreciation. Without a floor plan line of credit, those options aren’t necessarily available.

Beyond giving dealers extra cash flow, many floor planning companies offer a number of other services that help dealers save time and headache on administrative tasks. For instance, floor planning vehicles at auction mean that dealers typically have less paperwork to complete to make a purchase.

Additionally, Since floor planning companies work so closely with auto dealers, floor plan providers develop many solutions made specifically for dealers. Some of these solutions include state-of-the-art online and mobile account management tools, title services depending on a dealer’s state, records management and collateral protection.

Using a floor plan can be an extremely beneficial business strategy for dealers. If your dealership doesn’t currently use a floor plan, consider how one can work alongside your other methods of inventory payment to increase your dealership’s purchasing power and cash on-hand flexibility.

Growing Business with Auto Floor Plan Lending

dealer on car lot using NextGear Capital's account portal on their phone as their auto floor plan lending solutionTo build a profitable and thriving dealership, auto dealers have to utilize a number of tools. Some of these tools handle inventory management, sales and reconditioning, all necessary in daily dealership operations. However, arguably one of the most useful tools in a dealer’s “toolbox” is their auto floor plan lending solution.

For the most part, dealerships thrive based on a dealer’s ability to sell vehicles. Dealers sell vehicles, make money off the sale and use the sale proceeds to pay for dealership operating expenses and additional inventory. However, only using the funds from previous sales to purchase more inventory and cover other expenses can severely limit dealership operations and growth.

Auto floor plan lending providers give dealers a line of credit made solely to purchase vehicles from auctions and other inventory sources. If a dealer puts a vehicle purchase on their floor plan, they have a contractually determined number of days to sell the vehicle before a small fee is charged. Once the vehicle is sold, dealers pay back the original loan and any associated fees.

With auto floor plan lending, dealers are able free up their cash flow so they don’t have to use large portions of saved dealership cash to purchase vehicle inventory. Profits from vehicle sales can instead be used to grow and expand other necessary dealership operations instead of purchasing vehicles to retail.

Beyond just giving dealers needed purchasing power, auto floor plan lending companies are uniquely familiar with a dealer’s needs and often offer a variety of other dealer-specific benefits. Some of these benefits include title services—dependent on a dealer’s state—records management, collateral protection and powerful account management tools. Additional benefits include

The additional buying power and benefits a floor plan line of credit provides can be a serious game-changer for automotive dealers. Considering adding a floor plan to your dealership’s toolbox? Let us know!

Utilizing Digital Auctions for Aged Used Inventory

image of aged used inventory vehicles on dealership lotDealers understand that aged inventory can be a drag on a dealership. Not only does the inventory cost to stay on a dealership lot, but it can slow dealership cash flow. Though the goal is always to sell first to a consumer, selling some used vehicles to consumers won’t always be possible. On occasion, a dealer will have to wholesale or move an aged used inventory unit through other channels. Though many dealers can and should take vehicles to a physical auction location, taking advantage of digital auctions can be an excellent alternate route to deal with aged inventory.

First, Develop an Aged Used Inventory Strategy
Using digital auctions is a valid strategy to get rid of aged inventory. However, if your dealership doesn’t have an aged inventory exit strategy, you might want to consider developing one. Does your dealership have a plan if a vehicle hasn’t sold after the 15, 30, 45, 60 or 90 day mark? What’s your unit break even point? Every dealer eventually develops individual formulas for success when it comes to aged inventory. However, while developing your strategy, consider the variety of avenues available to get rid of aged inventory and the role they play at each stage of your aged inventory strategy.

For example, once a unit reaches 45 days on your dealership lot, you could begin posting inventory across digital auction channels and set a limit for how long you will continue to retail that particular unit.

Utilize Online Channels
Many dealers take advantage of the flexibility digital auctions offer to limit the amount of aged inventory on their lots. For example, with digital auctions dealers are able to put units up for sale without the added time and expense of transporting those units. In addition, dealers that incorporate digital auctions into their aged inventory exit strategy are able to attract more eyes to their inventory.

Cater To Your Buyer
For dealers who use digital auctions as part of an aged inventory exit strategy, consider what your potential buyers will want to see from a listing. Do you have a condition report? Vehicle images? Make your units easy to purchase. Give your buyer all the information they need to make an informed decision.

Using digital auctions in conjunction with an aged inventory strategy means that dealers have the opportunity to recoup potential losses from aged inventory.

Why Source Inventory with Auto Dealership Financing

Dealer using auto dealership financing to purchase online inventoryDealers will often say there’s nothing like being able to touch, feel or smell a car before purchasing it to retail. Though physical auction locations like Manheim meet that need, some dealers require more convenience and flexibility. For dealers, one of the most convenient ways for dealers to source inventory is to utilize digital auctions, such as OVE and Simulcast. Paired with auto dealership financing, dealers can easily source inventory quickly and conveniently.

Find Specific Inventory
Often, dealers will have specific inventory in mind that they want to purchase and retail on their lots. Though dealers can look through a local auction’s run list, a digital auction can give dealers a simpler means of searching for particular inventory across a wide number of physical auction locations. In addition, there are other filters dealers can use to find specific inventory, such as make, model and year. These additional search qualifiers make it easy for dealers to find and purchase the inventory their markets desire.

Save Time and Buy Independent of Dealership Location
Dealers that purchase inventory from digital auctions can save time by avoiding the travel time needed to visit a particular auction. Sometimes specific inventory is only available at out-of-state locations. Bidding online not only levels the field for dealers that can’t travel significant distances, but it also gives dealers the option to make purchases from the comfort of their offices.

Simplified Purchasing
When purchasing inventory online with auto dealership financing, the checkout process is further simplified. Dealers can quickly and simply purchase inventory without using their cash on hand. By using a floor plan, dealers can put their cash towards other business expenses.

Delayed Transportation Expenses
For dealers that purchase inventory online, figuring out how the purchased unit gets to your lot used to be a process disconnected from the purchase. Dealers that use NextGear Capital as an auto dealership financing provider have the added advantage of floor planning transportation costs. Our partnership with Ready Logistics gives dealers the opportunity to put the cost of transportation on hold until the vehicle is sold.

For dealers that need extra time in their day to manage operations, sourcing inventory from online auctions give dealers the flexibility and convenience to ensure their lots are fully stocked.

Common Auto Dealer Finance Application Requirements

image depicting an auto dealer finance credit applicationWhen a dealer decides to use a floor plan to improve their dealership’s cash flow, there are often a few items that need to be in order to complete an auto dealer finance application. Depending on the floor plan financing company a dealer selects, they might have different requirements. However, below are a few common items dealers should have organized and ready to go to apply with a car floor plan company.

Completed Credit Application
Various floor plan companies will ask dealers to provide certain information on their credit applications. Some of this might include basic information such as the dealership’s legal name, physical address and contact information. In addition, the credit application might also ask for additional details on how a dealership’s business is structured, like if the dealership is a corporation, partnership or LLC, and the amount of credit needed.

This information on the gives auto dealer finance providers the necessary information to determine how much credit they are able to offer to dealers.

Dealership License
In many states, dealers must hold and maintain a valid dealership license to sell vehicles. Depending on an individual state, there are a variety of requirements dealers must adhere to keep their license current. Auto dealer finance providers prefer to see that a dealer’s license is current and has the correct dealership name to ensure it is legal for that individual dealership to sell vehicles in their state.

Current Financials
Depending on the amount of credit requested, dealers might be asked to provide extra documentation on some basic current dealership financials. For some auto dealer finance companies, these financial documents might include income statements, balance sheets, or perhaps a previous tax return.

For dealers looking to grow and expand business, a car floor plan allows dealers to spend their cash where it matters most, growing operations instead of spending it on inventory. Having these various documents prepared and ready to go can help dealers experience a smooth floor plan application process. Want to learn more about the NextGear Capital application process? Contact your local representative to learn more.

NextGear Capital Enhances Dealer Experience through AutoPay

NextGear Capital, the largest independent inventory finance company in North America, is announcing the launch of AutoPay, a new feature within the Account Portal, NextGear Capital’s 24/7 account management platform. Account Portal provides detailed, real-time account overviews for dealer and auction partners, including a comprehensive dashboard that offers the most important information, such as analytics and payment history, instantly on any device. The new AutoPay feature lets dealers opt into a recurring and automated payment system that schedules NextGear Capital payments.

Account Portal provides dealers with the flexibility of financing vehicles from a mobile device, searching financed vehicles by status and accessing account analytics (including average turn time, best and worst movers, stale and aging vehicles and the number of cars purchased per auction). Other features include: viewing lines of credit summary information for all NextGear Capital accounts and identifying vital information for a unit (from payment history to aging and total cost to floor). With the added option of AutoPay, dealers have even more flexibility when it comes to choosing how they want to manage their business without worrying about missing a payment.

“As a result of our long-standing history of working with dealers, NextGear Capital has a deep understanding of what dealers value when it comes to accessing information on vehicles and financing,” said Sarah Lutey, NextGear Capital Director of Product Strategy. “We brought this understanding to life through Account Portal and AutoPay, which puts the dealer front and center, making it easier for them to do business anywhere, at any time.”

With the combined power of the Account Portal and AutoPay, dealers have enhanced access, visibility and control over their floor plan. As dealer technology rapidly changes and the business needs of automotive dealers evolve, the Account Portal and AutoPay are equipped to adjust for needed enhancements, optimizations and customization in the future.

3 Reasons Aging Inventory Management is Important

dealer walking lot with aged inventoryNobody likes to lose money, and no dealer wants to lose out on profits for a vehicle or a deal. However, many dealers may inadvertently miss out on profits by not implementing an active aging inventory strategy.

Some dealers have the mindset that no matter how long they hold on to a vehicle, they’ll eventually make money off of its sale. However, these three reasons should give dealers pause in addition to some valid reasons to consider a proactive aging inventory management strategy.

Depreciation
The simple truth is that vehicles are depreciating assets. Cars typically don’t acquire more value the longer you hold on to them. The longer dealers hold on to a vehicle, the more that unit is affected by depreciation. Every unit will reach a point where its depreciation cancels out any profit potential for an auto dealer.

Cash Flow
Dealers that let their inventory age on their lots will often experience stifled cash flow. For auto dealers that purchase inventory with cash, not only is overall cash flow hindered, but their initial unit investment depreciates along with the decreasing value of the vehicle. In addition, cash-buying dealers can’t get their cash out of the aged vehicle until it sells.

For dealers with a floor plan, cash flow isn’t necessarily an issue. However, keeping aged inventory on your line of credit past your contracted terms can eventually cut into dealership profits.

Holding Costs
It costs each and every auto dealer an individualized sum of money to hold a vehicle on their dealership lot. If a dealer’s holding cost per day is approximately $40 per day, there will be a point in time where the potential profit for a stale unit is outweighed by the holding costs that unit incurs.

Figure out your holding cost per day to see what your aged inventory is costing your dealership.

Aged inventory is an issue that each dealer eventually encounters. The longer a dealer holds on to aged inventory, the more it cuts into a dealer’s potential profits. However, dealers that grasp the importance of an active aging inventory management strategy are prepared to efficiently and effectively grow their businesses.

Buying Inventory with Cash Creates Hidden Expenses

Dealer looking closely at a carFor dealers that purchase inventory with their own money, the cash flow needed to maintain and grow their dealership relies on their ability to sell vehicles. But what if a dealer is having issues moving inventory and making sales? What if it’s a slow time of the season? Many cash-buying dealers opposed to using floor plan lending might think they can always sell unwanted inventory at auction if they need to acquire additional capital.

Of course, dealers can always sell inventory back at auction, and sometimes that is a valid action that dealers need to take. While it appears that purchasing inventory with cash is saving your dealership time and money, floor plan financing will provide more flexibility and more cash flow to grow your business operations and protect profits.

Converting inventory to cash
If vehicles purchased with cash don’t sell, dealership cash flow dwindles. Dealers have to choose whether to limit operations, or sell inventory at auction or to a wholesaler just to keep the dealership afloat.

Dealers looking to take their cash bought inventory back to auction to sell, they face a number of hurdles to just break even on that unit’s initial purchase price. First, if the vehicle has sat for a while on the dealer’s lot, it has likely incurred a significant amount of holding costs.

By the time that dealer realizes they need to get rid of a vehicle, it’s likely that the holding costs for the vehicle have already outweighed the costs a dealer thinks they saved on floor planning fees. Vehicles also don’t typically appreciate in value the longer they stay in a dealer’s possession. Considering those factors, it will be very difficult for dealers to break even selling their cash bought inventory at auction.

Even if a dealer can break even at auction, they still have to spend a significant amount of time and energy getting the inventory ready and processed for the auction sale date.

Independent auto dealers are limiting themselves when they purchase their inventory with cash. They are confining their capital—and subsequently their dealership cash flow—to that inventory.

Floor plan lending increases cash flow
Dealers that utilize floor plan lending have more options and flexibility when it comes to dealership cash flow.

With floor plan lending, dealers are given a line of credit to purchase inventory. Dealers purchase vehicles on their floor plan, and depending on their contracted terms, only have to pay a fraction of the inventory cost after a contractually determined number of days. If a vehicle sells, dealers pay back the cost of the loan.

For example, let’s say a dealer purchases a vehicle on their floor plan and after 30 days, the dealer owes a minimum payment—a fraction of the vehicle’s price tag. The dealer makes the payment, and sells the vehicle to a customer after an additional 15 days. This dealer not only made a profit, but they were able to use dealership savings to grow operations and pay their floor plan lender back the amount of the loan.

Even if a dealer doesn’t sell a vehicle as quickly as they would like, the flexibility a floor plan provides gives dealers the option to use their cash for other expenses to help grow their business.

Compared to purchasing a vehicle with auto floor plan financing, converting inventory into cash is not an efficient process. Cash buying dealers should consider what their capital could do if it wasn’t mostly being tied up in inventory.

Why Use an Auto Dealer Line of Credit?

Purchasing inventory with cash on-hand is often a preferred method for a number auto dealers. Sometimes owning each and every vehicle on your lot can seem appealing, however, the flexibility of an auto dealer line of credit can provide many more options than just cash alone.

Purchasing inventory with cash can lead to reduced cash flow
Cash flow is essential to maintain dealership operations. At some point, every dealer has to account for dealership expenses and overhead in addition to the cost of acquiring inventory. Dealers need to realize that when they purchase inventory with the capital they have on hand, they’ve locked up part of their cash flow to that inventory. They’ve tied up the use of their funds, which means they can’t use their cash for other expenses like payroll, marketing and dealership maintenance.

It’s difficult to use money tied to depreciating dealership inventory
Vehicles are a depreciating asset. Over time, they lose value. The longer a vehicle sits on an auto dealer’s lot, the more it will depreciate, and if a dealer purchases that vehicle with cash it means that their initial investment will also depreciate. If the car sits long enough, the vehicle will eventually be worth less than what the dealer originally paid for it. Even if that vehicle is sold down the road, a dealer could likely lose money on that particular inventory purchase based off of holding costs alone.

Depending on a dealer’s contracted terms, an auto dealer line of credit allows them to make a minimum payment after a contractually determined number of days. The additional flexibility of the minimum payment means that a dealer’s dollars aren’t depreciating while a car sits on the lot.

Purchasing inventory with cash is always an option for auto dealers. However, discerning dealers should carefully consider what that cash could be doing if it wasn’t tied to dealership inventory. How could that extra cash be used to grow and improve your business?