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?

Use Your Auto Dealer Floor Plan to Your Advantage

Car dealers frequently develop and utilize systems and processes to maximize profitability. Dealer success can often be found when dealers find a system that works, and when dealers stay disciplined and stick to that system. An advantage of utilizing an auto dealer floor plan compared to cash or a regular bank loan is the added structure and rhythm it can add to a dealership’s operations.

An auto dealer floor plan is a line of credit formulated specifically for dealers to purchase automotive inventory. To simplify the concept a little more, auto dealer floor plan companies essentially allow dealers to borrow funds to purchase vehicles. The advantage of a floor plan line of credit is that dealers have purchasing power available at their fingertips without the need to utilize a dealership’s savings and cash on hand.

As vehicles are sold off of a dealer’s lot, dealers pay back the amount of the loan used to purchase that inventory. If it takes a while for a vehicle to sell, dealers only will owe a minimal fee after a contractually determined number of days. This arrangement lets dealerships use their cash on hand for other expenses, such as overhead and facility maintenance, and curb against vehicle depreciation.

Some dealers use that first floor plan payment on a unit to re-evaluate a vehicle’s selling strategy if the car hasn’t sold within the contracted number of days. Is the unit a bad buy for the dealer’s particular market? Was the vehicle delayed from being front-line ready by taking too much time to be reconditioned? Is the pricing strategy for the particular unit appropriate?

Dealers that take advantage of their utilize this strategy are able to transition from using a reactive strategy, to a proactive strategy to sell vehicles. Establishing proactive strategies and tactics such as using your auto dealer floor plan structure and developing an aged inventory exit strategy allows dealers to develop systems to maximize profitability.
If you are interested in learning more or getting an auto dealer floor plan, we’ll connect you with your local representative, and they’ll help you get started!

How Floor Plans for Car Dealers Make A Difference

Dealer and Nextgear rep looking at a tabletUsed car dealers hustle each and every day to acquire and sell vehicles. Frequently, dealers will purchase vehicles with the cash they have on hand. For many dealers, purchasing a car with cash seems like the best option. Buying inventory in cash allows a dealer to own a car in full and the vehicle won’t accumulate interest once the vehicle is purchased. Though buying a car with cash seems like a great deal and is a popular option, there are a few key advantages that floor plans for car dealers can offer over cash.

Floor planning can save time
A dealer’s time is valuable, and it’s safe to say that many dealers don’t necessarily want to spend their time taking care of small administrative tasks. However, when dealers purchase a vehicle with cash there will typically be extra paperwork and additional supervision needed to make sure payment for the vehicle is cleared, in addition to following up to ensure the title for a vehicle is handled properly.

Floor plans for car dealers will often offer dealers the convenience of their floor plan lender handling the whole transaction and sometimes, the additional title work required.

Floor plan financing can protect capital from depreciation
Purchasing vehicles with cash might mean that a dealer might be more susceptible to the effects of vehicle depreciation and aged inventory. Since a dealer’s cash is tied up in a piece of inventory, they don’t have many options until that vehicle sells. As long as the vehicle sits on the lot, the dealer will be limited when it comes to purchasing other inventory or paying for dealership operations.

Utilizing a floor plan lender to purchase vehicles means that a dealer doesn’t have to use their own cash to purchase a vehicle. Dealers are then able to make smaller payments over time to their floor plan lending provider.

An auto floor plan lets dealers use cash for other expenses
For car dealers, having an auto floor plan means that they are able to purchase inventory without using the capital the dealership currently has on hand. This allows dealers to use their cash to support the dealership’s operations, which can go towards hiring additional staff, marketing, or facility maintenance.

If your dealership had more capital on hand, what kind of changes would you make? Talk to your local representative and learn how floor plans for car dealers can make a difference at your dealership.

Merchandising Inventory Improves Speed to Market

Dealers looking to protect profit margins will often look to increase their overall speed to market. Often, posting vehicle listings quickly can be a vital part of improving the amount of time it takes for a dealer to turn their inventory. Every dealer understands that it will take some time to get a vehicle ready for customers. However, if dealers delay posting vehicle images and descriptions online, they have the potential to lose time and opportunity to show consumers the variety of vehicles coming soon to their dealership lots.

Customers Get an Early Look
On average, the time to get a vehicle to retail is approximately seven to 10 days. Considering all the individual steps that dealers need to account for, like transportation, reconditioning and manually posting vehicle details online, two weeks seems pretty reasonable. However, dealers that post images and vehicle descriptions soon after purchasing a vehicle at auction give customers the chance to get an early look at vehicles they might be interested in purchasing.

Potentially Fewer Costs
For each vehicle on a dealer’s lot, there’s an associated cost baked into each vehicle purchase. Even if a vehicle is getting transported or getting reconditioned it is accumulating holding costs. The longer a vehicle is on a dealer’s lot, the more it’s going to cost a dealer to hold on to that particular vehicle. The inverse is also true. If a vehicle doesn’t stay on a dealer’s lot long, the less it will cost a dealer to hold on to that vehicle.

If customers are able to get a chance to get an early look at inventory coming to dealership lots, they could potentially become motivated purchasers as soon as a vehicle is ready to be retailed. This helps dealers reduce the amount of time a vehicle sits on their lot, and consequently, the amount of money a dealer might spend to keep that vehicle on their lot.

Easy to Use Process
Cox Automotive’s Rapid Retail tool helps dealers quickly and simply post inventory online. Instead of dealers taking pictures of inventory and manually adding vehicle descriptions and images, dealers can utilize Rapid Retail to directly import vehicle data and photos from auction into HomeNet’s Inventory online tool, make any necessary edits and then post to a number of online inventory sites.

This process allows dealers to quickly and easily post multiple vehicles for sale within a few hours of purchasing them at auction. In addition, it can help minimize the amount of time an employee spends posting individual vehicle descriptions and images.

Accelerate your dealership’s time to market with Rapid Retail. Have additional questions? Click here for more details.

Maintaining Dealership Compliance

Staying on top of dealership federal and state regulations in a perpetually evolving legislative landscape can be difficult for dealerships. Ensuring your dealership is acting in accordance with current regulations takes steady and regular implementation and a near constant re-examination of current guidelines.* To help navigate the complexities of dealership regulations, Dealertrack recently published a dealer compliance guide that simply explains and highlights some areas where dealers often need to brush-up to ensure they are compliant.

Day-to-Day Compliance
Dealers use a variety of items to help consumers purchase a vehicle. This includes credit applications, credit reports, contracts and just typical dealership record-keeping. Each and every time a car is sold a dealer has to be cognizant of the different regulations that may apply to the different sections of a vehicle purchase.

Compliance Strategies
Regulations change, and it is often up to a dealer to ensure their business is compliant. One of the easiest ways to ensure dealership compliance is to implement useful tools and strategies. Dealertrack’s compliance guide offers a number of recommended strategies and practices.* Though these practices are not intended as legal analysis or legal advice, they may help dealers build their own compliance guidelines.

Compliance Implementation
A culture of dealership compliance is essential to protect your business. Are employees aware of compliance regulations? Is following correct procedure encouraged?

Implementing compliance guidelines and practices is essential. It can save a dealership time and money, and can help dealers avoid penalties, fines, consumer complaints and lawsuits. Interested in the Dealertrack compliance guide? Click here.

*This is not intended as a legal analysis, and we do not purport to provide any legal or regulatory advice. You should consult with your attorney for any legal, regulatory, or compliance questions you may have. Also note that any case descriptions provided are for illustrative purposes only. The compliance guide was created and is maintained by Dealertrack.

Dealership Wholesale Financing With NextGear Capital

Top 5 Floor Planning Mistakes by Dealers PhotoEfficient and simple dealership wholesale financing is an essential part of a wholesale dealer’s operation. Though independent wholesaling dealers have a completely different business model compared to auto dealers who specialize in selling to consumers, an independent wholesaling dealer has many of the same inventory financing needs as a retailing auto dealer.

For many wholesale dealers, speed is key. Turning inventory quickly means more revenue for a wholesale dealer. A wholesale dealer’s line of credit should be a help to turn inventory quickly, not a hindrance. Like retail dealers, a wholesaling dealer is looking for a wholesale financing provider with flexible terms, title management, excellent customer service and easy-to-use account management. With NextGear Capital, independent wholesaling dealers can access a number of benefits in addition to just a floor plan line of credit.

Fast, Simple Transactions
For wholesaling dealers that use a floor plan and sell directly to independent dealers, chances are that their customers also utilize a floor plan line of credit. NextGear Capital is one of the largest floor plan financing companies in the industry. If you are a independent wholesale dealer who uses a NextGear Capital line of credit, you may find that many of your customers also floor plan with NextGear Capital.

Instead of sending checks and waiting for them to clear, NextGear Capital can make the wholesale to independent dealer transaction simple. For wholesaling dealers, NextGear Capital can simply move the particular unit from an independent dealer’s floor plan to the wholesaling dealer’s line of credit, and deposit any difference into a wholesaling dealer’s financing account.

Title Management
Floor plan companies will often hold on to titles as a form of asset security. For wholesaling dealers, this means that NextGear Capital can primarily handle a number of tasks associated with managing titles, and many wholesale dealers might rarely have to deal with physical title management. Though titles for floor planned vehicles might not be immediately available to dealers, rest assured they’re available for viewing through a dealer’s account at any time.

Power of the Cox Automotive Network
Backed by the power of the Cox Automotive network, NextGear Capital customers have the unique availability to take advantage of the additional partnership between a number of Cox Automotive business units. For example, dealers can floor plan their transportation costs by taking advantage of NextGear Capital’s convenient transportation financing solution.

A comprehensive floor plan financing partner can be crucial to a wholesaling dealer’s success. Want to learn more about how a floor plan can help your wholesaling operations? Contact your local NextGear Capital representative here.