How to Update Your Floorplan for the Market of Today
Although the subject of floor layout is not new, it has recently become much more engaging. According to a recent article by Auto News, floorplans increased from an average expense of $96 per vehicle in 2022 to a gain of $140 per vehicle in 2021. Gains are attributed to cheap interest rates, small vehicle inventories, and OEM credits.
Unfortunately, this will probably only happen once. The benefits of new vehicle floorplans will be negated by high used vehicle floorplans since OEM subsidies have decreased.
A long-term change in our sector’s inventory practices is also probably in store. Many analysts believe that the days of extremely high inventory levels and delayed turns will never return. This, in my opinion, is a positive development for our sector. Inventory that is too large is wasted and costs too much in interest.
You should take a close look at your floor plan with so many variables in flux. Start by following these proactive suggestions:
Examine your floor plan, including the lenders and loan rates. The time to renegotiate is now because interest rates are at an all-time low. Compare the products and services offered by different financial institutions to those of your present lender. Perhaps you can negotiate a better price.
Watch out for overleveraging when buying used cars. Due to the high demand for old cars, many dealers are willing to pay up to 120 percent of the market price. If you can sell those automobiles for a profit immediately, it won’t be a problem. However, watch out for shifting market conditions and purchasing the incorrect autos. As OEMs release more new vehicles, the market will adjust itself. If you buy a pricey used car that sits on your lot, the financial burden could eliminate any profit. To avoid suffering a loss at auction, make sure you only purchase your core used vehicles—those that sell rapidly for a higher than average profit—and that you are prepared to immediately re-price them if the market changes.
Keep an eye on your curtailment period. It’s possible that you only pay interest on your inventory for a specific period of time. Following that, your curtailment period begins, and you start repaying the loan’s principle and interest. The length of your curtailment period is similarly fixed. The lender has the ability to request full payment if that period expires with the unit still on your property. Observing these deadlines is essential. If you miss a deadline, your expenses could skyrocket. This might not seem like a major deal right now, but when the bubble pops, it will.
Maintain your automobiles’ trustworthiness – Selling out of trust can be illegal, expose you to civil lawsuits, and potentially result in the suspension of your dealer license. Dealership organizations that spend money on things other than repaying loans could have grown too quickly or had bad financial management techniques. One of the worst things you can do if you’re short on cash is to let a few vehicle transactions fall through out of faith and hope to make up the difference the following week. That can cascade very quickly, as experts are aware. If you’re having trouble, talk to your lender first to see if they’ll be willing to help. The majority of people will support you during trying times. The breaking of trust can also take place covertly. According to a story in Auto News, a dealer lost customer confidence after his company manager left and was replaced by a novice employee who thought it was acceptable to prepay trades and let the flooring loan float for a few days.
As a former controller, I am aware of how time-consuming managing floor planning can be. Look into floor planning options. Excel is simply inadequate for the task. Spend some time looking into floor planning programs that can handle your data and assist in auditing to make sure your balances are accurate. Nobody is perfect, and even a minor difference might cause major issues.
Floor plan loans will always be essential to our industry’s ability to sell both new and used vehicles. The market uncertainties of today offer chances to manage and rework your floorplan to reduce risk and keep costs low as our business changes.
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