Floor Plan Assistance "Profit Center"
With reduced new vehicle stocking pressure, what measures are Dealerships actively taking to generate a true "Profit Center" in
Floor Plan Assistance? Can this be a Cash Flow booster? Is this a real "Nothing But Net" factor to address?
Replies to This Discussion
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Permalink Reply by Dugan Anderson on
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Hey Tom,
Are you asking questions of the rest of us, or do you have some thoughts on the matter? If you have some thoughts, please share them with the rest of us. I am always looking for new guide lines for stocking levels, ways to maintain the smallest, most efficient inventories etc. -
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Permalink Reply by Tom Wiegand on
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Lexus practiced a "Pull/Push" business model during good selling years where many of their dealers benefited greatly from a Profit Center in Floor Plan Assistance that rivaled F&I in some stores. I sense that if other franchises were taught controls here that, should the O.E.M.'S choose to move back to a "Push/Pull" model once they get fat again, dealer's may not let them if dealers have a solid record of solid profits in a profit area they become unwilling to give up. What are best practices being practiced by dealerships realizing a profit center in Floor Plan Assistance that we can help every dealer with --- with no strings attached? Investigate. Doing the simple math, understanding Cash Flow benefits and Net Profit benefits, and doing some simple tracking are the easy part. Today's Floor Plan Assistance offers a profit opportunity. Let's explore best ideas and best practices and give some no strings attached 'best practice' free advice to dealers here. Thanks. Tom
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Permalink Reply by NANCY SIMMONS on
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What a great topic, Tom and I am eager to hear what folks have to say!
I believe "VIGILANCE" is key. The dealership I was with prior to this one for 20 years instituted a plan much like that which Dan is speaking of, with a full time "inventory manager" whose main focus was to "turn and earn". The factory used this phrase meaning earning units as they are sold, we used it as earning profit. Minis on new vehicles were paid in alignment with days in stock, so if a new vehicle was in inventory for 135 days, the mini was $135.00 instead of the threshhold of $100.00.
The inventory on the lot was displayed with oldest units holding the highest visibility, faded stock tags on the windshields would be replaced with fresh tags periodically and of course all units were kept clean to maintain "shiny and new" apprearance!
Now, with the use of technology, web-sites should be highlighting the older new units on the front page, or using a creative, "out of the box" method to promote those units which are approaching or out of "free floorplan days". Social Media tools can be utilized by just talking about a paticular car on your facebook page or tweet about it!
Relationships with trading partners is extremely important now with lower inventories. When working your swap, be aware of floorplan days, etc.
Finally, extra capital should be used to either partially writedown floorplan balances or if your floorplan bank or financial institution offers an "offset account" where you can earn money close to or equal to the interest rate you are paying, invest there as you have access to this money on a daily basis! Don't let your dollars sit in your checking account earning nothing!
Thomas (Tom) Wiegand said:Lexus practiced a "Pull/Push" business model during good selling years where many of their dealers benefited greatly from a Profit Center in Floor Plan Assistance that rivaled F&I in some stores. I sense that if other franchises were taught controls here that, should the O.E.M.'S choose to move back to a "Push/Pull" model once they get fat again, dealer's may not let them if dealers have a solid record of solid profits in a profit area they become unwilling to give up. What are best practices being practiced by dealerships realizing a profit center in Floor Plan Assistance that we can help every dealer with --- with no strings attached? Investigate. Doing the simple math, understanding Cash Flow benefits and Net Profit benefits, and doing some simple tracking are the easy part. Today's Floor Plan Assistance offers a profit opportunity. Let's explore best ideas and best practices and give some no strings attached 'best practice' free advice to dealers here. Thanks. Tom -
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Dan, once again, very impressed with your response... It is basically a matter of "Paying Attention"! With personnel cuts in the past 5 or 6 years in efforts to operate lean, I am certain the inventory manager is the first to go, with his/her responsibilites spread amongst GM's and GSM's and paying attention to interest dates is not always prioritized! Great insight!
Dan Creamer said:Back in the day we used a combination of modalities and a full time inventory manager to manage both new and used inventories. On new we used the Polk reports and a manual tracking system comprised of the factory invoice noting the days in inventory on the sold date. The managers pay plans took into consideration floor plan profit and loss and aged units were aggressively marketed from the desk.
Though not very popular on an industry wide basis we promoted factory orders and required large deposits on any unusual vehicles. Incoming units were always the first source considered when nothing in inventory would satisfy the client. We also ran a lot of specific sales promotions where we would advertise a given quantity at the same price, 25 to choose from all colors available and that kind of thing.
I am not familiar with today’s floor plan assistance programs and the inventory management systems that are available but we were very successful in producing a floor plan profit just because we paid a lot of attention to inventory management and travel rates down to the option package level let alone by model. It can be done. -
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Beginning to get some suggestions for you Dugan! Let's help you make at least enough additional profit through managing inventory days that you can get a new sled!
Have a great day!
Dugan Anderson said:Hey Tom,
Are you asking questions of the rest of us, or do you have some thoughts on the matter? If you have some thoughts, please share them with the rest of us. I am always looking for new guide lines for stocking levels, ways to maintain the smallest, most efficient inventories etc. -
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Great dialogue thus far, and great information! Nancy, my light bulb lit up with your last paragraph "Nothing But Net" information. A separate discussion will follow.
I'm hopeful your thoughts and ideas, as well as Dan's excellent input spark others to contribute more solid solutions. -
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I am posting a link to this discussion on facebook as well... What a vital topic in today's economy...making your money work for you!!!!
Thomas (Tom) Wiegand said:Great dialogue thus far, and great information! Nancy, my light bulb lit up with your last paragraph "Nothing But Net" information. A separate discussion will follow.
I'm hopeful your thoughts and ideas, as well as Dan's excellent input spark others to contribute more solid solutions. -
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Where Dugan lives he'll need a sled with horsepower! You are an expense guru, Dugan. Give us some of your wisdom here.
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Permalink Reply by Wendell Hardy on -
Dan is spot on. As dealers, Gms,gsms we have meetings about meetings. When was the last time that we had a meeting about inventory or more specific, "aged inventory?" I have found that if you attatch Curtailments and floorplan interest to pay plans, you WILL get results. I have also found that not onlt is my inventory "clean", but my gross average(front) goes up slightly. One example would be, if a customer is beating your salesmanager up on price(and he/she could take a short deal to move a unit) then switch the customer to a older aged unit. This is our last form of a "takeaway" as we have already gave away the kitchen sink. If the customer doesn't want to "switch" at least you took a shot.
My fresh inventory was NEVER on the front line. does a grocery store put the "fresh" milk in the front of the display? Old inventory in the front..new in the back.
Dealer trades ALWAYS get one of my older units when I have give something back...
Bottom line is that we have to make sure that EVERYONE is paying attention, to EVERYTHING in this new world.
Just my 2 pennies. -
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Your Sage advice may prove priceless!
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Inventory is one of the MOST important factors in successfully operating a dealership in today's environment. Here is an example: Take the cleanest, freshest inventory you can find and stick the worst sales manager you can find into that store, we will do well (until he/she screws the inventory up). Conversely, take the worst inventory you can find, insert the best sales manager around and he will probably fail. Inventory matters!
Manufacturers don't like paying interest on unsold units anymore than dealers do, hence years ago a Dealer Council somewhere came up with the idea to offset the first 45, 60 or 90 days of interest charges on units sent to their dealers. Dealers liked it because it offset one of their biggest expenses, flooring charges. Manufacturers liked it because it gave the dealers a false sense of security and they ordered more products. As pointed out above, it has evolved into a gold mine for those dealers who pay attention to inventories and their flooring costs.
Wholesale Reserves, Flooring Assistance or whatever your manufacturer calls it is calculated for each unit based upon an estimated interest rate, the cost of the unit and the number of days that manufacturer is providing assistance for. For example, if 90 days was the manufacturers factor, any dealer turning their inventory every 90 days would have no cost associated with their new inventory (assuming the rate estimate is close to the actual rate). Dealers with an inventory turn of less than 90 days would generate a CREDIT in their new flooring account and dealers turning at a rate greater than 90 days would end up paying and create an expense in their flooring account. The faster you turn your inventory, the greater the credit. The slower you turn your inventory, the more you pay.
Regardless of the amount of time your manufacturer allows, it is usually reasonable and gives the dealer sufficient time to turn the unit. Here are some guide lines I share with my dealers to maximize turn and minimize flooring costs:
IF IT DOESN'T SELL, DON'T STOCK IT.
Keep a SOLD invoice book and use it when ordering new units. Reorder colors and equipment packages that turned quickly.
Use a "Write Down" system on your new inventory as well as your used. Regardless of how careful you may be, all dealers will still end up with un-saleable pieces.
Don't penalize sales people for selling an aged piece. Use incentives to make those units attractive to sell. You don't want your sales people walking around aged pieces because they think they have a limited gross opportunity (which they don't), or they'll get stuck with a mini.
Market, feature, advertise your aged pieces first, let the fresh pieces take care of themselves.
Use an inventory control system that tells you what has sold, how often, what is on order, what is coming in and any other parameter that will assist in the task.
Last but not least, "You are much better to be 30 days late than 6 months early". -
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A sled w/horsepower, a pot of coffee, whatever got your mojo going, you're offering great advice. Keep it coming! Do you have any control forms you recommend that you can share with others here?
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