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?

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Permalink Reply by KARONEL PLOTT on November 3, 2010 at 2:37pm

Dugan Anderson said:

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".