Level of Service
It is worth noting that cost alone does not determine which floorplan provider is the best fit for your dealership. You should review your dealership’s business model and identify the specific characteristics that will impact your dealership. Ask yourself questions such as:
- Can I floor the type of inventory I typically stock or does your floorplan provider place restrictions on the age, mileage and floorplan advance (amount they are willing to floor per unit) of your inventory?
- What are the costs and/or advance restrictions based on where you source the vehicle? Auction, trade-in, wholesale, etc.
- What is the policy for floorplanning a trade-in, can they assist in funding the customer’s payoff to preserve your cashflow?
- Is the floorplan easy to use and transparent on its billing statements?
- What are their audit guidelines and what is the audit experience like?
Floorplan providers’ service characteristics vary greatly, so you must determine which best suits your dealership’s business needs.
Now that you have reviewed and identified which provider you would like to work with, the next step is to develop a partnership with that provider. In today’s marketplace, floorplan capital is limited, and providers are conservative in their lending approaches as many of you might have experienced at the onset of the COVID pandemic.
As the dealer, I urge you to develop a strong relationship with your floorplan provider. Keep in touch and develop relationships up and down the organization, not just with a single person. Protect your floorplan relationships by:
- Proactively managing your floorplan, communicate promptly and frequently;
- Being timely with your payoffs;
- Having clean audits and becoming a low maintenance client; and
- Helping your provider realize that by partnering with you and helping you grow more profitable and stable, they are decreasing their risk.
By taking these basic steps, you are stabilizing one of the most important capital funding sources your dealership relies upon. Once you have assessed the service level and potential fit for your dealership’s needs, you should evaluate the cost involved with receiving that service level.
We all know that operating a dealership is a cash intensive business. Review the effects of your floorplans on your dealership’s cashflow:
- When is your first principal reduction (curtailment) due?
- How much are the curtailments per unit: 5%, 10%, or more of the principal balance?
- When does that aged unit become due for full pay off?
- What time frame does the floorplan provider allow for you to pay off a sold unit?
- Are there timeframe allowances for a unit that you have not received the loan funding?
- Can you source inventory beyond the floorplan affiliated auctions?
- Can you floorplan a trade-in and other vehicles acquired outside of traditional auto auctions. If so, are there advance restrictions that could tie up some of your cashflow?
The simplest way to analyze multiple floorplans is to review the direct costs to determine the total cost for each floorplan provider. Often, the base terms of a floorplan are easily understood but the other related fees are not readily apparent when comparing the true costs of a floorplan:
- Review your entire billing statement.
- Request the floorplanner’s standard fee list to ensure that all initial floor fees, monthly audit fees, curtailments fees (paid in addition to the actual curtailment), payoff fees and additional floor fees for outside auction purchases are included in your calculations.
The amount of time that must be dedicated to managing a floorplan should be translated into an actual dollar amount. Simply review the time involved and allocate the average hourly cost of the employee(s) involved. This expense is directly related to your ease of doing business with the floorplanner.
Does your floorplan provider equip you with the ability to source inventory without unnecessary hurdles and roadblocks? Does your floorplan provider have restrictions that impede your ability to make inventory acquisition decisions that can improve your dealership’s profitability? You may find that having multiple floorplan providers works best for you because the different providers fulfill different inventory needs for your dealership.
However, check with your provider to see if multiple floorplan lines are allowed or if a particular floorplan provider requires that their line holds the first UCC-1 position.
By applying these simple assessment methods, you can now determine the best value for your specific needs based on service and cost. Just as many of us have said while selling a customer a vehicle, the lowest cost does not necessarily mean the best value.
View your floorplan providers as a tool for your success, a partner in your growth and profitability. Now more than ever, every dollar you spend must return the greatest possible value.
Your floorplan providers should be a welcomed partner to help you build a successful dealership and will allow you to not only survive but thrive in this rapidly changing market.