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Dealership floorplan revenue expected to dive after years as a profit source

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For most automakers, floorplan credits traditionally have equaled 1.5 percent of a new vehicle’s invoice price, Brian Finkelmeyer, senior director of new-vehicle solutions for Cox Automotive told Automotive News. The assistance was designed to help dealers cover the interest expense of keeping the vehicle in stock for about 90 days, he said.

But with historically low inventories in 2020, 2021 and 2022, and with cars arriving at dealerships already promised to customers, they weren’t sitting on lots for anywhere near 90 days, making floorplanning a profit stream, Finkelmeyer said.

Rising inventory will affect that profit stream, but that will vary by make, Finkelmeyer noted.

“Brands like Toyota, brands like Honda, the ones that are still running that very low days’ supply, Kia might even be in there a little bit as well, those dealers are still going to have a profit driver from that floorplan credit because their inventory is turning so quickly,” Finkelmeyer said. “As long as they turn the car faster than 90 days, it’s a profit.”

Matthew DeSantis, an analyst for dealer advisory firm Haig Partners in Fort Lauderdale, Fla., told Automotive News that quick inventory turn is increasing in importance for dealers. Ford Motor Co. changed the amount of floorplan credits dealers receive by switching to a model that covers costs for up to 75 days based on actual days in inventory, he said, noting that this will affect the floorplan assistance dealers receive from Ford depending on how long the vehicle is on the lot.

“Historically, dealers received a floorplan credit no matter how long a vehicle sat on the lot,” DeSantis said. “It remains to be seen if other automakers will change their model.”

Larry Morgan, chairman of Morgan Auto Group, in Tampa, Fla., told Automotive News he doubts automakers will help offset rising interest rates any further than current levels, but his group, the eighth-largest dealership group in the country, plans to be proactive.

“We have certainly budgeted for not only the current interest rates, but we budgeted 2023 for a couple hundred basis points increase throughout the year,” Morgan said. “We expect [interest] rates to go higher. Our inventories have been at all-time lows. They are slowly improving. It’s kind of by brand, but they are getting larger, so the combined impact of more cars, more inventory and higher rates is certainly adding to our operating overhead.”

To prepare for lower floorplan profit, Morgan said he’s trying something new to speed his group’s inventory turn this year.

“We told our stores if they can’t sell the inventory they have in stock in a reasonable amount of time, we’re going to transfer it to other stores with the like brand,” he said.

“Not only to cut down on floorplan, but to sell more vehicles and be more sales efficient in those stores.”

Read More: Dealership floorplan revenue expected to dive after years as a profit source

2023-01-21 05:00:00

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