Its good to understand the ins and outs of the car business as a side hobby, but as an “in” for a deal its probably not that great in terms of ROI.
I remember going after a couple of aged units 19s gx460 early Feb. These were sitting alongside with 20 triple beam + LSS 1.0 GX refreshes.
The dealership didnt care, they mentioned they could get more then my offer if they sold these used.
Well lets just say that didnt age well.
1 Like
Currently happening now with the refresh - massive downward pressure on the old GX -
I strongly think the old GX will become the FJ Cruiser in 5+ years -
The turbos in the six banger are worrying - Lexus admits Cafe restrictions have hurt them in terms of reliability for the truck/Land Cruiser products
Lexus would have loved to stuff a V-8 in the Land Cruiser
Who the hell wants to deal with a turbo engine in Africa
The GX is a great car to start up every morning- would I love a Porsche or a SQ7 absolutely but for different reasons
The SQ7 is a wonderful wonderful car -
Ever since the unconfirmed rumor sprouted out that the 550 is delayed till March, dealers have pulled back.
CO dealers I talked to mentioned they are selling them above list…wtf
1 Like
Colorado - car grips in bad weather
Have you seen many Jeep deals shared in Share Deals & Tips where floor plan was a relevant point of discussion?
@ CambMA02141, Here’s a somewhat dated but still relevant and informative document about auto floorplans. As others have cleared up for you, it’s more like a % of invoice per annum. Not 5% of MSRP per month. But with cost of funds being what they are today, it could be more than 5% interest rate.
The longer answer to your question is that very few people in the auto industry care about floorplans. Which means you as a customer probably won’t get too much traction working this angle. On LH, I think there’s more interest in @anon65069371 's fantasy football team than floorplans.
There is a general agreement that inventory carrying costs indeed get more expensive stock ages. And it’s not just the interest rate. Sometimes the advance rate on the line drops down from 100%, so the dealership needs to actually put in some equity or unsecured in there to keep the funding whole. And lenders still have liquidity ratios they require to be hit in their monthly reporting, so any dealership that gets over levered or sells out of trust is going to have a bad time really fast.
And eventually, a vehicle may get so old/busted that it gets kicked out of the floorplan credit facility. Financing aged inventory with a unsecured revolver is deadly… at that point the dealership really needs to get that thing outta there. So yes, if you can find a really aged unit that is at risk of being bad collateral, you may score a great deal. But LH has other avenues to get good deals (see @djrabbi)… so focus on those avenues instead of exclusively chasing old stock.
Dumping bad inventory is often why you’ll see a new car hit a Manheim auction … because the dealer would rather realize a loss than stay on the hook to solve the carry. However, keep in mind sometimes the manufacturer will step in and prop up the floorplan for a dealer. Like when DaimlerChrysler was running their sales bank program to encourage dealers to take delivery of trash they dealers didn’t want, Diamler Financial was offering spiffs to cover the flooring costs for the dealerships. So at that time, the aged inventory didn’t necessarily become a burden to be fire-sold. At least, until the whole system broke down and they needed TARP money.
7 Likes
Damn long ass reply lol
I think the finance/controller cares too haha.
Also, the person that has to talk to the flooring credit facility every month and explain where each VIN is and why is the location of each loaners / demos probably hates having to do that as well lol.
But yeah, nobody on LH cares.
A given dealer may not be using (or not exclusively using) the manufacture’s floorplan, um, plan.
When my father was a dealer they had a large line of credit through a regional bank, and mainly used that for inventory financing.
The LOC was secured by more than just the inventory (the oversized parcel of real estate on which the business sat, which the business owned, was worth more than the inventory).
The cost of financing was much more favorable, and so were the terms. The bank didn’t care if they used the money to finance vehicle inventory that was sitting for 30 days or 600 days, or if they used the money for parts inventory, or to buy scented candles for the employees on major holidays. The risk was almost nil.
That’s definitely an exception, not the norm. It may not even be possible with the new regulations and tighter risk management as banks keep consolidating.
This is fascinating, thank you. This industry is so interesting, everyone thinks they make money selling cars but it’s so much more complicated than that.
What about used cars? Was trying to buy one for a family member from AutoNation by 12/31 for exactly $25,000 before fees and taxes for the $4,000 used EV/PHEV car tax credit.
That car has been on the lot for over 100 days and they claim that they’re already losing $8,000 (I think it’s less although they must have overpaid for it months ago when gas prices were a lot higher). They have it listed for $28K which is already a very decent price (CarGurus says ~32,500 market value, so 30K or less is good IMO). AN being AN refused to drop the price at all, so no dice. Told them no deal even at $1 over 25,000. Spoke to the second in command who allegedly checked in with the GM. I couldn’t get the GM to respond to me directly.
I knew it was a long shot, but still at 100+ days, some stores would probably choose to cut the losses.
It may not be the most prevalent way of doing it, but a business line of credit secured by real estate isn’t exactly an exotic financial product.
1 Like
We’re talking about flooring lines. These are specifically lending products secured by the inventory of cars. Most flooring lines require the borrower to assign VIN’s and the lender releases cash directly to the manufacturer, so the dealer gets the car but can’t manipulate the cash to buy scented candles.
A secured LOC backed by real estate is not referred to as a flooring line. The vast majority of auto franchises do not have this type of debt at a scale necessary to finance their entire inventory.
However I agree money is money, so the rare dealership that can cover Inventory financing with debt sourced this way is able to use the money to buy scented candles. But this isn’t buying scented candles with a flooring line.
Yes, I’m aware that they’re two different financial products.
That’s why I created the post to explain an alternate way that inventory can be financed. And there are many others, including cash (which I believe my father did for some/much/most of their used inventory).
OP has an expectation that a dealer has escalating hard dollar costs as inventory ages, which may be true for some (even most) dealers, but not everyone chooses to finance things the same way.
1 Like
Man… if you know someone financing $5mm of inventory with cash, let me know so I can put them into a better product.
The ROE of locking $5mm equity into a floor plan is total crap. Like what, 500bps? We can get @anon65069371 to explain to the dealership the whole equity is cash thing.
Leave the floor planning debt to the folks taking deposits or running backing on insurance and stuff.
1 Like
The same financial strategies aren’t appropriate for every point in the business cycle.
When credit is tight, money is expensive, and the P&L has looked like garbage for eight consecutive quarters, it isn’t easy or cheap (or sometimes even possible) to finance enough inventory to stay afloat.
So you tap into your own cash, because the alternative is to give up and close the business, walk away from your livelihood, and let all of the employees go.
Cars aren’t always flying off the lot, money isn’t always cheap, and credit isn’t always loose.
Dude what type of strawman scenario are you chasing? You woke up with your “argumentative pants” today?
Tying up precious cash to prop up millions in inventory is not a smart move by a franchise that is facing the dire scenario you painted. They should be reducing inventory and figuring out how to improve operations. They shouldn’t be throwing more cash on the table to keep their inventory full.
If this dealership that you’re referring to is facing tough times, then having cash available is a boon. If interest rates from a normal flooring line are really that scary, they could set up an alternative agreement to the normal 100% borrowing; and drop the advance rate to lower the interest rate. It’s like buying MSD’s. The borrower puts in say 20% equity and advances only 80% debt (Put in $1mm to borrow $4mm and keep a $5mm floor financed).
It sure as heck beats 100% cash-financed inventory. And they could keep that precious cash for more important business activities.
But yeah, if a dealership has had a shitty P&L from the start of 2021 to the end of 2023… they probably need to re-evaluate if they know how to make profit selling vehicles a time when most dealers were adding ADM and printing money. This dire situation probably won’t be solved by inventory financing management.
1 Like
