Not happy with your floorplan arrangement? Then you can look for another floorplan provider. But be sure your dealership’s financials are in order, or you won’t have a lot of bargaining power. That’s one key takeaway from the recent Rosenfield & Co. webinar, “Inventory & Floorplan: Control the Controllable.”
“You can always shop around, but just know what you bring to the table,” says Debra Hogan-Jones, founder of Tre Consulting Partners and a former automotive banker.
She and Adam Rosenfield, CPA and leader of attest services at accounting firm Rosenfield & Co., presented on the webinar.
A lender is going to look at specific aspects of a dealership’s financial health before agreeing to provide financing for a dealership’s inventory, known as a floorplan.
The first thing a bank will look at is a dealership’s liquidity, because the bank wants to know if a dealership has the money to cover its debt, known as the debt service coverage ratio.
“The bottom line is, do you have the money to pay for what you say you need?” Hogan-Jones says.
Also, be sure to follow any stipulations in your contract or covenant with your current flooring lender, she says.
If it says cars need to be paid off within 24 hours of funding, pay them off, Hogan-Jones advises. Miss the deadline several times in a row, and it becomes a problem.
The same is true for other aspects of your covenant.
Failure to meet any requirements “are red flags,” Hogan-Jones says. “I don’t know if I can say it more simply, but just make sure you know what that document says and hold to it, and you will be fine with the banks and every other bank will want to be doing business with you.”
A Strong Balance Sheet and a Clean Set of Books
Increasing your finance and insurance business also gives you more control over floorplan options, Rosenfield says.
A strong F&I department is one of the best ways a dealership can increase its profits, and with a strong balance sheet, “you can be in the driver’s seat for a floorplan,” he says.
Keeping a clean set of accounting books also helps if a dealership wants better floorplan terms. That requires looking below the surface, both presenters say.
Many times, Rosenfeld’s accounting firm has examined what appears to be a clean set of accounting statements but “you’ll go in and there are 100 hanging credits right there,” Rosenfield says.
A hanging credit is a credit entry not fully offset by a debit entry.
Inventory and Flooring
If a dealership is looking to control its floorplan expenses, it should examine its inventory management, Hogan-Jones and Rosenfield say. Inventory and flooring are interdependent, they say.
“Floorplan is just a cost of doing business. Inventory is your asset to move it along,” Hogan-Jones says.
Never hold new-car inventory more than 60 days, she says. If you can’t sell it and have multiple stores, consider whether the vehicle might sell faster at another store.
For a New York scenario, for example, “does a pickup truck work better in Suffolk County or in another county than it does in the middle of the North Shore of Long Island?” she says.
Don’t hold used inventory more than 45 days, Rosenfield says.
Look at what you acquire and sell on the used-car side, Rosenfield says. If you take a car as a trade-in just to get a deal done, wholesale it immediately if it’s not a model you think will move quickly.
“Especially if you are putting (used inventory) on floorplan because the floorplan eats at your costs, right?” he says.
If you have dealerships in a different area, you can also move it to another store and see if it will sell there, but “once again, once it hits 45 days, it’s gone.”
