A well-run independent auto dealership constantly turns inventory over. Speed is critical, and that means cash isn’t always the best option.
There are a number of financing options that an auto finance company can offer a dealer that wants to grow their inventory—and their business. Let’s talk about a few of the automotive financial services that dealers can choose from.
Why finance auto inventory at all?
Dealers who are used to paying cash might be hesitant to change, and that’s natural. But financing auto inventory purchases can provide a number of benefits. For one, financing improves cash flow because it means your cash isn’t tied up in your inventory. Instead, you use a line of credit for that and spend cash on expenses like payroll and your facilities.
The flexibility that financing provides also allows you to expand inventory faster. Your customers see more variety, which makes it easier to find what they’re looking for. And finally, financing makes the inventory purchase process go more smoothly than cash—allowing you to get that last vehicle at the auction even if you don’t have the cash in hand, and speeding up checkout at the end of the day.
Financing your inventory purchases helps you grow your dealership. So what automotive financial services are available to dealers?
Standard dealer floorplan
The simplest financing option for an independent dealer is floorplan financing. The specifics of the financing agreement will vary for each auto finance company, but a dealer floorplan—sometimes called a “dealer floor plan”—is, basically, like a credit card that an independent dealer can use to purchase inventory that they then pay off later.
Here’s how it works, using AFC’s 30-day floorplan as an example. You purchase a vehicle and decide to put it on your floorplan line of credit. After 30 days, if you haven’t sold it, you pay a curtailment fee, any interest that has accrued over that month, and a percentage of the principal. The same can be true 30 days after that—if the vehicle’s still on your lot, you pay a fee, interest, and a portion of principal. These payments and the length of the term depend on the specifics of the plan you’re on, but once the vehicle is sold you pay back the remaining principal balance, all fees, and interest accrued.
AFC has a number of floorplan options, and any auto finance company will have their own fees and rates and term lengths. But this example shows that for a vehicle you expect to have on the lot for a little while, a standard floorplan is a great option.
On the other hand, when a vehicle should move quickly, a floorplan with a shorter term could be the best option. For example, at AFC we’ve offered a 7-14-21 plan where you only pay a flat fee after day 7, day 14, and day 21 that the vehicle is floored. After three weeks the vehicle simply rolls onto a standard floorplan—but if it’s sold before then, a dealer pays only fees and principal, no interest.
Another option is a floorplan with a flat daily fee like our Daily Tab floorplan. On a line of credit like this, you pay for each day the unit is on the floorplan. That fee covers everything, including interest. Like a standard floorplan, you pay off all remaining charges after the vehicle sells, but a flat daily fee means you know exactly what you owe for the time the unit is floored. When inventory moves fast, this can save your dealership money.
Non-auction purchase financing
You’re not always going to find everything you want at an auction. Whether you’re purchasing from another dealer, accepting a vehicle trade-in, or buying wholesale, many auto finance companies provide financing options specifically for non-auction purchases. Since there are differences between these deals and purchases made at an auction—after all, one option is that you are buying from an individual, rather than the business entity of an auction—it’s often better to use a credit line specifically designed for non-auction purchases.
Salvage auction purchase financing
Like any traditional auction, a salvage auction is a great place for independent dealers to find inventory. But in many cases the longer turn times you can expect with a salvage vehicle make a traditional floorplan more expensive. That’s why auto finance companies offer a range of salvage-specific floorplans.
For a typical independent dealer, if reconditioning time is fairly fast a standard salvage floorplan—or even a shorter-term “buy-and-go” plan—can do the job.
But for dismantlers and rebuilders, their unique scope of business means that plans built specifically for them are generally better. A dismantler may be more likely to need assistance with transporting inventory, for instance, which means a plan that covers transportation is ideal. Or a rebuilder may need plenty of time to make a vehicle ready for sale, which means that a longer term with limited fees is best.
Specialty inventory financing
Auto dealers sell more than just cars and trucks, and they purchase inventory for purposes other than a sale. Many auto finance companies offer lines of credit designed specifically to cater to specialty inventory types, like powersports and RV-specific dealers. These dealer floorplans provide longer terms, lower curtailments, and an easier route to funding non-auction purchases like customer trades to ensure that specialty dealers can secure the inventory they need.
Wherever you buy, financing is likely available
As you can see, a wide range of automotive financial services is available to help independent dealers purchase the inventory they need. Whether it’s a standard dealer floorplan or a more complex salvage or fleet line of credit, floorplan financing gives dealers more financial power than paying in cash, and the flexibility to buy what you need, when you need it. Cash may be all you’ve ever used—but once you’ve started financing, the chances are good that you won’t look back.
Descriptions of AFC floorplans are for illustrative purposes only. Actual terms and conditions are subject to a written agreement with AFC.