FLOOR PLANNING ALTERNATIVE FOR USED CAR DEALERS
Dealer floor plans have put countless dealers out of business. Many dealers get their license, obtain a dealer floor plan, then buy just twenty or thirty cars and the spin begins. The interest that you must pay every month on a used car dealer floor plan can end up being much larger than what you expect. All you need is a few slow months and you are driving your cars back to the auction. Just head to any dealer auction and you will see several dealers that end up paying top dollar for floor planning cars with little hope of turning inventory at a rate that can keep up with the cost of the floor plan, then eventually bring them back to the auction at an additional cost.
Every day that a unit sits on a lot, it costs a dealer money. Figuring out the holding cost per day allows dealers to determine what units need to be turned quickly, what units are able to sit for a while, or what units a dealer might need to consider selling at auction. This floor plan finance formula will require a dealer to have a good handle on total dealership expenses and inventory for the entire month. First, a dealer would need to figure out their monthly holding cost. To figure this out, a dealer would subtract their monthly selling expenses from their total expenses for the month. A dealer’s monthly selling expenses are variable monthly expenses that are not charged to the customer. These monthly selling expenses include items such as commissions, advertising, salaries, demo expenses and fuel. Let’s say a dealer’s total monthly expenses are $148,485, and their monthly selling expenses are $57,437.
|Total Monthly Expenses||$148,485|
|Monthly Selling Expenses||– $57,437|
|Monthly Holding Cost||= $91,048|
|Monthly Holding Cost||$91,048|
|Units In Stock This Month||÷ 85 Units|
|Monthly Holding Cost Per Unit||= $1071.15|