Consumers often ask how car dealerships afford to manage the vast inventory of cars we see on lots nationwide. Undoubtedly there is a large sum of money required to obtain a large inventory, but what many do not often realize is that the used car industry is a very complicated and diverse industry that reaches as much into investment as it does in sales. Dealerships utilize a process called floor planning to manage financial backing, inventory, sales and everything in between. Floor planning is a complex process that drives nearly every aspect many dealerships today.
What Is It?
In simplest terms, floor planning involved three parties, the creditor (money loaner / investor), the dealers and buyers. Investors supply a loan for dealers to purchase a needed stock of cars which serves as the collateral for the loan, and interest is applied to each piece of collateral. Once a car is sold to the buyer, that portion of collateral is considered repaid. The process allows dealerships to establish a valuable line of credit, increasing their inventory and repaying their credit as the inventory is sold. The entire system is a complex process that allows dealerships to maintain solid stock.
How is it Managed?
The floor plan process is an extremely detail oriented process that requires regular tracking of investment money, inventory and sales. While many may attempt to manage this themselves, it's best if the process is managed by software designed to manage this complex information. This software is designed to manage billing cycles for investors and dealerships, fee and interest management, dealer information tracking, transaction and information management and inventory aging and audit management. All of this ensures that investors know where they investment is allocated, what aspects of the investment have been repaid, and other intricate details that could be extremely difficult to track. Most of these programs can also manage multiple investor interests for dealerships utilizing multiple lenders.
Who can Invest?
Most users that will use floor planning software include banks, auctions and private finance companies. These banks and lenders can be local or private investors. For most private investors it's common to invest a minimum of $ 1 million or more. With potential investment returns of 25-35% there is a substantial opportunity to benefit from investment returns. As a commercial lender it's also possible to find a software provider that meets your needs and also can serve as a consultant on the local market in which they're involved.
Next time you see a large dealership with substantial inventory, it's possible that dealership floor planning is at work. It allows investments to be accurately managed, allows dealerships the opportunity to improve inventory and supplies a wider range of potential buyers at dealerships nationwide. As complicated as it may seem, floor planning helps drive auto sales each and every day.