Tactics Used by Intelligent Car Dealerships: Unique Strategies They Employ
In the ever-evolving automotive industry, maintaining a strong financial position is crucial for dealerships to secure favourable floorplan options and negotiate better terms. Here are some key steps to ensure a dealership's financial health.
1. Maintain Financial Transparency and Clarity
Separating personal and business expenses is vital for providing accurate and reliable financial statements. This transparency increases buyer and lender confidence in the dealership’s profitability and creditworthiness. Clear books speed up due diligence and help maximize valuation and negotiation leverage with lenders and suppliers.
2. Control Operating Expenses Strategically
Managing significant costs such as rent or lease payments is essential for maintaining financial stability. Negotiating favourable terms, choosing strategic locations, and leveraging shared spaces can help reduce overhead, thereby enhancing overall financial health and cash flow.
3. Adopt Digital Finance Workflows
Embracing digital contracting and documentation workflows for auto finance back-office processes can significantly increase efficiency across lending and dealership operations. This modernization demonstrates financial sophistication to lenders, potentially leading to smoother, faster financing approvals with better terms.
4. Demonstrate Strong Financial Management to Lenders
Lenders prefer dealerships with well-documented, transparent, and efficiently managed financial operations. Establishing a strong credit profile and showcasing operational efficiency can provide leverage to negotiate more favourable floorplan financing, such as lower rates, higher credit limits, or more flexible terms.
Additional Considerations
- Regularly review and manage all credit and financing options, including dealer floorplans, to ensure competitive cost of capital.
- Keep abreast of market conditions affecting costs (such as rising vehicle repair and ownership costs) to anticipate impacts on dealership profitability and financing needs.
By following these steps, a dealership can significantly improve its financial health and strengthen its position in negotiating favourable floorplan options and other financing terms. It's important to remember that a lender considers a dealership's liquidity (debt service coverage ratio) when deciding to provide financing for a dealership's inventory.
Additional guidelines from the webinar "Inventory & Floorplan: Control the Controllable," presented by Debra Hogan-Jones and Adam Rosenfield, include:
- Used inventory should not be held for more than 45 days.
- If a used car is taken as a trade-in and isn't a model expected to sell quickly, wholesale it immediately.
- Inventory and floorplan are interdependent.
- Failure to meet any requirements in a contract or covenant are red flags for lenders.
- New-car inventory should not be held for more than 60 days.
- If a vehicle isn't selling in one store, consider moving it to another store.
- Increasing a dealership's finance and insurance business can also increase control over floorplan options.
- A strong balance sheet can give a dealership more control over floorplan options.
- Floorplan costs can eat into a dealership’s expenses.
- For used inventory management, consider the location’s suitability for certain vehicle types (e.g., a pickup truck might sell better in Suffolk County than in the middle of the North Shore of Long Island).
- A dealership should ensure they have the money to cover their debt before seeking financing for their inventory.
By adhering to these guidelines and maintaining a strong F&I department, a dealership can increase its profits and improve its financial health, ultimately leading to better bargaining power and improved floorplan options.
1. A strong F&I department can enhance a dealership's bargaining power and improve financial health, potentially leading to better negotiating terms for business financing and reduced floorplan expenses.
2. Effective management of both new and used vehicle inventories is crucial for maintaining a dealership's financial health, as extending inventory hold times can increase finance and insurance costs and hinder negotiating power with lenders.
