From Chapter Fifteen:
Where Dealers Get the Cash to Stock All Those Cars
. . . and It’s Not From Making Money on You
“A bank is a place that will lend you money if you can prove that you don’t need it.”
—Bob Hope
Comedian & U.S. Honorary Military Veteran (1903–2003)
Comedian & U.S. Honorary Military Veteran (1903–2003)
"Similar to most small businesses, dealerships do not have millions of dollars in cash to pay up front for their entire vehicle inventory. Therefore, with few exceptions, dealers rely on banks to supply these inventory lines of credit. Dealer floorplan is a term used to describe this credit arrangement. The bank funds the factory for cars it builds via a dealer floorplan line, often as soon as those freshly built vehicles are loaded onto the truck for dealer delivery.
"Automakers achieve positive cash flow by delivering to and immediately receiving cash from their dealers in this manner. Quick math says a car dealer selling seventy-five new vehicles per month and carrying a sixty day (two-month) supply of cars would be stocking approximately 150 units. If each of these vehicles cost the dealer an average of $20,000, he would have to borrow $3 million from his floorplan lender in order to meet his stocking requirements.
"The business of floorplan financing is offered by few banks and watched like a hawk by those that do. You see, the only real security the bank has, when investing in dealer inventory, is that inventory itself. Of course, they also list a dealer’s parts inventories, computers, tools, and furniture as additional collateral. Additionally, however, they get personal. Meaning, they require the personal guarantee of any individual owning 10% or more of the franchise contract..."
