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I currently work in this industry and the only thing I see that's drastically out of line with the real world is this: >All the cars you see on the lot? They a

I currently work in this industry and the only thing I see that's drastically out of line with the real world is this: >All the cars you see on the lot? They are owned by the dealership itself. This, at least for the dealerships I work with, is almost never the case. For independent dealerships the only cars on the lot that they actually own are previous trade-ins. The majority are bought at auctions on credit (called "floor planning" in the industry). These are short term lines of credit that usually mature in 90 or 180 days. If the lot is productive, the unit will be long sold by then and the line of credit paid off, only to be used again. Depending on the number of sales made in the past year, the credit line with the floor plan company fluctuates. Often, the same company (like Manheim in the US) owns the auction AND the floor plan financier. Cox Enterprises (Manheim's parent company) and KAR Auction Services in particular seem to be buying up smaller businesses in the industry left and right not unlike your big players in Silicon Valley. My company has fielded offers from both in the past, but our owner won't budge. But I digress...the only other thing in the article that seems off to me is the emphasis on Certified Pre-Owned vehicles. Almost every dealer I work with will budge on that price. Making the sale is more important than a few extra dollars, in most cases. Plus, independent dealerships have a harder time with even getting vehicles certified, as opposed to the franchise stores that already have certified mechanics on site.

tacon 11y ago
>For independent dealerships the only cars on the lot that they actually own are previous trade-ins. Unless you are saying the dealer can return cars they bought at auction, I don't see what difference the floor-planning makes to the ownership of the car. When purchased off the dealer's lot, I presume the dealer's name will appear on the title as the seller.
- fluxquanta 11y ago
  The article seemed to imply that the dealer owns the inventory, where as I was just saying that the lines aren't always so cut and dried. It's not uncommon for a dealer to buy a vehicle at auction without getting the title at the time of the auction purchase, floor it, then sell it with outside financing before the title is even in hand. So the title essentially jumps from the auction seller to the outside finance company of the end buyer at some point after the time of the sale. The dealer never actually spends any money out of pocket for the vehicle, since it was floor planned. Having a car last on your lot longer than the floor plan term usually means that it was a bad fit for your customer base (like stocking luxury cars in farm country) or you don't have good salesmen. Almost all sales are finalized before the floor plan term is up, so there is no out of pocket cost to the dealer up front. Dealers can return vehicles to the auction in some cases (for a fee), but usually that's only in the case of the auction itself being misleading (not disclosing prior major repair, salvage title status, or things like that).
  - ValG 11y ago
    Floorplanning a car is still ownership, the only thing is that you're doing short term financing at very low interest rates. But once that financing is up, you still have to account for the $$ of the car. IF you don't sell it, you'll likely take it back to auction and sell it there (usually for a loss), so inventory risk is still present. Franchise dealers have floorplanning for sure, independents not so much. Plus, for USED cars, you usually don't floorplan those (from what I remember). There used to be a saying, if you want to find a Franchsie Dealer that was on it's death bed, look for the one that is floorplanning it's used inventory.
    - fluxquanta 11y ago
      Without getting too specific, my company works almost exclusively with independent used car dealers (on the order of thousands across the country), and a majority of them absolutely floor plan their used inventory. Just look at the sites for NextGear[0] and AFC[1], targeting floor planning of used inventory: "Our credit lines are accepted at over 1,000 auctions and accessible with other inventory sources throughout the U.S." and "Use your AFC line of credit to finance customer trades, dealer-to-dealer transactions and purchases made from auctions, leasing companies and other sources." This is how these services are being used. And I'm not saying they won't eventually have to account for that inventory financially, but the process moves so quickly (at least at successful dealerships) that the dealer's bank statement will probably never even take the hit for the vehicle, because it's acquired and sold within weeks or days if they're buying the right inventory for their customers. The ones who aren't go out of business. You're conflating independent used dealerships with franchise new dealerships who also happen to sell used cars. [0] http://www.nextgearcapital.com/inventory-finance/ http://www.nextgearcapital.com/inventory-finance/ [1] https://www.afcdealer.com/wps/portal/afcd/products/ https://www.afcdealer.com/wps/portal/afcd/products/

tacon 11y ago

>For independent dealerships the only cars on the lot that they actually own are previous trade-ins. Unless you are saying the dealer can return cars they bought at auction, I don't see what difference the floor-planning makes to the ownership of the car. When purchased off the dealer's lot, I presume the dealer's name will appear on the title as the seller.

fluxquanta 11y ago
The article seemed to imply that the dealer owns the inventory, where as I was just saying that the lines aren't always so cut and dried. It's not uncommon for a dealer to buy a vehicle at auction without getting the title at the time of the auction purchase, floor it, then sell it with outside financing before the title is even in hand. So the title essentially jumps from the auction seller to the outside finance company of the end buyer at some point after the time of the sale. The dealer never actually spends any money out of pocket for the vehicle, since it was floor planned. Having a car last on your lot longer than the floor plan term usually means that it was a bad fit for your customer base (like stocking luxury cars in farm country) or you don't have good salesmen. Almost all sales are finalized before the floor plan term is up, so there is no out of pocket cost to the dealer up front. Dealers can return vehicles to the auction in some cases (for a fee), but usually that's only in the case of the auction itself being misleading (not disclosing prior major repair, salvage title status, or things like that).
- ValG 11y ago
  Floorplanning a car is still ownership, the only thing is that you're doing short term financing at very low interest rates. But once that financing is up, you still have to account for the $$ of the car. IF you don't sell it, you'll likely take it back to auction and sell it there (usually for a loss), so inventory risk is still present. Franchise dealers have floorplanning for sure, independents not so much. Plus, for USED cars, you usually don't floorplan those (from what I remember). There used to be a saying, if you want to find a Franchsie Dealer that was on it's death bed, look for the one that is floorplanning it's used inventory.
  - fluxquanta 11y ago
    Without getting too specific, my company works almost exclusively with independent used car dealers (on the order of thousands across the country), and a majority of them absolutely floor plan their used inventory. Just look at the sites for NextGear[0] and AFC[1], targeting floor planning of used inventory: "Our credit lines are accepted at over 1,000 auctions and accessible with other inventory sources throughout the U.S." and "Use your AFC line of credit to finance customer trades, dealer-to-dealer transactions and purchases made from auctions, leasing companies and other sources." This is how these services are being used. And I'm not saying they won't eventually have to account for that inventory financially, but the process moves so quickly (at least at successful dealerships) that the dealer's bank statement will probably never even take the hit for the vehicle, because it's acquired and sold within weeks or days if they're buying the right inventory for their customers. The ones who aren't go out of business. You're conflating independent used dealerships with franchise new dealerships who also happen to sell used cars. [0] http://www.nextgearcapital.com/inventory-finance/ http://www.nextgearcapital.com/inventory-finance/ [1] https://www.afcdealer.com/wps/portal/afcd/products/ https://www.afcdealer.com/wps/portal/afcd/products/