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How Does Fee-Free Floor Plan Financing Work?

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If you’re a car dealer that buys inventory with floor plan financing, you’re probably familiar with the extensive, often unclear fees associated with flooring vehicles.

Having become the industry standard, per-unit costs can be frustrating for auto dealers. If you secure a reasonable rate from a specialty financing firm, it’s fair to assume you’ll incur fees that may take your rate up by several percentage points.

Given most dealers are independent business operators focused on their sales and team, it’s challenging to take the time to audit their monthly inventory costs.

Fee-free, flat rate financing is a new approach that gives dealers, focused on high inventory turnover, another option for purchasing wholesale vehicles.

Instead of charging per-unit fees, this type of floor plan financing charges dealers a flat monthly rate that’s proportional to their total requested line. Instead of paying fees for flooring each vehicle, a dealer can pay a monthly rate to access capital and floor as many cars as they need during a month.

What are the benefits for dealers?

Fee-free, flat rate financing programs are best suited for dealers that have high-growth and high-inventory turn business models. Since flat fees allow you to floor cars without fees attached to each vehicle, dealers are incentivized to floor as many cars as possible. If a dealer can focus on the operations of their business and sell more cars, it drops the overall financing costs significantly.

Transparency is the other major benefit of flat fee models. (too long have opaque, tech-enabled mgmt. means more transparency). With this model, dealers can see their maximum total costs by calculating the principal, interest, and amortizing the monthly fee across all the sold cars during that month. It makes it easier to see the all-in cost for cars instead of piecing together variable fees across their inventory. If a dealer is using a portal to track inventory and costs, such as Lever Auto’s platform, it’s even easier to track costs as they are shown right in the dealer dashboard.

Even if a dealer doesn’t plan to increase their inventory turn, their overall financing costs tend to drop compared to per unit financing plans. Since dealer credit lines are calculated based on what dealers need, the monthly fees are adjusted to be fair and aligned to their sales model (reach out to our team at Vero for a no-obligation, objective breakdown of your inventory costs)

Finally, while most dealers are given access to large amounts of capital through other inventory financing companies, it’s usually more than the dealer realistically needs. Usually, this is done as a marketing tactic by larger financers. They’ll dedicate a large amount of capital to dealerships knowing the dealer will never call this amount of money. Once they attract them as borrowers, the dealer is now entitled to pay their high per-unit fees.

What are the potential drawbacks?

For the same reason flat rate programs are a benefit for high-velocity dealers, they may not benefit dealers with slower inventory turning models. A dealer with a seasonally structured operation or holding longer turn vehicles can access capital and pay fees on each vehicle without having to worry about a reoccurring fee each month. A flat fee may not lower the overall financing costs per vehicle in these scenarios.

Another reason a dealer may want to take a second look at adding a flat fee financing plan is the switching cost of adding a program. While it’s common for dealers to have more than one financing plan, it still requires the usual application and underwriting process. For dealers comfortable with the fee-based approach, the addition of this program could require having to learn new technology and distract from their business operations. However, using a company, such as Lever Auto, that has streamlined the application, underwriting, and onboarding process, the switch can be simple, and a dealer can be flooring the first car in under two weeks.

Sound like it could fit into your strategy?

Fee-free, flat rate financing plans could be a smart strategy for businesses that feel in the dark about their flooring costs. It’s also a great plan for dealers looking to increase their sales, and floor more cars on a monthly basis.

The best way to determine if this strategy works for you is to reach out for an objective analysis of your monthly costs. The team at Lever Auto will sit with dealers to break out their expenses to see if our flat-rate approach and management platform makes sense for their business.

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