HOW TO CONTROL FLOOR-PLAN COSTS
I watch the monthly performance of our client dealers, looking for trends in floor-plan costs. Some dealers can consistently manage their inventory with respect to floor plan expenses. Yet other dealers with the same franchise, consistent volume and many times in the same market don't? When like conditions exist, why does one dealer have a net credit balance and another an expense? The only answer
July 1, 2002
I watch the monthly performance of our client dealers, looking for trends in floor-plan costs.
Some dealers can consistently manage their inventory with respect to floor plan expenses. Yet other dealers — with the same franchise, consistent volume and many times in the same market — don't?
When like conditions exist, why does one dealer have a net credit balance and another an expense? The only answer I consistently arrive at is discipline and process.
I acted as a facilitator for a 20 Group meeting of high-volume domestic dealers. As we reviewed expenses, we discussed floor-plan management.
One dealer, who has a net credit balance in his floor plan account, said, “Tony, we made up our mind that we couldn't be all things to all people. We have identified our market and that's what we concentrate on.
“Sure, it probably cost us good product some times, but that's the price we have decided to pay.”
What was this dealer's point? First, let me share his process that has evolved over years.
He keeps good and accurate records. He knows which packages, which products, in which color combinations and which price points sell the best in his market.
Notice I mentioned product. On each individual model, this information is available along with any manufacturer incentive in effect at any time.
He notes the incentives to prevent his dealership from falling into the false trap of thinking a true market exists when it really only exists because his franchise has targeted that product line. We all realize that, for the most part, poor inventory managers become heroes when strong incentives are announced.
He manages and controls his unit days' supplies. If he has an availability that exceeds his limit in any car or truck line, he does not order, period. In addition, he shares this information with his manufacturer prior to discussing wholesale purchases.
Sure there are times when he will accept product that doesn't fit his profile just to help the manufacturer. But when those vehicles are ordered, they are identified and a plan to sell them quickly goes into effect.
He manages the aging of his inventory. This is key. If you want to have a net credit balance in your floor plan account, aged inventory must be eliminated.
Is it possible to totally eliminate aged inventory? Probably not, but with a focus on this inventory you can come much closer to accomplishing it. Without an awareness of an aged unit, eliminating it from inventory is not a priority. In this dealership, each sales manager, all sales personnel and his service management are aware of each inventory unit that has aged beyond the target day.
If you have an aging inventory concern, take the following actions. Right now! Today!!
Identify products that have been in inventory for more than 90 days.
Along with your sales managers and service manager, inspect this inventory and physically put your hands on each aged unit. This isn't a time to get upset. I've been there and done that, but it's a time to create a plan to eliminate this profit-draining inventory.
Are these units clean? Is there any lot damage? Will they start? Where are they displayed? What's the mileage? Is there a way for your sales force to identify these units? Is there an incentive to move these units? How many of them are dealer trades?
Once you have identified these products, two things need to happen. One, dispose of this inventory. Two, establish a process to prevent a repeat of this situation. The most common method of disposing of this inventory is switching a customer to these units on “short deals” and dealer trades.
Managing an inventory can be tough. But if you install a process, discipline yourself and your managers, and educate all personnel on the benefits of a clean and fresh inventory, you will be well on your way to controlling this important expense.
Good selling!
Tony Noland ([email protected]) is the president and CEO of NCM Associates, Inc. He has over 30 years of automotive retail experience.
For information to obtain a complete analysis of your financial operation in comparison with Best Practices benchmarks, fax a written request to (913) 649-7429.
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