Written By: Alysha Webb
Inventory and Flooring Costs Can Be Controlled
These are uncertain times in the automotive retail sector. Changing vehicle technology and the growing role of digital marketing in the retail sales process were already roiling the industry. Then came tariffs.
Adam Rosenfield, CPA and partner with Rosenfield & Co., along with former automotive banker, industry consultant and founder of Tre Consulting Partners, Debra Hogan-Jones, discussed in the recent “Inventory & Floorplan: Control the Controllable” webinar how managing inventory helps keep flooring costs down and how to obtain the best floor plan.
Dealers may not be able to control the pace of change or the policies coming out of Washington, but there are aspects of the business they can control, and some are crucial to a dealership’s bottom line. “We’re about to head into some unpredictable times, which just seems to be the industry trend these last couple of years,” Rosenfield said. “We’re going to talk about what we can control, because that’s all you really can do during this time.”
Managing That Aging Inventory
The retail auto industry has been through plenty of disruption. From cash for clunkers to the Covid supply chain disruptions and showroom shutdowns, it has managed to remain healthy, and even in the case of Covid disruptions, thrive.
Tariffs are the disruption of the day, and each news cycle brings yet another change announced where they are concerned. Dealers anticipating the effects of the tariffs also must deal with changing manufacturer pricing strategies and how to keep consumers coming in as retail prices rise.
“So, what are we going to do?” Hogan-Jones asked. “We will do what we always do. We are going to pivot. We’re going to control what we can control,” she continued.
“Remember that the stress of rising prices is not new,” Rosenfield said. Indeed, tracking prices over the last five years, the majority of automakers have raised prices above the inflation rate. Rising prices can put a dent in demand.
Don’t freak out!
“Everyone is feeling a bit overwhelmed, but the important part is you can’t overreact emotionally to any of it,” Hogan-Jones said. “You have to stay practical. What am I going to do that is actionable?”
Dealers should focus on how to move the metal that is already on their lots. That starts with managing inventory correctly because holding inventory incurs floor plan expense. Aging units lose manufacturer support, so ideally, don’t hold inventory over 60 days.
If a Dealer has multiple stores, especially in different regions, consider moving that aging stock to another dealership that may be in a better market for that model, Hogan-Jones said.
Dealers could also do a dealer trade, or convert it to a company vehicle, which has some tax benefit, said Rosenfield.
If those options fail or are not available, immediately wholesale that ageing inventory. “Get it off the lot!” Rosenfield said.
Flooring expenses can start even before a dealer has the vehicle in hand.
“Some manufacturers invoice a dealer for a new unit immediately”, said Rosenfield. So, by the time that unit arrives at the dealership it is already accruing flooring expense, all the more reason to move it along.
“Keep your day’s supply low and your inventory turn high,” Rosenfield said.
“Also be mindful of the used inventory you are acquiring on trade-ins”, he cautioned. “If you are taking in a used unit that you likely won’t be able to sell just to get a deal done, then immediately you must wholesale it, reconsider your strategy,” he said.
Finding The Right Floor Plan Provider
Many dealers have stocked away cash during the last few years. Interest rates are still high and unlikely to go down soon, so floor plan rates are also unlikely to drop in the near future.
Ever consider using some of that cash hoard to be your own floor plan provider, especially for used inventory? The Rosenfield clients who are self-financing their used floor plans are “pretty profitable."
To be sure, most dealerships can’t afford to finance their own flooring. And even if you can, doing floor planning “is not for the novice,” former banker Hogan-Jones added.
But did you ever consider shopping around for a better floor plan provider? Or been told by your floor plan provider it is time to move on?
A dealership or group should know what a bank looks at when considering providing flooring, Hogan-Jones said.
First, they look at liquidity. They want to know if a dealership has money, how high its debt burden is, and if that dealership can service the debt, she advised.
Make sure your liquidity meets the requirements in your loan covenant, such as paying off the funding for a vehicle within 24 hours, she cautioned. Be sure to always meet any covenant terms. A potential lender is going to audit your books and “you cannot have a bad audit,” Hogan-Jones said.
Know What You Bring To The Table
At the end of the day, manufacturers have a lot of control over the floor planning process. Therefore, if they are charging you flooring before the units ever reach the showroom, you likely have few options.
“In that case, your only control is to order fewer units,” Rosenfield said.
Having a good finance and insurance director also helps a dealer control their flooring expense, Hogan-Jones said.
“Sell out of the service lane.”
“If you’re doing 300 cars a month or you have four or five rooftops that are doing 400 cars a month, there should be an f&I director and there should be (sales) training,” she said.
If a salesperson is well-versed in a dealership’s f&I products and can sell those products on their own – and the salesperson knows when the f&I office should be brought into the process — that can increase a dealership’s profit, Rosenfield said.
That all helps when a dealership is looking for a new floor plan provider, Hogan-Jones said.
The stronger a dealership’s balance sheet is, the better negotiating position it is in. A tight team is also a plus. Those can help a dealership be in the driver’s seat for a floor plan.
Your accountant can help, but they can do it much more effectively if a dealership keeps a clean set of books, Rosenfield said.
Many times, Rosenfield & Co. has an account that looks fairly clean at face level, but once they dig into the books, “you’ll see there are 100 hanging credits right there,” he said. “Or payables that are older than my daughter. How is that still there?!”
In a market filled with uncertainty, dealerships don’t need to have all the answers—but they do need a solid strategy. By tightening up inventory management, understanding the real cost of flooring, and maintaining financial discipline, dealers can better position themselves for whatever comes next. It’s not about controlling the market—it’s about controlling what you can.
Did you miss the webinar?
Catch the full recording of “Inventory & Floorplan: Control the Controllable” and download the slide deck to explore the key concepts behind captive insurance and what it could mean for your dealership.
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