Floorplan interest expense. Are you paying too much?
For the vast majority of dealerships in the RV, Marine and Powersports industries, one of the largest expenses incurred is inventory floorplan interest charges. Dealerships that have experienced reduced sales, slower turns or fell into the trap of ordering too much inventory, find out very quickly how heavy the burden of floorplan interest expense really is.
Many dealers are under the assumption that the interest rate they are charged by their floorplan lender, is the same rate all other dealers in the industry are charged. That is not accurate. While your floorplan lender may have a standard rate, not all dealers are charged that rate. Some dealers are charged less while many dealers are charged more. There are also many dealers who think they have only one interest rate they are charged for floorplanning. Again, that is not accurate as a dealer will be charged a higher interest rate on floorplanned inventory that is considered “due in full”. Most dealers have some level of “due in full” inventory so those dealers who are in that situation, they are being charged 2 different interest rates.
Given that inventory interest is a major expense for RV, Marine and Powersports dealers, business owners have to know where they stand and how much they are actually paying. You need to confirm what your current interest rate is along with your “due in full rate”. If you’ve never done this before or haven’t done it for several years, you might be surprised and not in a good way, what you are being charged.
Before you pick up the phone to talk to your assigned account manager from your floorplan company demanding a preferred rate, you need to do your homework and determine if you can justify qualifying for a preferred rate. While most floorplan lenders have a standard rate of interest they charge for current and aged inventory, the level of risk they have based on your financials and their experience with you determines if that rate moves up or down. Simply asking for a preferred rate will most often get you a weak answer about policy, programs and a mention to discuss it with credit. Like your business, your lender likes to make as much profit as possible so if they don’t have cut that profit, they won’t.
In determining if you can justify requesting a preferred rate, you have to examine your relationship with your lender and your financial viability. Have field audits at your dealership gone smoothly? Have your payment releases been consistent and in a reasonable amount of time? How are your turns trending? Are margins healthy and being maintained? These are only a few of the questions that you need to ask yourself before you have that conversation with your lender.
If you feel comfortable and confident in this analysis, there is no better time to start than now as the interest clock ticks every day. If this is something you struggle with, then I have no choice but to insert my shameless plug in offering my help with that. With over 16 years of experience within the inventory finance industry encompassing positions of Senior Account Executive and Branch Manager, we understand how and why floorplan companies charge the interest rates they do. By analyzing various indicators of your business operations and financial performance, we will be able to advise you if you are in a position to present a strong case for your business to negotiate a lower interest rate. We will work with you in these negotiations that can save your business thousands of dollars annually. If it is determined that your business is not currently in a position to qualify or negotiate a lower interest rate, we will provide a report outlining why a request for lower rates isn’t justified and we’ll also provide solutions and suggestions to help your business get into a position where lower interest rates are justified.