NextGear Capital, a sibling to auction giant Manheim, now is offering loans to finance franchise dealerships' new- and used-vehicle inventory.
It is the first time either Manheim or one of its affiliates has offered new-vehicle floorplan loans to franchise dealers, in direct competition with customers or potential customers of Manheim, such as the finance companies that sell their off-lease vehicles at Manheim auctions.
NextGear offers financing for independent used-car dealerships. It previously had extended some loans to franchise dealers to finance their used vehicles, but that made up a very "small portion" of its business, a spokeswoman said.
Eric Hurst, vice president of franchise and major dealer operations at NextGear, said the company began offering the loans to franchise dealers with small and rural retail operations in June. NextGear piloted the program for about six months before that.
Hurst, 45, said NextGear has an advantage over its competitors -- whom he defines mostly as small and regional banks -- because dealership inventory loans are all it does.
Additionally, NextGear has its own technology and expertise and can tap into that of its sibling companies -- such as Manheim and AutoTrader.com -- to help it provide solutions for dealers' problems, he said.
"NextGear is connected with a thousand auctions across the U.S. with a touch of a button," said Hurst.
"A lot of the banks have not invested in the infrastructure to do that because they are not in the floorplan business; it's a sidebar for them," he said. "We get up and we do it every single day. It's like drinking water."
NextGear was created through the merger of Manheim Automotive Financial Services, Manheim's former captive finance company, and Dealer Services Corp., which Manheim acquired in March 2012. Manheim and NextGear are units of Cox Automotive.
NextGear is targeting franchise dealers who own up to about 10 small stores. The company does not provide loans for operating capital.
Hurst said NextGear's competitors are not automakers' captive finance companies, adding that the floorplan landscape is large enough for his company to fit in nicely.
"We're not going out to the bigger captives and saying, 'Hey, we're going to take over the world,' because that's not the plan," he said. "There is $1.5 trillion worth of new cars on the ground across the U.S. That's more than any one company can begin to chew off."
Hurst said used vehicles acquired as trade-ins and purchased at auction are not well understood by a lot of lenders, so the loan-to-value ratio gets restricted on the floorplan financing of those vehicles. What other lenders offer "might be 75 cents on the dollar; it might be 80 cents," he said.
That is not the case at NextGear Capital.
"We love the used-car space," he said. "We've got 21 companies under Cox Automotive that are dedicated to the used-automotive space."
NextGear piloted its floorplan program with five dealers representing a variety of brands, Hurst said.
Among the things the company learned during the pilot is that it could assist dealers who subscribe to AutoTrader.com by uploading those dealers' vehicle listings, complete with photos, to the site immediately after the vehicles have been financed.
Don Davis, president of Gateway Buick-GMC in St. Louis, switched to floorplanning his new and used inventory with NextGear from Ally Financial last January.
A former banker who used to handle dealership floorplan loans, Davis said he likes that NextGear's only business is dealership inventory loans and that his new and used inventory is posted on AutoTrader.com for sale before it reaches his dealership.
"As soon as it's on the truck [to the dealership], it's on AutoTrader.com," Davis said. "People are seeing it, and they know it's coming. When the cars arrive, I already have a buyer waiting for it."
J.W. Clemens, dealer principal of Royal Gate Dodge-Chrysler-Jeep-Ram and Royal Gate Dodge-Chrysler-Jeep-Ram of Columbia, both in suburban St. Louis, said he has been financing his new- and used-vehicle inventory with NextGear for about seven months. He, too, parted company with Ally.
Clemens said it used to take two weeks to a month for paperwork for his trade-ins destined for retail sales to move through various dealership departments before the vehicle was listed for sale on AutoTrader.com.
Now, posting is automatic when a vehicle is financed.
Said Clemens: "It's a timesaver and gets the car out to the market faster."