DETROIT -- Ally Financial Inc.'s decision in March to peg floorplanning interest rates to a lower benchmark is saving about 4,000 dealerships significant money.
Dealers fund inventory with floorplan financing.
David Kelleher said his David Dodge-Chrysler-Jeep-Ram dealership near Philadelphia expects to save $50,000 to $80,000 this year as a result of Ally's decision to peg floorplan loans to the Libor index instead of the prime rate.
The change means an immediate interest-rate cut on floorplan loans of about four-tenths of a percentage point, Kelleher said.
It makes David Dodge's floorplan interest rates today comparable to the best offered industrywide, about 2 percent, he said.
"It is like somebody handing you 50 grand," Kelleher said.
David Dodge has about $15 million in floorplan loans outstanding at any given time. The store sold 1,635 new vehicles and 793 used vehicles in 2014.
Ally supplies floorplan loans to about 4,200 dealerships, the majority of which are franchised dealerships, spokeswoman Gina Proia said in an email. The change to use Libor was done in consultation with dealers, she added.
Libor, an acronym for London Interbank Offered Rate, is the benchmark interest rate that banks charge each other for loans as short as overnight to as long as one year.
Kelleher said the downside of the move is that Libor has been very low for a long time and rates could bounce back faster than prime.
He said that in addition to financing floorplan with Ally, David Dodge financed a $3 million store expansion and renovation through Ally. The financial services firm also finances about half of new-vehicle loans taken by David Dodge customers.
Last month's floorplan interest-rate reduction was the third that Ally has provided David Dodge since 2009 that was given, not negotiated, Kelleher said.
He said, "I'm a good customer, and they understand that."