After 8 years, a floorplan flip
| NADA's senior economist, Patrick Manzi, expects floorplan to become an expense again in 2018. Floorplan became a profit center as interest rates dipped after the Great Recession. Below is the average amount made per dealership off floorplan. |
| 2010 | $2,355 |
| 2011 | $9,607 |
| 2012 | $33,961 |
| 2013 | $52,702 |
| 2014 | $73,241 |
| 2015 | $109,497 |
| 2016 | $85,855 |
| 2017 | $17,083 |
| Source: NADA |
The swing is showing up in the financial results for all six public dealership groups. In the second quarter, floorplan interest expense jumped for the six, in some cases by double-digit percentages.
Executives at all of the public groups say they plan to shrink inventories. Lithia Motors, for example, said in July that it has put inventory reduction plans in place at 50 of its stores.
Penske Automotive Group says the interest rate hikes in the U.S. have led to $7 million to $8 million in additional interest costs, mostly driven by floorplan.
With a 72-day supply of new vehicles, the retailer can gain "tremendous" savings by lowering that by one or two days, CEO Roger Penske told Automotive News.
"We're pushing back with all the OEMs on taking inventory when our inventory's too high," Penske said. "We've got to be much better at ordering the right vehicles and turning our inventory."
With the rate hikes, floorplan will return to a traditional expense going forward, said Patrick Manzi, senior economist for NADA.
By year end, "unless manufacturers increase the amount they're paying to dealers, the interest expense will outweigh the floorplan rebate," Manzi said.
Floorplanning as a dealership profit center goes back at least to 2009, according to NADA. In 2010, dealerships made an average of $2,355. That number then climbed every year before peaking in 2015 at $109,497. In 2016, the average dealership made $85,855 before the benefit plummeted 80 percent to $17,083 in 2017.
Even though dealers knew low interest rates weren't permanent, they now must absorb an expense that most haven't been required to pay in nearly a decade. So, what's a dealer to do?
Scrutinize inventory and expense structure, Manzi and dealership accountants say.
Robert Davis, partner at accounting firm Dixon Hughes Goodman, said he has seen dealers embrace such scrutiny more in the past two years than the previous three or four.
But he warned that dealers must manage the shift carefully — turning inventory faster could mean accepting a lower price and thus lower gross profit on the vehicle, even if only by a few dollars.
Dealers also should pay close attention to their new-vehicle orders, Manzi said. "They want to make sure that they're only stocking things that they can sell," he said.
New-vehicle days' supply has steadily increased since 2015, that peak year for floorplan profits, according to the Automotive News Data Center. But U.S. light-vehicle sales dipped 1.8 percent in 2017, showing that dealers are "not reducing those inventory levels as fast as some might want to," said Jodi Kippe, managing partner for the retail dealer services group at accounting firm Crowe.
