Capital One exits floorplan lending business

Capital One has decided to terminate its auto dealer services business offering floorplan lending.

"We will be winding down that work this year," a Capital One spokesperson told Automotive News in a written statement. "This has no impact on the CapitalOne Auto Finance business. Our auto business remains well-positioned to support our dealer partners and customers through these market cycles, as we have throughout our bank's history."

Capital One on its website said the dealer services business was dedicated to new franchised car dealers with floorplan needs of $5 million to more than $100 million. The bank has more than 25 years of experience in the automotive industry and lists floorplan monitoring and tracking software among its dealer services products.

In a follow-up phone call, a Capital One spokesperson said floorplan lending comprised about 1 percent of its commercial bank business and was "not core to the long-term priorities of our commercial bank."

"The commercial business evaluated its priorities in light of the needs and opportunities that we see ahead in light of the challenging economic environment," the spokesperson said.

She re-emphasized the floorplan lending decision would have "no impact whatsoever on the Capital One Auto Finance business."

Not a signal

Capital One's exit, which was decided March 29, does not seem to signal a trend in lenders exiting this business.

"While Capital One is pulling out, we're not seeing other floorplan lenders pulling out, especially from franchise dealers," Daniel Imbro, a managing director for financial services firm Stephens Inc., told Automotive News. "I don't think it presents a risk at least to my covered company universe as far as the franchise dealers because I don't think they see lenders pulling back."

Rising interest rates and higher car prices, along with an expected increase of new-vehicle inventory, will potentially result in a dip in floorplanning revenue for dealerships. These factors also could mean floorplanning could flip to a cost, which would end its yearslong run as a profit center.

Floorplan as a profit source typically occurs when borrowing costs increase because the Federal Reserve raises its benchmark lending rate. Though floorplan interest — the loans taken out to finance vehicle inventory — historically has been a cost to dealerships, that changed for much of the 2010s as interest rates tumbled but automakers continued subsidizing dealers' floorplan loans as incentives for stores to buy new vehicles. The pattern returned when rates dropped sharply early in the coronavirus pandemic.

In 2010, the National Automobile Dealers Association said the average dealership made $2,355 in floorplanning. Five years later, that figure was $109,497.

As rates rose in 2018, floorplanning flipped with an average dealership cost of $55,164. The following year the cost rose to an average of $82, 979.

When rates were slashed during the pandemic, floorplanning once again became a profit item. In 2020, dealerships made an average profit of $108,395. That was the final year NADA reported the data.

Automotive News' 2023 Dealer Outlook Survey of 264 dealers and dealership managers in January showed dealers' biggest concern was rising interest rates, which would impact vehicles sales and raise floorplan costs.