Ford Motor Co. is modifying the assistance it gives dealers for loans to finance new-vehicle inventory to help offset rising interest rates.
Effective Wednesday, Dec. 26, the automaker's floorplan assistance will be a VIN-specific calculation of 1.5 percent of a vehicle's base sticker price, to a maximum of $995. Previously, dealers were offered payouts equal to 1 percent of each vehicle's actual sticker price, with options but excluding the shipping charge.
The change applies to Ford and Lincoln dealers across the U.S.
It means that, in some cases, assistance to dealers could increase by as much as 50 percent. In other cases, however, dealers could receive less money from Ford, because the program no longer factors pricey vehicle options into the equation and instead calculates the payouts using only the vehicle's base price.
"Ford's making a big commitment to the dealer body by doing that," Tom Lynch, head of the Lincoln National Dealer Council, told Automotive News. "That's really helpful as far as our interest costs go."
Interest that dealers pay on their floorplanning loans has traditionally been a major expense. But for much of the past decade, it turned into an unexpected profit center, according to data from the National Automobile Dealers Association. That's because low interest rates made it affordable for automakers to provide substantial floorplan support, which motivated their retailers to buy more inventory.
Now, though, dealers nationwide are reckoning with the fact that floorplanning has returned to being a cost.
Through October, the average U.S. dealership paid $60 per new and used vehicle in floorplan expense, vs. making $18 per vehicle floorplanned the year earlier, according to NADA. Overall floorplan interest expenses per dealership jumped to $44,449 on average, compared with income of $13,985 during the same period in 2017.
The Federal Reserve has raised rates four times in 2018, most recently this week when it upped the target for its benchmark funds rate by a quarter point to a range of 2.25 percent to 2.5 percent.
To help combat the rising expense, executives at all six public dealership groups have said 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.
"We're pushing back with all the OEMs on taking inventory when our inventory's too high," Penske Automotive Group CEO Roger Penske said in August. "We've got to be much better at ordering the right vehicles and turning our inventory."