Car dealers like any business have to rely on the ability to produce revenue for their business from more than just one source.
Now don't take this wrong and think that ah ha... another way to scam and separate the most hard earned money they can from their customers.
Not in this case anyway.
All businesses must have a variety of different revenue sources if they are to prosper and pay their employees.
Let's take a look at an aspect of a car dealer's business known in the industry as floorplan.
Floor plan is not something that is generally known to the public simply because it doesn't directly affect the cost of the car but it does affect the profitability of the dealership.
A lot of people wonder how in world can a car dealership make any profit when they are claiming that they are selling at or below their cost?
First of all a dealer's actual invoice or dead cost is a rather nebulous figure to arrive at... but let's stick with floor plan.
By in large, the majority of dealers to participate in some type of floorplan with their bank. This simply means they carry a mortgage or credit account against their inventory, meaning they borrow money to provide the inventory that sits on their car lot... and this is a quite normal aspect of the cost of doing business. It's simply a rotating effect where one car is paid off when it's sold and the next car comes off the transport truck and is added to the dealer's floorplan.
Depending upon the agreement the dealer or ownership group has with their bank, the bank will floorplan the inventory for a period of time for the dealer at no cost. Usually between 30 and 90 days of free floorplanning (no interest charge on the credit).
Now... if the car is sold during the free period, the dealer will get a credit for the difference in days. If, for example, the dealer sells a car that has only been on the lot for 10 days into a 90 day floorplan grace period, the dealer will then get an 80 day credit... and this is a good as cash because the credits will go back to the dealer at the end of each billing cycle.
Starting to see the revenue opportunity here?
You can probably see that it behooves the dealer to not only tightly manage the inventory, but to turn it over (sell it) quickly. The more efficiently a dealer can do this, the bigger the check they get back each month that will add nicely to their profitability.
I mean do the math here. Just to make the math very easy... let's say a dealer pays $5 per day in interest charges that a car is floorplanned. 50 days of credit back to the dealer would be $250.
Since a dealer can carry anywhere from a couple hundred cars (larger dealers carrying over a thousand cars) in their floorplanned inventory... it becomes obvious that if a dealer can not only manage their inventory, but turn it over quickly, they can get a nice check back each month from their floorplan credits.
Cars that sit on the lot beyond the floorplan grace period begin costing the dealer money in terms of interest payments to the bank. This is why dealers like to move those cars that are on the brink of costing them more money.
So there you go... that's how dealers who are on a floorplan agreement with their banks can actually sell you cars at what is technically at or below the actual number that is associated with the invoice.
Author Resource:-
You are about to learn everything that car dealers don't want you to know. In just a few minutes with my complete car buying guide at acarbuyersguide.com you'll be ready to save $1000 or more the next time you buy a car. Discover how to buy a car and get the best car deal possible with my complete car buying guide.
![[Valid RSS feed]](http://www.articlesdepositery.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites
