Floorplanning Revenue Dries Up as Rates Rise

First Up 08/06/18

Floorplanning Revenue Dries Up as Rates Rise
Dealers knew low interest rates wouldn't last forever — and the day of reckoning has arrived, reports Automotive News. Even with automaker subsidies, dealership floorplan expenses this year flipped to a cost vs. a revenue item for the first time in nine years as interest rates rose, according to the National Automobile Dealers Association. The swing has dealerships small and large, public and private, exploring ways to mitigate the cost. "The industry for both the manufacturer and the retailer has had a nirvana period where the cost of capital and the cost of inventory has basically been free. But those days are over. Rates have already risen," AutoNation CEO Mike Jackson told Automotive News. "So now each retailer has to look at their inventories and say, 'Wow, does it make sense to carry this much inventory?' ” Dealership floorplan, the loans taken out to finance vehicle inventory, has traditionally been a cost. It was only over the last eight years, amid plunging interest rates, that floorplanning became a profit center as automakers continued to provide hefty assistance payments as incentives for stores to buy new vehicles. Read more here. 

Toyota: Trade War Will Add $3K to Price of Some Popular Pickup Trucks, Minivans
A trade war will make Toyota pickup trucks and minivans more expensive, adding about $3,000 to the sticker price of some of its best-selling automobiles, Toyota executives said after reporting record profits Friday. According to CNBC, global net income at the Japanese automaker rose from 613.0 billion yen ($5.52 billion) to 657.3 billion yen during its first quarter ended June 30. But executives told reporters on a call Friday that the increased U.S. tariffs could seriously affect Toyota's bottom line and hurt jobs. "A 25 percent tariff on automotive imports, which is just a tax on consumers, would increase the cost of every vehicle sold in the country," Toyota said in a statement. The extremely popular Toyota Camry sedan, which is assembled in Kentucky, would cost an extra $1,800 if a 25 percent tariff were to take effect, the company said. Toyota's full-size pickup, the Tundra, and the Sienna minivan, which are also assembled in the U.S., would cost an extra $2,800 and $3,000, respectively. Read more here. 

In Rough Times, Rolls-Royce Seeks a Smoother Ride
In the rolling southern English countryside, close to the cathedral city of Chichester, a one-of-a-kind building looms just past an unassuming roundabout: the House of Rolls-Royce, the only place in the world where the luxury vehicles are made. According to USA Today, all the components of the cars are made at the factory here in Goodwood, except for the engines and frames, the firm says. The luxury goods firm, now owned by BMW, makes about 4,000 vehicles a year. The Phantom, with a retail price of about $500,000 is the pinnacle of the stable, while the best-seller is the Dawn, a convertible with a folding roof. The Cullinan, the brand's SUV, launched in May as the newest addition to the fleet. The first customers will receive their vehicles early next year. The United States is the largest export market, followed by China. Last year, about one-third of all commissions last year were for customers in North America, including Canada. The cars have a waiting time of five months to one year. Read more here. 

Move to Freeze Obama-Era MPG Rules Likely to Set Off Fight
A long legal fight appears likely after the Trump administration said it will push to weaken stringent gas-mileage rules that would have required automakers to produce fleets averaging more than 50 miles per gallon by 2025, reports The Detroit News. The Environmental Protection Agency and National Highway Traffic Safety Administration proposed Thursday to freeze Obama-era gas-mileage rules after the 2020 model year, when automakers will be required to build fleets averaging nearly 39 miles per gallon fleetwide. And they indicated the federal government could move to revoke a longstanding waiver allowing California and other states to set their own stricter auto emissions standards. While carmakers say the rules will let them produce the vehicles that buyers truly want, critics say the move will stifle innovation and put U.S. carmakers at a disadvantage in global markets that are moving toward zero-emission vehicles. Automakers have pushed for a national mileage standard and for a review of the fuel-economy rules, which were set in 2012 by the Obama administration. Read more here. 

Maryland Dealership Upends Sales Model
More retailers realize they need to adapt to the modern car buyer to maintain, or improve, sales levels. Some are ditching the traditional business model of negotiated pricing and commissions in favor of making the customer feel special and simplifying the purchase. According to Automotive News, one of those making the switch is Priority 1 Automotive Group in Towson, Md., a nine-roof enterprise with about 4,000 new and pre-owned sales per year. Five months ago, it implemented a negotiation-free sales model at Mini of Baltimore County and Audi Owings Mills. Company officials say they are confident the system, paired with a new digital storefront and a laser focus on customer satisfaction, will boost results. "We wanted to make the process more enjoyable and make it more about the customer getting exactly what they want," said Alison Cohen, vice president of the group. Read more here. 

The Buy/Sell Market – Hot or Not?
Join Kerrigan Advisors as they explore a deeper understanding of today’s dealership buy/sell market. Potential tariffs, rising interest rates, and a slowing new car sales volume - are possible clouds on the horizon? Today’s auto retail market is dynamic – status quo is no longer a strategy. Listen in to learn how you can maximize the value of your auto retail enterprise.

This webinar will include:

  • An overview of who is buying in today’s buy/sell market, including a discussion of new investors in auto retail. 

  • Why more sellers are coming to market today and the impact of rising seller volume on today’s blue sky values and multiples. 

  • The importance of dealership real estate to most transactions and the effects of image facilities on blue sky value. 

A must for any dealer considering their growth strategy or exit plans, join us on Tuesday, August 21 at 2 p.m. EDT to find out more! Click here to register. 

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These Best-Selling Cars and SUVs Are About to Get Safer [Detroit Free Press]