For many independent auto dealers, salvage auctions are an important inventory source. While cash is always an option, floorplan financing can solve a number of unique needs for dealers that cash can’t. Let’s take a look at why financial flooring can make purchasing salvage auto inventory easier.
Reconditioning costs
On the front end, a salvage vehicle can be less expensive than a vehicle purchased from a typical auto auction or from an individual. But the costs of getting a salvage vehicle ready for the lot can add up.
There are two major costs associated with reconditioning a vehicle. The first is opportunity cost—the money, time, and labor invested in a vehicle can’t be spent elsewhere. The second is capital investment. Between parts and labor, recon can require a decent amount of money, and keeping costs under control is always a concern.
While a floorplan isn’t going to remove opportunity cost from the equation, it will improve cash flow by allowing you to shift cash spending away from inventory purchasing—so it can be used for reconditioning costs instead, allowing you to more easily control costs.
A floorplan built for salvage auto purchases will generally take reconditioning needs into account, making it easier to handle your recon costs.
Timing
Getting a salvage car frontline ready can take time—sometimes, a significant amount of time. And while a vehicle is being reconditioned, the dealer is carrying its costs with little potential for profit until the vehicle is ready to go to the lot.
This can become a bigger issue if the vehicle was purchased using cash. A cash investment is only freed up once the vehicle sells, so recon time is quite literally taking money out of your pocket.
There are ways for dealers to speed up the reconditioning process, but another way to manage those costs is to purchase using a floorplan. A salvage auto floorplan will generally have a longer term, spreading costs over a longer period of time to help make them more manageable.
A good salvage floorplan is designed to allow dealers the time to get vehicles lot-ready without draining their bank accounts—or having to do a rush job, thus failing to deliver customers the quality they expect.
Specialized terms for dismantlers and rebuilders
Plenty of dealers purchase inventory from salvage auctions and other salvage car sources. When this is a business’ primary source of inventory, that makes a salvage floorplan all the more important.
The unique scope of business of dismantlers and rebuilders means that a floorplan designed specifically for their needs is generally the best move.
For example, a dismantler may need more assistance with transporting their purchases, so a financing plan that covers vehicle transport is key.
Also, due to the extended reconditioning and repair process, a rebuilder may need more time to get a vehicle ready for sale, so a floorplan with a longer term and limited fees is best.
Floorplan terms to fit salvage auto needs
A floorplan that’s purpose-built to support the needs of dealers who purchase salvage provides them with a number of benefits that cash simply can’t offer. Whether you’re an independent dealer purchasing vehicles to get lot-ready and sell on to customers, or you’re a dismantler or rebuilder deep in the salvage parts business or returning vehicles from the brink to ready-to-drive, a salvage floorplan is an option worth exploring.
Disclaimer: Descriptions of AFC floorplans are for illustrative purposes only. Terms of AFC floorplan financing are subject to a final written agreement acceptable with AFC. AFC does not guarantee any results for floorplan financing and examples are for illustrative purposes only. Dealers should consult their own advisors to make independent business decisions regarding floorplan financing.
