Floor Plan Interest at a Dealership, Explained
Floor plan interest is the interest a dealership pays its lender on every vehicle financed in inventory, for every day that vehicle sits unsold. The cost that matters is the interest on aged units: the days past what the factory's floor plan assistance covers.
How floor plan works
The lender pays the factory when a new vehicle ships, and the store owes the lender until the vehicle sells.
Interest accrues daily on each unit's balance: the unit's cost times the rate, divided by 365, for every day in stock.
Curtailments are required pay-downs on units that stay too long. They are cash, not expense, but they tie up working capital.
Factory floor plan assistance (a credit from the manufacturer) offsets interest on new units for a period of time. Units that sell inside that window cost little or nothing net. Units that sit past it are carried at the store's own expense.
The formula
Daily interest per unit = unit cost × annual rate ÷ 365
Aged carrying cost = units past the threshold × average unit cost × rate ÷ 365 × average days past the threshold
Example (hypothetical round numbers): 20 new units sitting an average of 40 days past 60, at $45,000 each and a 7% floor plan rate. 20 × $45,000 × 0.07 ÷ 365 × 40 = about $6,900 of interest the store pays itself. Try your own numbers in the floor plan interest calculator.
Benchmarks
New vehicle days' supply: about 45 days is healthy, 30 to 60 is the range, and above about 60 is heavy (Pocket20 benchmark).
Used vehicle days' supply: 30 days, and no used units over 60 days (Pocket20 benchmark). Used floor plan has no factory credit, so turn is everything.
How to find it on the statement
Floor plan interest prints on the expense page, for new and used.
Floor plan assistance (the factory credit) prints as its own line. Read the two together: the number that matters is interest net of the credit.
Units in stock and days' supply print on the new and used department pages.
Why it is a net-only opportunity
Floor plan interest is an expense. Cutting it adds to net profit dollar for dollar, but it never adds gross. That is why Pocket20 shows the aged-unit floor plan finding as net only. Don't discount retail gross to fix a carrying cost. That pays for an interest problem with gross.
What moves it
Work the oldest units first: price to market at 45 days, review at 60, have a plan for every unit past 90.
Order to your real sales pace, so new days' supply holds near the healthy range.
Shop the flooring line. Rate, lender and curtailment terms change the cost without touching gross.
See it on your own statement
Pocket20 reads floor plan interest, the factory credit and your units in stock from the statement, and shows the interest on aged units as a net opportunity in dollars. Get a free read or see a sample read.