Rising Wholesale Interest Rates Place Dealers Under Financial Strain

americans-savings-Wavebreak_Media-1360x860Rising floorplan finance interest rates — and manufacturer’s forcing too much inventory onto the dealer — prompted Buy Your Motorcycle to stop floorplan financing and sell four of its five dealerships, Owner Brad Van Horn told Powersports Finance.

Arlington, Texas-based Buy Your Motorcycle now owns one dealership — and all of its inventory — because it did not see much profitability operating under an OEM, Van Horn said.

Some manufacturers are forcing too much inventory onto the dealers, which many dealers cannot sell in a timely fashion, he explained. “Nothing, anymore, supports a dealer’s profitability,” Van Horn said. “The OEMs are taking a larger slice of the deals for themselves, therefore making it harder to operate as an OEM dealership, with no regard to a dealer’s profitability or a dealer’s ability to exist.”

Increasing floorplan finance interest rates can put many dealers under “huge financial strain and even put some out of business,” said Bruce Marcia, director of retail management consulting firm Bruce Marcia & Associates. “It’s important to remember that OEMs like Yamaha, Honda, and Harley Davidson — who offer captive floorplan financing — have a stronger vested interest in the financial health of their dealer network. Increasing rates is counter-productive to that financial health.”

In an effort to be competitive, many OEMs have reduced gross margins for the dealers, Marcia told Powersports Finance. “In recent years, more and more OEMs are getting involved with retail financing, again, to increase their bottom line — not to support their dealer network,” he said. “I say this because they offer the public low-rate financing to [incentivize the] product, but with low-rate financing, there is no reserve for the dealer — another lost revenue stream.”

Dealers struggle to make 10 to 12% margin on current model products, and 6 to 8% on non-current model products (new units from a previous model year), and this is a seasonal industry, Marcia said. “How are dealers expected to remain profitable? How will this industry be able to entice new entrepreneurs to invest and grow the industry?”

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