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Car shoppers are being hit by skyrocketing interest rates, record monthly loan payments, and stubbornly expensive sticker prices, all of which make for a tricky auto-buying market right now.
But their dealers are being faced with their own challenges — including one factor that is keeping auto retail unpredictable.
There's one key metric that sums up everything pummeling dealerships right now: Floor plan expenses.
Floor planning allows dealers to finance expensive cars to have as inventory, essentially saving them from buying the car outright. Those loans are repaid with interest when the vehicles are sold. The longer a car sits on the lot, coupled with high interest rates, the higher the cost to keep inventory around.
Total floorplan spending for public dealer groups in the US (including giant firms like AutoNation, Lithia, and Group 1) was $126.7 million in 2021, according to Kerrigan Advisors. That number rose to $202.6 million last year, and in the first nine months of 2023, has hit a whopping $363.1 million.
Ask anyone in the auto retail business, and they'll tell you these costs are through the roof.
"You have a $50,000 unit, it could cost you several hundred thousand dollars a month just in interest to hold that unit," Eric Frehsee, president of the Tamaroff Group of dealerships, told Insider last month. "And at some point, we need to sell it."
As automakers churn more electric cars off assembly lines and send more of this inventory to their dealer lots across the country, unsold models are stacking up.
Regardless of whether that's a natural function of scaling a new product, or a signal of something on the demand front, EVs are costing dealers a lot just to sit there.
EV inventory is growing. It's taking much longer to sell these cars than their gas-powered counterparts. And it's not entirely that consumers don't want them — as parts of today's news cycle might suggest — there are still significant barriers to adoption.
Cost remains a key part of the electrification equation, and this next wave of EV shoppers simply aren't willing to shell out more than they could for an internal combustion engine vehicle, regardless of the potential gas savings. Not to mention a dearth of smaller, more affordable models and lagging charging infrastructure in wide swaths of the country.
To be sure. EV costs are coming down thanks to federal tax credits, a slew of various models, and infrastructure investment, but that all will take some time.
In the meantime, dealers risk swallowing the expense of keeping those around or finding some way to send customers home with one.
As a result, buyers can find all sorts of manufacturers' incentives and dealer discounts that make an EVs' hefty price tag more palatable.
The same goes for non-plug-in vehicles; the longer a car sits on a lot, the more it costs a dealer. Look out for vehicle makes and models that aren't in high demand or might have excess inventory, and dealers are likely to want to find a way to get you in it.
