In these days of dropping interest rates, it seems that floor-planning sources are besieging many of our clients. However, there is more to this decision that just interest rates. Since most dealers buy at least some of their physical damage insurance from their floor-planning source, the cost and coverage provided must be a part of the equation. As you will see, this part of your analysis may change your decision if the increased insurance costs and decreased coverage outweigh the reduction in interest rate. As a general rule, manufacturers¹ floor plans cost less and sometimes even provide broader coverage than the insurance market generally offers. The paragraphs that follow should help you complete this puzzle. COVERAGE ISSUES Some floor plan programs exclude very important coverage items such as ³False Pretense² coverage. Most insurers will pick up coverage for these missing pieces, but it is not automatic. The dealer must coordinate with their insurer on these matters and make sure they are reporting properly. In this case, the reported value may include all new cars for ³False Pretense² and only the used inventory for ³Collision/Comprehensive². Another area to watch is ³Wind/Hail² deductibles and aggregates. Over the past few years many, if not most, insurers have moved toward higher ³Wind/Hail² deductibles and higher aggregate deductibles. Some floor-plan insurance sources have not yet followed suit. Needless to say, low deductibles in this area can be a big benefit to those dealers in hail prone areas. When coordinating floor plan insurance with the balance of your inventory coverage there are a number of items to look for such as ³False Pretense² mentioned earlier. Equally as problematic and even more common is the issue of double coverage. Many floor planners cover used program cars, demos and used cars financed under the floor plan. Dealers often report this part of their inventory to their insurer, resulting in double coverage and double premiums. Many bank sources provide no insurance at all, and there is not a big ³stand alone² market for physical damage coverage. There are a few options, many of which come from Lloyds of London. Be very careful of these stand-alone forms. Often the coverage is very restrictive, and the prudent dealer will read these coverage forms carefully before buying.
FINANCIAL ISSUES Obviously interest rates play a big role in the floor plan analysis. The cost of insurance should as well. Changing floor plan sources may leave dealers relying on their garage insurer to provide this coverage. Generally, insurers charge more for physical damage coverage than do floor plan sources. Another area to look into is the rate structure of floor plan sources. Some luxury car sources charge a flat fee such as a dollar a day per car. The rate may be competitive if your average vehicle is valued at $65,000. However, if you are insuring Chevrolets at this price, it is exorbitant. A few dealership insurers offer a unique little coverage often referred to as ³wrap-around² coverage. The dealer is allowed to make a claim against their standard insurer, if a claim is denied by the floor plan source but would be covered under the other policy. To give you an example, some floor plan insurers require the dealer to photocopy a prospect¹s driver¹s license before allowing them to take a car our on a test drive. Let¹s assume the dealer failed to get the copy and the prospect never came back with the car. The claim would be excluded under the floor plan coverage. With ³Wrap-Around² coverage, the dealer could make a claim and if no ³copy exclusion² exists, there would be coverage. This coverage is many times not offered, but may be available to the dealer who asks. In summary, while lower interest rates are surely attractive, there is more to the floor plan decision than just rates. The decision may be a little more complex than you thought. Make sure you get all the facts and figures to make the proverbial apples-to-apples comparison.