What is unit stocking and how is car business finance different?
The economics of car sales are different to other industries however, with expensive stock having to be brought in and moved out at profit within different time scales; clients paying for different products using different financial packages and timescales, some with warranties, some without, and even more variables.
A supermarket can buy its stock, fill its shelves, sell the produce for a profit and replace any out-of-date assets. Any car dealer that tried to run their business on those terms would run into financial difficulties within weeks.
Very few dealers outside of those working directly for car manufacturers could afford to buy the vehicles they will be selling outright. They are able to get them through a unique financial instrument known as unit stocking plans.
Unit stocking plans are financed either by car manufacturers themselves, banks or other lenders. The benefits for dealers are that they can get the vehicles they want through auctions, other dealers or private sales without having to purchase them using their own funds and have their cash tied up in stock.
The unit stocking plan system works like this:
- The car dealer finds a model they would like to stock in their premises
- They purchase them at an auction or from another seller
- The company they have their unit stocking plan with then pays the seller the whole of the amount plus VAT and any other associated fees straight away.
- The company providing the unit stocking plan takes security over the vehicle being purchased.
- The car dealer then has up to 150 days to clear the balance
- The balance is paid using the funds from the sale of the vehicle
Like any other business a car dealer can run into financial difficulties and go into administration and/or liquidation. Since 2010, just over 3,500 motor vehicle businesses went into insolvency.
If this happens then an insolvency practitioner will go through the statutory process including contacting the company who provided the unit stocking plan facility to remove any vehicles that they would have a financial claim to. It is likely that the finance company will sell these vehicles at auction. You should be aware that these unit stocking plans generally come with a personal guarantee. Therefore if there is any shortfall from the auction they may seek to enforce this personal guarantee against the directors.
Any other vehicles owned by the business would be taken by the liquidator who would look to sell them for as close to a fair market price as possible along with any other assets including property and premises.
If you’re a car dealer or work in the motor vehicle industry and your business is running out of gas then get in touch with us today. Because of the aggressive approach taken by companies offering unit stocking plans, it may be worth exploring the options in relation to this before commencing formal insolvency proceedings. A licenced insolvency practitioner, working with their agents, may be able to assist you in transferring the plan at trade prices, ensuring the best return possible outside of retail sales and reducing the personal guarantee exposure.
An initial chat and free follow-up meeting with one of our friendly, expert team can help plan your journey back to profitability or work with you through manageable stages if your business has come to the end of the road.