How stock funding = growth
In The Bottom Line with Motor Trader this month our very own Darren Mornin, Managing Director, and Vicky Gardner, Director of Sales Development, discuss how dealers can use wholesale funding as additional capital to buy vehicles, freeing up cash and helping boost stock turn and profitability.
Q: What do you believe are the biggest challenges independent dealers face today?
Darren: Of course, the challenges in our industry are well documented, but from conversations I’ve had with customers the number one issue is stock
scarcity, particularly around acquiring the best quality vehicles. Yes, supply is certainly improving throughout the market, but it remains below prepandemic levels, so dealers need to be agile and be able to be where the stock is. Secondly, it’s the economic challenges – high inflation, interest rates and energy costs. This is having a huge impact on margins, so now more than ever, dealers need a good grip on the fundamentals throughout their operations.
Vicky: The other thing we’re seeing play out is the need for dealers to stay relevant. The market, technology and customer needs are constantly
changing, so we see dealers investing more in their people to ensure they have the right expertise – social media is a key example of this. Who would
have thought that TikTok and Instagram would be high on a dealer’s priority list? But it’s something we’re certainly seeing today. Regardless of
the challenge, NextGear Capital offer a consultative approach with our customers on more than just their funding needs.
Q: What are the things dealers should focus on in 2023 to improve their bottom line?
Darren: The obvious answer would be to buy stock at a low price and sell high, but that’s easier said than done in today’s competitive market so
dealers need to think smarter. With that in mind, the single biggest factor that influences profitability is the rate of stock turn. The faster the metal on the forecourt moves, the more opportunity for additional sales a dealer has. Yes, margin is important, but it’s not the beall-end-all. If taking a £400 hit on the margin means you can sell that car a week faster, then you allow yourself to stock more vehicles and get more profit down the line.
Vicky: Competitive pricing is one way to do this, but it’s also about understanding the market, the competition, and your customers. Knowing what sells well, but also being agile enough to get out of a vehicle early to release the capital. Ultimately it comes down to really understanding your business, but also leaning on the expertise and advice that’s out there to inform your decisions.
Q: How can wholesale stock funding help, and why would a dealer choose it instead of other funding options?
Vicky: Fundamentally, stock funding provides you with additional capital to buy vehicles from auction, wholesale or trade sources. It helps dealers
to free up their own cash by ensuring it’s not locked up in metal on the forecourt. This can be used for the purpose of providing stability, but more commonly we see dealers using it to stock more vehicles or invest in other ways to grow their business – be it facilities, people or marketing. It can have a transformational effect.
Darren: While some dealers use their own capital to do this, it’s inherently risky and we always recommend businesses to have some headroom in their own finances. Neither do we say that dealers should rely solely on wholesale funding. It’s about finding the right mix and leaning on the additional help when you need it. Specialist stock funders, like NextGear Capital, come with the added benefit of being a product built for the automotive industry, so there are no expectations of usage that you might find with some lenders.
Q: What are some of the myths about stock funding?
Vicky: One of the biggest myths we hear is that funding is restrictive, when in fact it’s the complete opposite. For non-captive providers such as
us, you can fund stock from essentially anywhere you like, and at NextGear Capital we have over 70 auction and wholesale partners. To our earlier point about being agile, it’s a huge competitive advantage to be able to fund stock from any source when the right vehicle comes along. That’s what sets us apart from traditional bank lenders, and captive funders; there’s no built-in exclusivity about where you buy so you have the freedom to do what you do best, at the places you choose.
Darren: Another common theme is that funding is a last resort for struggling dealers, when in fact for our customers, we’re a first resort, particularly for those who want to grow. Stock funding isn’t a safety line and the vast majority of the dealers we work with are already very successful. We are often challenged that stock funding is expensive, but the one thing I’d keep in mind is that it’s all relative. If your funding line helps you to stock more vehicles and also use your own capital to grow your business, the ultimate outcome is extremely positive.
Q: What does a typical NextGear Capital customer look like?
Darren: We’ve supported over 1,700 dealers all over the UK and Ireland, so as you can imagine there is not a typical customer. Our customers range
from single rooftop independent dealers all the way to the largest multi rooftop franchised dealers, and we’ve developed specific Stocking Plans for
their unique needs. The funding lines we supply start from fifty thousand all the way to multi-million-pound lines. There’s no one-size-fits-all approach,
so we work with the dealer to reach the most appropriate solution. While all dealers are different, we do notice common shared characteristics with many of our customers. They’re often diligent, organised and really understand their business. They also have an appetite for growth and understand the ways that stock funding can help them get there.
Q: How can dealers get the most from their funding line?
Vicky: We have countless examples of dealers we’ve worked with right from the start who have seen huge growth over the years, thanks to the freedom that stock funding has given them. I can think of one dealer that started with ten cars and over time has grown their funding line to stock well over a hundred. Others I work with have used their spare cash to refurb their site and invest in their people. It gives us immense satisfaction to see our customers thrive. While the core benefit of stocking funding is freeing up cash, with NextGear Capital it’s also more than that. Each customer receives bespoke account management and support from our excellent sales team, who use their years of expertise and the latest market insight from Cox Automotive
to ultimately get the best result for the dealer.
Q: Finally, what makes NextGear Capital different to other funding providers?
Darren: With NextGear Capital you get more freedom. It’s not like a traditional loan that comes with fixed payment terms, or other wholesale funders that restrict where you buy or have the expectation of reciprocal consumer finance. Our proposition is very simple: fund 100% of the vehicle and associated fees, from the places you choose to buy, whenever you want to. We are extremely aware that there are inevitable ebbs and flows in the automotive market, so you only pay for what you’re using, full stop.
Vicky: For me it’s our people. We pride ourselves on excellent customer service and our team are super experienced and knowledgeable. It’s about partnership, and our team really enjoy getting out to meet dealers on site and understand their pain points and needs. We genuinely care about our
customers and want the very best for them, and this approach has led to countless success stories over the years.
Want to learn more? Book an appointment with one of our Account Managers.