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VAC Case Study 2
Point of Sale Financing
- Background Information
- Here we present a representative dealer (as a hypothetical situation) that is interested in providing financing opportunities for their customers using Vehicle Acceptance Corporation's resources available to the dealer at the point of sale with the customer. The dealer runs a small lot, is growing their business, and thus needs cash to purchase new vehicles and run day to day operations.
- Conventional bulk purchase[http://VACorp.com/purchasing/index.asp] programs do not allow for point of sale transactions due to the note aging requirements. But, the Vehicle Acceptance Corporation Cash Advance program allows for the dealer to use VAC's resources to fund their customer at the point of sale.
- Overview of the dealer and their owned contract portfolio:
- Years in Business: Less than 2
- Annual Sales: $750,000
- Cars sold per week: 2
- Average Sale Price: $7,700
- Average Book Value: $3,000
- Number of Contracts in Portfolio: 0
- Monthly Collections: $0
- Value of Portfolio: $0
- The dealer wants to offer financing without the burden of servicing the notes
- This scenario presents a used car dealer that is not interested in carrying their own notes, but wants to be able to create additional sales by offering financing options.
- The situation might be that they are not be sure how to effectively add financing options with their current staffing levels, and may not necessarily have the experience and/or ability to collect on a receivable portfolio. They do know that it takes a certain level of effort to service those receivables and process the payments; but the current staff is already at capacity without additional burdens, and the owner is not interested in hiring additional staff.
- Another cause may be an already tight financial situation for the dealer, and they do not have the capital to offer financing and carry the load of the transaction on the books. With the Cash Advance program, the capital that makes the transaction happen is from Vehicle Acceptance Corporation.
- Our Cash Advance program in conjunction with our servicing program[http://VACorp.com/servicing/index.asp] satisfies these issues, and allows the dealer to offer financing to the customer at the point of sale without the burden or in-house overhead traditionally associated with making such offerings.
- Financing Opportunity for the Dealer
The dealer needs financing options for their dealership that are fast and easy. This way they can spend time selling cars and not managing their portfolio. Now we will explain why the Vehicle Acceptance Corporation Cash Advance program is the most effective way for the dealer to offer point of sale financing, and not necessarily be in the note business.
- Our Solution (step by step) is as follows; running cash balance is in brackets:
- The dealer purchases a car at the auction for $2,500 [$-2,500]
- Once back at the dealership, an additional $500 in cleaning and basic mechanical maintenance work is performed on the car. [$-3,000]
- The dealer sets the sale price of $7995
- A customer arrives, and after the regular negotiation process, the customer and dealer agree on a sale price of $7,700 plus TTL, and the dealer prepares the paperwork.
- The dealer pays the following fees: Tax at 8.25% comes to $635.25, the title fee is $50 and additional fees add $100. [$-3,785.25]
- The customer provides a $2,000 down payment. They would like to arrange financing for the remaining balance of $6,285.25. [$-1,785.25]
- The dealer structures the deal with Principal and Interest amounting to to $8,500, with 39 bi-weekly payments of $217.94.
- Six months of monthly equivalent payments comes to $2,833.48
- The dealer adds 'Vehicle Acceptance Corporation' to the title as a lien holder, and faxes a copy of the title to VAC.
- After the Cash Advance fee, Vehicle Acceptance Corporation direct deposits $2,153.45 into the dealer's account. [$368.20]
- As the customer drives off in their new car, the dealer starts the deal $368.20 in the black before collecting a single payment. (Or should we say green?)
- At the end of 6 months, the dealer begins to receive the proceeds from the remaining 27 payments of $217.94 utilizing the VAC servicing program[http://VACorp.com/servicing/index.asp]. No additional effort is required from the dealer.
Cash in Deal at Point-Of-Sale: $0
Gross Profit from Sale: $6,253.12
- Analysis
- In this scenario, the dealer was able to complete the entire transaction without any "cash in deal" at the point of sale, and avoids any internal note collection operations. All payments are collected by Vehicle Acceptance Corporation and they receive their money on a weekly basis.
- The dealer has the options of selling the note at 90 days to a bulk purchase[http://VACorp.com/purchasing/index.asp] program, performing another cash advance (re-advance) with Vehicle Acceptance, or entering the loan into the VAC servicing program[http://VACorp.com/servicing/index.asp].
The Cash Advance program proves to be an advantageous program for the dealer that is looking to provide financing options to their customers without being in the note servicing business.
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Cash Advance Case Study 1 - Retaining Ownership of your Contracts[http://VACorp.com/advance/caseStudy1.asp] |
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Cash Advance Case Study 3 - Hard to Sell Contracts[http://VACorp.com/advance/caseStudy3.asp] |
