NADA Inventory Management 2 — Questions and Answers
Question 1: What is the primary purpose of a floor plan line of credit in automobile dealership operations?
- To fund employee payroll and benefits
- To finance the purchase of vehicle inventory from manufacturers or auctions (Correct answer)
- To cover dealership facility renovation costs
- To provide working capital for fixed operations
Correct answer: To finance the purchase of vehicle inventory from manufacturers or auctions
A floor plan line of credit is a revolving loan specifically used to finance vehicle inventory, with the vehicles themselves serving as collateral.
Question 2: Floor plan interest expense for new vehicles typically begins accruing at what point?
- When the vehicle is ordered from the factory
- When the vehicle is delivered to the dealership (Correct answer)
- When the vehicle is first test-driven by a customer
- When the vehicle reaches 30 days on the lot
Correct answer: When the vehicle is delivered to the dealership
Floor plan interest begins when the vehicle is physically delivered to the dealership and the lender pays the manufacturer on the dealer's behalf.
Question 3: A dealership sells a new vehicle but fails to pay off the floor plan within the required curtailment period. What consequence does the dealer face?
- The manufacturer recalls the vehicle
- The lender charges additional interest and may restrict credit availability (Correct answer)
- The sale is voided by the lender
- The vehicle's title is transferred back to the manufacturer
Correct answer: The lender charges additional interest and may restrict credit availability
Failing to pay off floor plan after a sale triggers additional interest (curtailment fees) and can result in reduced credit limits or suspension of the floor plan line.
Question 4: When managing used vehicle inventory, which inventory turn target is generally considered optimal for a high-performing dealership?
- 2–3 turns per year
- 4–6 turns per year
- 8–12 turns per year (Correct answer)
- 15–18 turns per year
Correct answer: 8–12 turns per year
High-performing used vehicle departments typically achieve 8–12 turns per year (roughly every 30–45 days), balancing gross profit with inventory velocity.
Question 5: Which inventory metric compares a vehicle's retail asking price to similar vehicles in the local market?
- Days supply
- Market days supply
- Price-to-market ratio (Correct answer)
- Retail turn rate
Correct answer: Price-to-market ratio
Price-to-market ratio expresses a vehicle's asking price as a percentage of the average retail price for comparable vehicles in the local market.
Question 6: A NADA consultant recommends that a dealership implement a stocking model based on 'market days supply.' What does market days supply measure?
- How many days it takes to receive a factory order
- The number of days similar vehicles are listed for sale in the local market before selling (Correct answer)
- The number of days a specific vehicle has been on the dealer's lot
- The manufacturer's recommended stocking level by model
Correct answer: The number of days similar vehicles are listed for sale in the local market before selling
Market days supply measures how long similar vehicles remain listed in the local market before selling, indicating local demand and whether a vehicle type is fast- or slow-moving.
Question 7: In the context of new vehicle inventory, what does 'over-age' typically refer to?
- Vehicles with more than 10,000 demo miles
- New vehicles that have exceeded a defined holding period, typically 60–90 days (Correct answer)
- Vehicles no longer eligible for manufacturer incentives
- Vehicles with outdated technology packages
Correct answer: New vehicles that have exceeded a defined holding period, typically 60–90 days
Over-age new vehicles are those that have sat on the lot beyond a defined threshold (commonly 60–90 days), accumulating floor plan cost and risking customer perception issues.
NADA Inventory Management 2
What is the primary purpose of a floor plan line of credit in automobile dealership operations?