Most new vehicle stock is supplied to a dealer from a franchise manufacturer on a consignment basis. This means that when new vehicles are delivered, the dealer usually pays the interest charges or stocking charges as they are more commonly known.
Example:
After an defined period (typically 120 days) the new vehicles have to be adopted by the dealer, or in other words, the dealer must pay for the vehicles in full.
Discussion:
Before reaching the point of adoption, when a dealer sells a vehicle, the consignment agreement stipulates that the vehicle must be paid for at the point of registration. Therefore new vehicle stock is paid in full in one of two scenarios.
1) When the vehicles are registered 2) When they reach the end of their consignment period
When vehicles reach the end of their consignment period they become Adopted Stock. The worst scenario that can happen is to be adopting vehicles because it absorbs huge amounts of money, which in turn prevents activity in other areas of your business.