A Used Vehicle Stocking Plan is a unique type of funding where your dealership usually pays the interest on the loan and the principle loan value can vary from month to month according to the value of your used vehicle stock.
Let's say that you have an agreement to hold R250,000 of used vehicle stock at any one time. Your loan provider, usually your franchise manufacturer or their finance company, will provide you with up to 80% of that value.
Finance companies usually advance up to 80% of the agreed stock value because the 20% difference gives them cover for depreciation if they have to liquidate the vehicles.
Example:
A) Agreed Stock Value = R250,000 B) Stocking Plan = R200,000 (A X 80 รท 100)
Discussion:
An Auditor visits your dealership every month to value your stock against one of the industry guides and your stock value must exceed this figure.
If the stock valuation is above the agreed R250,000 then everything carries on as normal. However, if your stock is valued less than the agreed limit, you have to write a cheque to make up the difference of the shortfall.