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VAC Case Study 1
Retain ownership of your contracts
- Background Information
- Here we present a representative dealer (as a hypothetical situation) that has an established lot, and has experience with offering flexible payment options to their customers.
- The result is an even balance of transactions that are performed as outright cash sales, point of sale financed sales, and in-house financed sales.
- With this in mind, it is easy to see how a dealer might have upwards of 200 contracts that they service in house. This provides them with a consistent source of cash for daily operations.
- The Vehicle Acceptance Cash Advance program is an easy way for this dealer to get cash up front, and here is how it works.
- Overview of the dealer and their owned contract portfolio:
- Years in Business: 10
- Annual Sales: $4,800,000
- Number of Vehicles Sold Annually: 600, 50 vehicles per month
- Average Sale Price: $8,000
- Number of Contracts in Portfolio: 200
- Average Book Value: $4,000
- Average Initial P&I Balance: $10,000
- Average Remaining P&I Balance: $6,000
- Average Equivalent Monthly Payment: $400
- Monthly Collections: $80,000
- Value of Portfolio: $1,200,000
- The dealer needs cash- Today
- This scenario now presents a situation where the dealer is interested in buying a significant number of vehicles at the auction to increase their inventory on hand. They have found 20 vehicles for a total of $80,000 that they would like to purchase that very day.
- This exceeds their cash on hand- of which they prefer to maintain above a certain level for various reasons like payroll and vendors.
- Traditional sources of liquidity may not be available due to market conditions or not responsive enough for this dealer to close the deal today. Vehicle Acceptance is available at anytime during normal business hours to help out in a situation like this.
- Liquidity Opportunity for the Dealer
The dealer needs options that are fast and cost effective. Now we will explain why the Vehicle Acceptance Corporation Cash Advance program is the most effective way for the dealer to raise capital, and have cash in hand the same day.
- Option 1 - Sell Some Notes via Bulk Sale
- Cash Needed: $50,000
- Proceeds per note via bulk sale: $3,000
- Notes to sell in order to obtain the needed cash: 17
- Remaining P&I Balance after Bulk Sale Transaction: $1,098,000
- Monthly Collections after Bulk Sale: $73,200
For many dealerships, this is a logical way to raise cash- but the dealer in question is not interested in selling his notes, as he looses the opportunity to collect the remaining balance of those 17 receivables; which bring in $6,800 a month.
Additionally, it is very likely that this bulk sale transaction might not be completed the same day, or at least in time to pay the auction for the 20 vehicles.
- Option 2 - VAC Cash Advance Program
- Cash Needed: $50,000
- Number of Notes to Advance [($50,000 / 0.76)/($400 x 6 months)]: 27.41, round to 28
- Total proceeds from Cash Advance: $51,072
- Remaining P&I Balance after Cash Advance Transaction: $1,132,800
- Monthly Collections after 6 month Cash Advance term: $80,000
To further fine tune the transaction, one of the notes can be advanced for fewer than 6 months, or arrangements can be made to utilize bi-weekly or semi-monthly payments to get closer to the desired $50,000.
This transaction with VAC can be completed very quickly and the dealer can be funded same day via an electronic funds transfer directly to their bank account.
- Analysis
- As you can see by comparing these two scenarios, a savings of $34,800 is realized by using the Cash Advance Program over the Bulk Sale option.
- By arranging the cash advance, the due diligence required with the bulk sale is avoided, and the process is expedited very quickly.
- The program allowed them to obtain funding the same day for their large inventory purchase, which cannot be guaranteed in the Bulk Sale program; a Bulk Sale can often take many days to process and as a result it may be the following week before a dealer gets funds to work with.
- Finally, the dealer has the remaining value of the contracts to collect after the five month Cash Advance period.
The Cash Advance program proves to be a more advantageous transaction than a Bulk Sale for this dealer.
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Case Studies Overview[http://VACorp.com/advance/caseStudy.asp] |
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Cash Advance Case Study 2 - Point of Sale[http://VACorp.com/advance/caseStudy2.asp] |
