Survey Results: Blue Sky & Working Capital Loans at 9%!!!
Legacy Automotive Capital – Dealer Survey June 2023
Our recent New Car Dealer poll revealed that the most pressing issue dealers are facing today is the variable interest rate environment specifically as it relates to Blue Sky, Working Capital and Floor Plan loans.
Dealers are currently paying as much as 9% on money borrowed from banks and captive lenders, much of which was taken out as part of Buy/Sell transactions over the past twenty-four months. This cost of capital is a drain on dealer profitability and an inhibitor to future growth.
With the recent announcement that the Federal Reserve will continue to raise rates over the balance of 2023, this situation will only get worse. Working capital loans, blue sky loans and even floor plan lines are typically set using a spread over the Secured Overnight Financing Rate or SOFR. SOFR has risen from effectively 0% in early 2022 to 5.05% as of June 14, 2023 and New Car Dealers are paying the price.
What should dealers do?
Sell your real estate to Legacy Automotive Capital (Legacy) and lease it back. Legacy is currently paying up to 140% of appraised value for top brands in NFL and Amazon Prime markets. Extract the capital tied up in your real estate to pay down this expensive debt or use it to fuel growth.
- Dealers make 5% – 7% return on their real estate
- Dealers make 18% – 30% return on their business
Why tie up your equity in real estate when you make 2x to 3x more on your business?
There is a buying opportunity forthcoming and dealers with “dry powder” are going to be in a position to make deals at favorable numbers in the coming months. This will be a chance to “average down” from the peak of 2021-2022 when earnings and the multiples paid on those earnings topped out. Don’t let expensive variable debt stand in the way of your next Buy/Sell opportunity!
Who uses Sale-Leasebacks?
Contact Todd Marcelle at firstname.lastname@example.org to receive a free assessment of your real estate.