Dealerships use flooring credit lines to buy inventory, which manufacturers offer in exchange for exclusive service and parts rights. Fixed operations, the service and parts business, generates reliable margins that can cover overhead when car sales drop, letting dealers survive recessions.
anybody who's ran a business who grows really fast, you run outta cash. It's really hard to grow fast. And so the idea was, well, let's have the dealers get this line of credit, a flooring line. They will pay us right away when they get the vehicle. And then Ford, GM, every, you know, we'll, we'll take care of our cash flow issues. And so the selling point to distract the dealers was you can have exclusive rights to parts and service in, in your market. And if, you know, there used to be this, this ad, internal ad for Ford, where it showed you what it would cost to build a Model T in parts and service. And so if a Model T was like $3,000, it costs, I don't know, $70,000 or something. If you were to order all the individual parts and pay a technician to build the vehicle. And the, the point being that fixed ops can carry the dealership in any market. So if Sales are down, you're still going to be profitable because it will carry the overhead for the dealership, which that's where the term fixed absorption came from. Like fixed ops carries the dealership, and if they had to give the cars away for free or even at a loss, you would be okay in a recession and survive, right? And That's always kind of been the scale that goes up and down is that when sales are down, when the front end of the dealership is struggling, it means people aren't buying vehicles, which then means they are servicing them.
