October 30, 2016 admin

Other Definitions & Guides

Other Definitions & Guides

ADDITIONAL RETAIL MANAGEMENT DEFINITIONS
Variable Expense – Expenses which generally vary with unit sales volume.

Semi-Fixed Expense – New and used vehicle selling expenses, such as salaries and advertising, which are of a fixed nature and normally do not vary directly with unit sales volume.

Finance Receivables Deferred-Net – The portion of reserve income held by the finance source to apply against pre-payments or possible losses on repossessions (also referred to as “Hold Reserves”). An allowance for expected contingent losses should be established.

Sold Out of Trust (SOT) – Also known as floating, a dealership sells one or more vehicles and does not payoff floor plan load on it/them. A fraudulent practice, which may cause the floor plan line to be canceled.
FINANCING TERMS

Full Recourse – If the customer defaults, the dealership must repossess the vehicle and repurchase it from the finance source for the unpaid balance.

Non-Recourse – If the customer defaults, the finance source repossesses the vehicle and charges back the amount of finance reserve paid to the dealership.

Repurchase – If the customer defaults, the finance source must repossess the vehicle and return it to the dealership; and the dealership must repurchase it for the balance of the contract.

Tangible Base Capital – Used primarily by FMCC, TBC is computed by adjusting net worth as follows:
Add: Deduct:
  • Subordinated notes due officers, owners, and affiliated companies.
  • Notes payable-Dealer Development (DD).
  • 64% of LIFO reserve.
  • Current year earnings of DD borrowers.
  • Amounts due from officers, owners, employees, and affiliated companies.
  • Investments in affiliated companies.
  • Appraisal surplus.
  • Franchise fees, goodwill, and any other intangibles.
  • Leasehold improvement net of depreciation.
  • Fixed Asset Revaluation (NON-US)
Leaseholds are not deducted:
A. When dealer principal(s) directly or indirectly owns the majority interest in the dealership facility and personally fully guarantees the obligations of the dealership or
B. Ford Credit holds first mortgage on the facility.

Annual Percentage Rate (APR) – Is that rate, which when applied to the unpaid contract balance remaining after each payment, will yield a sum equal to the amount of finance charge. APR is legally required on all finance contracts.

Add-On Interest – The interest rate is computed at the start of the finance contract and is added to the principal amount. The total is then divided into an equal number of installments, which are repaid over that period. The annual percentage rate of interest paid is substantially higher than the add-on rate quoted.

Rule of 78 – A common method is used by financial institutions to compute interest due and finance charge refunds. The sum of 12 months is 78 (12 + 11 + 10, etc.) On a one-year contract, if a customer paid it off after one month, the finance charge would be 12/78 or 15.4% of the financing costs. After two months 23/78 (12 + 11 over 78), etc.

Simple Interest – The borrower receives the full amount borrowed and must pay it plus the interest charge at the end of loan term. The borrower has use of all money for the full term of the loan. Seldom used in retail finance plans.

Dealer Development Plan – Designed for proven Dealership management personnel or other who possess all necessary dealer qualifications, except capital. Normally requires 20% of total investment by operator, 80% by Dealer Development in a stock/note plan. Operator retires Dealer Development investment through dealership profit distribution (refer Dealer Development Program Booklet).
PARTS AND SERVICE RELATED PROGRAMS

Parts Inventory Protection Program (PIPP) – Was designed to assist dealers in maintaining a current parts inventory of fast turning parts and to encourage Dealers to order parts on the weekly stock order. Dealers generate parts return credits based on dollar purchases on the weekly stock order. Program details are contained in Parts Service Policy and Procedure Manual.

Warranty Credit Advance – A credit advance by Ford Motor Company to fifteen days of the dealership’s average warranty & policy credits. This amount is revised each year based on the dealership’s most recent January – November average.

Extended Service Plan (ESP) – A service contract provided by Ford Motor Company for dealership sale to new and used vehicle buyers. ESP extends the key elements of the vehicle warranty.
GENERAL FRANCHISING TERMS

Planning Volume (PV) – An estimate of annual new vehicle sales assigned to each dealership. Dealer planning volume is updated approximately every three years and is not a sales objective.

Dealer Locality – Dealers’ geographic area of responsibility-determined by postal locations in single point markets and as a percentage of the total market, defined by census tracts, for multiple point dealers. MP dealers’ share is determined by market studies.

Primary Market Area (PMA) – Used in multiple point markets to determine a dealership’s primary area of influence for new vehicle sales and service based on findings of a market study. Those census tracts most influenced as indicated through cross sell information and other data compiled are assigned to each dealership and become its PMA.

Share of Responsibility – In multiple point markets each dealer is assigned a percentage share of the market’s planning volume. These shares are used as the basis for measuring dealer performance.