Auto Dealer Floor Plan out of Trust

Understanding “Out of Trust” in Auto Dealerships
What does it mean when they say that an auto dealer is out of trust on their floor plan? Well, a floor plan is a credit line that a dealership will have for their inventory. Look, if you’re a dealership and you have 200 cars and they’re an average of $30,000 apiece, that’s six million dollars worth of cars, and most dealerships don’t have or don’t want to put six million dollars of their money sitting on their front lot.

How Floor Plans Work
So what they do is they get a line of credit from a bank. When cars come in—you see the big truck pull up in front of the dealership—every time a car rolls off that truck, the amount for that car is paid from the dealership to the manufacturer on that credit line. The bank just wire transfers the money to Ford or Toyota, whoever it is. The dealership now has it on their credit line. When they sell the car, they’re supposed to pay it off that credit line.

Handling Car Titles
Now, some lenders will hold the titles for those cars until it’s paid off. Some lenders trust the dealership to hold the titles, and when they sell it, they use it to register the car for the buyer. When a dealership does not pay off the car as soon as it’s sold, that violates that trust they have with the bank. That’s what’s called out of trust.

Consequences of Being “Out of Trust”
So what happens is a dealership, if they need some spending money or if they’re low on cash or if their cash flow is tight, they’ll sell five or six cars in a weekend. That might be, let’s say, $150,000-$200,000 worth of inventory. They’ll keep that money and not pay off the cars right away. That gives them some float; hopefully, they think that later on, they’ll have that money. But what happens is it becomes a domino effect. The more they borrow, the more they’re out of trust.

Discovery and Audits
Eventually, the lender will discover that their inventory’s not being paid off. They’ll come in, audit the store, find out that they’re out of trust, and either shut the dealership down or put them on curtailment, which means that they can’t hold the titles and they have to pay off some of this money.

Dealing with Out of Trust Sales
The reason I’m saying this: if you have a vehicle where the dealership sold it to you and they were out of trust and never had the title from the lender, that’s something you need to deal with. The dealership and sometimes even DMV and law enforcement need to ensure that your claims are handled. Most states have a victim fund that all dealerships pay into that can satisfy the claims from people who have vehicles that are out of trust.

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