Working capital and inventory turns on the dealer lot

Worked example: a US Ford dealer

Say a dealer has 300 vehicles in stock. Over the last 30 days they sold 150 units.

Sixty days' supply. That is the classic industry comfort zone.

Why 60 days is the benchmark

Industry data providers like Cox Automotive publish US days' supply monthly. Historically, the US new-vehicle market has treated 55 to 65 days as the healthy band. During the 2021 to 2022 chip shortage, days' supply collapsed to around 30 or below (estimate, widely reported), which crushed selection but fattened margins because dealers stopped discounting. By 2024 to 2025 supply had normalized back toward the 60 to 70 range for most brands (estimate). You can watch the current figure on the free Cox Automotive market insights page.

Too low (under 30 days): lost sales, no selection, customers walk.

Too high (over 90 days): discounting, aging units, rising flooring costs.

Note the nuance: luxury and slow-turning models often run higher days' supply by design, while hot trucks run leaner. A single lot-wide number hides a lot.

Inventory turns: the same idea, flipped

Inventory turns tell you how many times per year you cycle the whole lot.

Formula:

Using our dealer at 60 days:

So this dealer sells and replaces its entire inventory about six times a year.

A finance-grade version uses cost figures instead of unit counts:

COGS is what the dealer paid for the vehicles they sold. Average inventory is the typical dollar value on the lot. This dollar-based version is what you find on the income statement and balance sheet of a public dealer group, so it is the one analysts use for cross-company comparison.

Worked example: a public dealer group

Take a simplified new-vehicle segment. Annual COGS of 4 billion dollars, average new-vehicle inventory of 650 million dollars.

Both methods land in the same place. Roughly six turns, roughly 60 days. That consistency is the sanity check.

Large US dealer groups such as AutoNation, Penske Automotive Group, and Group 1 Automotive report these dynamics in their filings. Their new-vehicle turns are typically in the mid-single digits per year, while used vehicles usually turn faster because dealers deliberately keep used-lot days' supply lower (often nearer 30 to 45 days) to limit price risk on aging trade-ins.

Why this drives dealer cash and profit

Every vehicle on the lot is usually financed by a "floor plan": a revolving credit line, often from the OEM's captive finance arm (for example Ford Credit or GMGMGross margin is the share of revenue left after subtracting the direct cost of producing goods or services, expressed as a percentage of revenue.Voir la définition complète → Financial) or a bank, secured by the inventory itself.

The dealer pays interest daily on that borrowed money. In a low-rate era this was almost free. With US benchmark rates elevated through 2023 to 2025, floor-plan interest became a real cost that punishes slow inventory hard.

Quick illustration. A 45,000 dollar truck financed at 7 percent annual floor-plan rate:

Let that truck age to 120 days and you have burned over 1,000 dollars in carry cost before insurance and the eventual markdown. On a vehicle whose gross profit might only be a couple thousand dollars, aging inventory eats the deal alive. This is why turns are not an accounting curiosity. They are the difference between profit and loss on each unit.

Working capitalWorking capitalWorking capital is the difference between a company's current assets and current liabilities, measuring short-term liquidity and the funds available to run daily operations.Voir la définition complète →: the bigger picture

Working capitalWorking capitalWorking capital is the difference between a company's current assets and current liabilities, measuring short-term liquidity and the funds available to run daily operations.Voir la définition complète → is the cash tied up in day-to-day operations:

For a dealer, the big current asset is inventory. The big current liability is the floor-plan payable. When they roughly offset, the dealer is not funding the lot out of its own pocket. When inventory swells faster than floor-plan financing, the dealer's own cash gets sucked in and liquidity tightens.

The cash-conversion cycle at the OEM level

Now zoom out from the dealer to the automaker. The cash-conversion cycle (CCC) measures how long cash is locked up between paying suppliers and collecting from customers.

Formula:

CCC = DIO + DSO - DPO

• DIO (Days Inventory Outstanding): how long inventory sits before sale.
• DSO (Days Sales Outstanding): how long until customers pay.
• DPO (Days Payables Outstanding): how long the company takes to pay its own suppliers.

A shorter or even negative CCC means the company collects cash before it has to pay out. That is a liquidity superpower.

Why automakers can run a low or negative CCC

Big OEMs have enormous bargaining power over suppliers, so DPO is long: they might pay parts makers in 60 or more days. Meanwhile, dealers often pay quickly when a vehicle ships (through the floor-plan lender), keeping DSO short. If inventory moves fast enough, DIO stays modest.

Simplified illustration for a large OEM:

DIO = 55 days
DSO = 20 days
DPO = 65 days
CCC = 55 + 20 - 65 = 10 days

Ten days is lean. The automaker funds only about ten days of operations out of its own working capitalworking capitalWorking capital is the difference between a company's current assets and current liabilities, measuring short-term liquidity and the funds available to run daily operations.Voir la définition complète →. Push DPO higher or DIO lower and the cycle can approach zero, which frees up billions in cash across a company selling millions of vehicles.

This is exactly why a demand shock is so dangerous. If vehicles stop selling, DIO balloons, the cycle stretches, and cash that was flowing in reverses direction fast. Suppliers still need paying while unsold inventory piles up. That mismatch is what turns a sales slowdown into a liquidity crisis.

A note on captive finance

Reading a pure automaker's balance sheet is complicated because the captive finance arm (Ford Credit, GMGMGross margin is the share of revenue left after subtracting the direct cost of producing goods or services, expressed as a percentage of revenue.Voir la définition complète → Financial, Toyota Financial Services, and so on) carries a massive receivables book from consumer and dealer loans. Analysts almost always split the "Automotive" and "Financial Services" segmentssegmentsDividing a market into distinct groups of customers who share similar needs, characteristics or behaviours, so each group can be served with a tailored approach.Voir la définition complète → before computing these ratios. Blend them and DSO looks wildly distorted. Always check which segment a reported figure refers to.

Reading the numbers together

Put the two levels side by side.

At the dealer, watch days' supply (target near 60), inventory turns (mid-single digits for new), and floor-plan carry cost. These tell you whether the lot is a cash generator or a cash trap.

At the OEM, watch the cash-conversion cycle and its three parts. These tell you how resilient the company is when demand wobbles.

Both are really the same story told at different scales: how fast does inventory become cash, and who is funding it in the meantime.

Key Takeaways

• Days' supply near 60 (turns around 6x) is the US new-vehicle comfort zone. Under 30 means lost sales, over 90 means costly discounting. Check current figures on Cox Automotive rather than guessing.
• Aging inventory is expensive in a high-rate world. A 45,000 dollar truck at a 7 percent floor plan costs roughly 8.63 dollars per day, so 120 days of aging burns over 1,000 dollars before markdowns.
• The cash-conversion cycle (DIO + DSO, DPO) drives OEM liquidity. A low or negative cycle means the automaker collects before it pays, freeing up cash across millions of units.
• Always separate the automotive segment from the captive finance arm before computing turns or CCC, or the receivables book will distort every ratio.