Negative Carry Explained: The Hidden Tax on Every Aged Unit

What is negative carry?

In bond markets, "negative carry" describes holding a position that costs more to finance than it yields. A trader who borrows at 6% to buy a bond yielding 4% is running negative carry of 200 basis points. Every day the position stays open, money leaks out.

A franchise dealer's new-car lot works the same way. Every vehicle on the floor is financed through a floor plan line — a revolving credit facility typically priced at 5.8% to 8.1% APR depending on the lender. While that unit sits, it generates exactly zero revenue. Worse, it depreciates. And the capital locked up in it could be deployed elsewhere in the dealership at dramatically higher returns.

The gap between what a sitting vehicle costs and what that same capital could earn is the negative carry spread. For most franchise dealers, it runs between 21% and 24% annualized when you account for the full cost stack. Your DMS will never show you this number.

The four layers of real cost

Most dealers, when they think about the cost of aged inventory, think about floor plan interest. That's one layer. There are four.

Layer 1: Floor plan interest

This is the only cost your DMS tracks reliably. On a $50,000 vehicle at the blended industry rate of 8.1% APR, that comes to $11.10 per day. At 90 days, you've paid $999 in interest. It's real money — but it's the smallest slice of the total cost.

Layer 2: Vehicle depreciation

New vehicles depreciate at roughly 1% to 2% per month during the first year, varying by segment. Trucks and SUVs hold better; sedans and EVs bleed faster. At a moderate 1.5% per month on a $50,000 unit, that's $750 per month — or $25 per day — in value destruction. By day 90, you've lost $2,250 in vehicle value that nobody is accruing on a daily basis.

Layer 3: Curtailment and extension fees

When a vehicle passes the lender's curtailment gate — which ranges from 60 days (Hyundai Capital) to 365 days (Ford Credit, NMAC, Chase) — fees kick in. Extension fees of 0.5% to 1.5% of the original advance. Forced principal paydowns of 3% to 10%. Administrative charges from $75 to $225. These costs are lumpy and hard to predict, but on a $50,000 vehicle that crosses a 60-day gate with a 1.5% extension fee, that's a $750 hit in a single day.

Layer 4: Opportunity cost

This is the layer nobody talks about, and it's the largest. The $50,000 of capital locked in that vehicle could be deployed elsewhere:

• Parts inventory turns 6–8x per year at 33–38% gross margins — conservatively, an effective annual return well above floor plan interest rates
• Used car acquisitions generate 12–18% gross ROI per turn, with typical 30–45 day cycles
• Even a dealer money market account yields approximately 4.5% risk-free

These are conservative benchmarks — most operators are doing better. Using a 12% opportunity cost (the low end of used car acquisition returns), that $50,000 locked in a sitting new unit forfeits $16.44 per day in deployable returns. By day 90, the opportunity cost alone reaches $1,479.

The negative carry formula

Combine the layers and the math is straightforward:

That 21.6% is the minimum spread, comparing against the risk-free money market rate. If you benchmark against used car acquisition ROI instead, the calculation shifts further:

The 38% figure uses conservative benchmarks — most well-run stores are doing better on parts and used car returns, which means the real spread is wider. Even taking the most conservative view — floor plan APR plus depreciation versus risk-free money market — the negative carry spread consistently lands between 21% and 24%. No matter how you frame it, idle inventory is one of the most expensive capital positions a dealer can hold.

The real cost of a sitting vehicle

Here's what it looks like for a single $50,000 vehicle at the blended 8.1% APR, accumulating through 180 days. Each bar stacks the three continuous cost layers. Curtailment fees are omitted here because they vary by lender and trigger date — they appear as additional spikes on top of these baselines.

At 180 days, that single unit has accumulated $9,456 in total negative carry. The interest component — the only element your DMS reports — is $1,997 of that total. It represents just 21% of the real cost. The other 79% is invisible to every tool on the dealer's desk.

Notice the proportions. Depreciation is the dominant cost at every time horizon: 48% of the stack. Opportunity cost is 31%. Interest — the metric the industry obsesses over — is barely a fifth of the total. Dealers who manage aged inventory by watching interest expense are optimizing the smallest component of their problem.

Lender-by-lender: the terms that drive your bleed rate

Not all floor plan lines are created equal. The combination of APR, curtailment gate timing, extension fees, forced paydown requirements, and administrative fees creates dramatically different cost profiles across lenders. We compiled terms from 15 floor plan providers — 10 OEM captives and 5 bank or independent lenders — using SEC filings, ABS prospectuses, and public credit facility disclosures.

* Daily interest cost on a $50,000 vehicle. Excludes depreciation, curtailment fees, and opportunity cost. Sorted by daily cost ascending. Sources: SEC filings (Asbury EX-10.33, Group 1 EX-10.1, AutoNation 10-K), ABS prospectuses (Ford Credit Floorplan Master Owner Trust 2024, GMF GFORT 2024), public credit facility disclosures.

The spread between the cheapest captive (Toyota Finance at $7.95/day) and the most expensive independent (Ally at $11.10/day) is $3.15 per day per vehicle in interest alone. For a dealer carrying 200 vehicles, that gap is $630 per day — $229,950 per year — and that's only the interest layer, before curtailment or depreciation enter the picture.

But gate timing matters even more than APR. Look at Hyundai Capital: the rate looks competitive at 6.8%, but with a 60-day curtailment gate and a 1.5% extension fee, a vehicle that crosses day 60 immediately triggers $750 in charges. Compare that to Chase at 6.3% APR with a 365-day gate. The daily interest rates are similar. The total cost profiles at day 90 or 120 are not.

Also note the structural trade-offs. Chase charges no extension fee and offers the industry's longest gate at 365 days — but when curtailment finally hits, the paydown requirement is 100% of the advance. That's a binary outcome: you either sell the vehicle before day 365, or you pay off the entire floor plan balance at once. Ally charges the highest APR at 8.1% and a steep 7.5% paydown, but offers no extension fee. Every lender is making a different bet on when and how to recover capital.

Same vehicle, two lenders, wildly different outcomes

To make this concrete: take a $50,000 vehicle at day 120 under two different floor plan lines. Same car, same market, same depreciation trajectory. The only variable is the lender.

The Hyundai Capital dealer has paid $4,493 in total finance costs on that single unit, including a $2,500 forced principal paydown that removes working capital from the business. The Toyota Finance dealer has paid $2,778 — lower, but both have now crossed their gate. The difference is $1,715. But look deeper: the Hyundai dealer crossed 60 days ago and has been accumulating penalties since. The Toyota dealer just hit the gate today. The structural gap isn't just the dollar amount — it's the 60-day head start on compounding fees.

Now multiply across 20 or 30 units past gate. The Hyundai dealer's negative carry problem is structurally worse — not because they manage inventory poorly, but because their lender's terms create earlier and steeper penalties. This is the kind of intelligence that changes decisions. A dealer who can see this math might swap a 55-day Hyundai unit to avoid the day-60 cliff, while the same unit under Toyota Finance has 60 more days of runway before curtailment even begins.

Why your DMS only shows you 20% of the picture

CDK, Reynolds, and Tekion all track floor plan interest as a line item in the financial statement module. That number flows into the monthly P&L. It's accurate as far as it goes. It is also radically incomplete.

The DMS was built to produce financial statements, not capital intelligence. It tells you what happened last month. It cannot tell you which 15 units are costing $788 per day in combined negative carry right now, which of those will cross a curtailment gate in the next 14 days, or what the total capital liberation would be if you moved your five worst offenders through a swap or a managed markdown.

This isn't a criticism of DMS platforms. They were never designed for this. But it means the most expensive capital problem in the dealership — aged inventory carrying cost — is governed by a metric (days in stock) that captures none of the actual cost dynamics. Days in stock is a counting exercise. Negative carry spread is a financial one.

The scale of the problem

Across the 302,152 vehicles we track at 1,674 dealerships, the average vehicle invoice is approximately $46,991 (derived from the average transaction price of $50,528 at a 93% invoice ratio). Some turn time is healthy — vehicles need to be prepped, merchandised, and matched to buyers. A 30-day turn is the cost of doing business.

But 91,897 of those vehicles — 30.4% — have been sitting for 90 days or more. That's $4.3 billion in floor plan exposure past the point where most captive lenders have already triggered curtailment. The invoice balance is the lender's money — but when curtailment hits, it becomes the dealer's problem. Forced paydowns of 3% to 7.5% per unit pull real cash out of the business and reduce available credit line capacity. Across tens of thousands of aged units, the cumulative curtailment exposure — the capital dealers have been forced to lock up — runs into the hundreds of millions.

On top of the curtailment drain, the daily negative carry on that aged population runs approximately $4.5 million per day: $960K in interest, $2.2M in depreciation, and $1.4M in opportunity cost at a conservative 12% benchmark. Every day those vehicles sit past their optimal turn window, the bleed compounds with zero countervailing revenue.

Knowing your spread is the first step to managing it

You cannot manage what you cannot measure. And right now, virtually no franchise dealer can answer the question: "What is the negative carry spread on each vehicle in my inventory, today?"

The formula is simple. For any vehicle on your lot:

For the $50,000 vehicle on an 8.1% floor plan with 1.5%/month depreciation and a conservative 12% opportunity cost benchmark:

• Interest: $50,000 x 8.1% / 365 = $11.10/day
• Depreciation: $50,000 x 1.5% / 30 = $25.00/day
• Opportunity cost: $50,000 x 12% / 365 = $16.44/day
• Total (before curtailment): $52.54/day

That's $1,576 per month per vehicle in total negative carry. Stack that across every unit past 60 days in your inventory, and you arrive at a number that belongs on the dealer principal's dashboard every single morning.

The dealers who will outperform through the next cycle are the ones who stop managing "days in stock" as a vanity metric and start managing negative carry per unit as a capital discipline. That means knowing your lender terms at the vehicle level, not just the line level. It means understanding depreciation by segment and model year, not as a flat assumption. And it means having a decision framework that evaluates every aged vehicle and tells you: hold, mark down, or swap — and exactly what each option costs and saves.

That is what capital intelligence looks like. Not interest paid last month. The full cost of every position, every day, calibrated to your specific lender terms and actionable before the bleed compounds into damage.