Pub. 3 2013 Issue 1

10 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com focus on to grow your business and profits include your finance and insurance (F&I) department and used vehicle operations. An effective F&I department should generate at least $750 in gross profit for each retail vehicle sold. In comparison, the public company dealership retailers are generating approxi- mately $1,000 per retail vehicle sold. Profitable used vehicle operations are critical to successful dealership operations. Used vehicle margins are generally stron- ger than new vehicle margins, and the number of used vehicles has increased in the last couple of years. Create a reinsurance company Many dealers have created reinsurance companies over the last five years to take advantage of higher quality vehicles being built and the tax advantages available to a properly structured reinsurance company. A key reason reinsurance companies have become more attractive to dealers is because loss ratios have significantly improved as vehicles are built better, which has raised the profitability of the reinsurance entity. In addition, reinsurance companies that have less than $1.2 million in annual premiums are able to elect to be taxed on investment income only, and not on the underwriting profits of the reinsurance company. Address increasing pressure from manufacturers As dealership profitability levels have rebounded, manu- facturers have become much more aggressive in their demands on dealers. Most of the demands involve expanded facility re- quirements, greater market sales penetration levels, and higher Customer Satisfaction Index (CSI) scores. Many dealers are faced with major investment decisions that may not grow unit sales volumes or improve customer sat- isfaction scores, but manufacturers are forcing dealers to make tough business decisions in a challenging retail environment. However, you can maintain a positive relationship with manufacturers by responding to all of their sales performance communications and actively monitoring your vehicle allo- cations (units requested vs. allocated) in the turn-and-earn allocation system. In addition, since manufacturer influence has steadily expanded, you should get involved with your state dealer association to make sure your state franchise laws ad- equately protect your dealership. Develop and maintain fraud prevention controls As the financial performance of most dealerships continues to improve alongside the economy, the strength of your inter- nal controls has become more important. It is much cheaper to implement a good series of internal controls and external reviews than to deal with lost revenues and high legal fees related to fraud. Dealerships need to continually evaluate the structure and effectiveness of their internal controls to limit the opportunities for fraud. Plan for health care reform law changes With the recent re-election of President Obama and virtually no change in the control of the Senate and House of Representa- tives, it is crucial that you understand the Patient Protection and Affordable Care Act and its impact on your dealership. There are key provisions in the law from a compliance, op- erational, cost, and tax perspective that will affect your dealer- ship. These provisions take effect in 2013 and the health care coverage requirements are effective in 2014. Understand and improve the value of your dealership investment Focusing heavily on day-to-day profitability and business met- rics is critical to your dealership’s success. But how often do you step back to understand what value you have in your business, and more importantly, how do you increase and protect that value? Look at your business in a different light — focus on the key valuation drivers that impact what you consider to be the most important asset on your personal balance sheet. You may want to hire an independent advisor to help you with this process. Proactively planning the future of your dealership and com- municating your key strategic priorities to your employees will give you a competitive edge as the industry continues to grow in 2013, and beyond. Q Jerry Brand, CPA is a partner with CliftonLarsonAllen’s Dealership group. He can be reached at jerry.brand@cliftonlarsonallen.comor 630-368-3631. Q Dealership Success — continued Proactively planning the future of your dealership and communicating your key strategic priorities to your employees will give you a competitive edge as the industry continues to grow in 2013, and beyond.