From the Dealer CPA Network to AICPA Conference: Updates and Commentary

November 23, 2021

From the Dealer CPA Network to AICPA Conference: Updates and Commentary

With live events thankfully becoming an option again, the Brady Ware Dealership Advisors team has been reconnecting with clients, colleagues and friends across the industry. After two recent conferences, the Dealer CPA Network (Dallas, Nov. 3-5) and the AICPA/CIMA Dealership conference (Las Vegas, Oct. 25-26), we heard from panelists and keynotes as well as from our conversations during networking events. Putting together some highlights, here are the top ten items we heard from the conference circuit:

No surprise, multiples are high and M&A activity is still red hot.
Much was covered on electrical vehicles, and everything continues to move in that direction. But the cost to upgrade facilities to accommodate EV are very expensive. EVs are heavier, storage units are required for batteries to keep them away from the dealership, charging stations and extra power are pricey to get them installed. Plus, the infrastructure for the U.S. just isn’t there (yet). Franchise agreements with dealers are being impacted as, in part due to the cost of upgrading dealerships, manufacturers are considering going straight to the consumer rather than having dealers get set up to sell them.
Right of First Refusal – OEM Sales & Service agreements with their Franchised dealers allow the manufacturer to exercise Right of First Refusal when a selling dealer submits an APA. This provision allows the manufacture to replace the proposed buyer with a buyer the manufacturer chooses. Manufacturers are becoming more aggressive exercising these rights.
LIFO relief will be a miracle if that happens. Section 473 of the IRS code allows for relief of LIFO recapture due to supply chain issues. NADA and AICPA have been lobbying the treasury department to implement this and provide LIFO relief for dealers. Last week, representatives from many states wrote letters to the Treasury department to persuade them to provide the relief.
Employee Retention Credits (ERCs) are still available but proceed with caution and be sure you meet the requirements. The qualification percentage for 2021 is 20% (down from 50% in 2020).
An interesting takeaway regarding cybersecurity was that those attacking you can be in the system for as long as nine months before they attack. Be sure to consider multi-factor authentication is a strong way to counter this.
Manufacturers haven’t been pushing performance requirements, but they are starting to bring that back. Dealers could receive letters from the manufacturer notifying them of subpar performance which could be based on inaccurate or unrealistic sales data.
On the warranty front, OEMs have increased the rates they will pay but reduced the amount of time they are willing to pay. Most dealers have used the warranty lift program to raise their warranty rate to the customer retail rate. In an effort to reduce their costs, the manufacturers have reduced the standard number of hours paid to the dealers for warranty work.
There is a push to have the dealer agreements be agency instead of franchise to avoid state laws. Some manufacturers are using the release of new electric vehicles to try and change the relationship with dealers to be less of a franchise relationship to more of an agency relationship where the customer might purchase directly from manufacturer and reduce the customer interaction with the dealer
Incentive audits are coming back. Manufacturers will be aggressive with trying to chargeback incentives to the dealers as they look to recap some of the money lost during COVID-19.