Pub. 14 2024 Issue 4

Leading High Performers Vol. 35 № 4 A Publication of the Illinois Automobile Dealers Association Automobile Dealer News

Memberships in: • AUTOCPA Group • The American Institute of Certified Public Accountants • The Illinois CPA Society CERTIFIED PUBLIC ACCOUNTANTS Located in Central Illinois, we serve the entire state. Contact us today to learn how we can help your dealership thrive. Drive Your Dealership Toward Financial Success We specialize in automobile dealers in the following areas: • Dealership valuations • Automobile dealer legal support • Buy-Sells for dealerships • LIFO inventory computations • Financial statement analysis • Corporation Income Tax returns • Personal Income Tax returns • CPA prepared financial statements • Dealer estate planning • Employee theft consulting • Internal control studies and audits • Profit consulting • Training office managers/CFO’s • 401K Audits Serving more than 250 Automobile Dealers throughout the United States (309) 662-8797 Email: woodwardassoc@cpaauto.com Website: www.cpaauto.com 1707 Clearwater Avenue P.O. Box 1584 ·Bloomington, IL 61702

CONCENTRATIONS Dealership Mergers & Acquisitions Dealership Franchise Law Business Litigation/Motor Vehicle Review Board Disputes Manufacturer/Franchisor Relations Business & Commercial Law Advertising Compliance Review Consumer Complaints Dealership Succession Add Points Real Estate Law Employment & Labor Law Federal & State Regulatory Compliance BACKGROUND Principal, Private Law Firm Former, IADA Legal Counsel Former, Illinois Assistant Attorney General, Deputy Chief, Consumer Protection Division Drafted Illinois Motor Vehicle Franchise Act Amendments Creating Motor Vehicle Review Board Drafted Illinois Motor Vehicle Advertising Regulations Julie A. Cardosi, Esq. 3040 Spring Mill Drive, Suite B Springfield, IL 62704 (217) 787-9782 jcardosi@autocounsel.com www.autocounsel.com Exclusive. Strategic. Results. Exclusively representing the unique business interests of automobile dealers for 38 years.

CONTENTS Vol. 35 No. 4 Chairman John Alfirevich/(708) 429-3000 Apple Chevrolet Inc. 8585 W. 159th St., Tinley Park, IL 60477 Vice Chairman Jamie Auffenberg/(618) 624-2277 St. Clair Auto Mall Auffenberg Auto Mall 1130 Auffenberg Ave., Shiloh, IL 62269 Secretary/Treasurer Rick Curia/(815) 288-4455 Ken Nelson Auto Group 1100 N. Galena Ave., Dixon, IL 61021 Executive Director Joe McMahon/(217) 753-0220 Illinois Automobile Dealers Association 300 W. Edwards St., Springfield, IL 62704 2024 OFFICERS ©2024 Illinois Automobile Dealer News | The newsLINK Group LLC. All rights reserved. Illinois Automobile Dealer News is published four times each year by The newsLINK Group LLC for the Illinois Automobile Dealers Association (IADA) and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the IADA, its board of directors or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The Illinois Automobile Dealer News is a collective work, and as such, some articles are submitted by authors who are independent of the IADA. While the Illinois Automobile Dealer News encourages a first-print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at: (855) 747-4003. Illinois Automobile Dealers Association 300 W. Edwards St. Springfield, IL 62704 T (217) 753-0220 / F (217) 753-3424 IllinoisDealers.com 8 Scan here to check out our interactive website at illinoisdealers.com! 6 EXECUTIVE DIRECTOR’S MESSAGE Legislative and Regulatory Update By Joe McMahon, Executive Director, IADA 8 Leading High Performers By Nate Blevins, Ethos Group 10 Engineering Your Complete Title and Registration Workflows, Now and in the Future By CVR 12 COUNSELOR’S CORNER Dealerships Must Ensure Security Solutions Are in Place to Protect Personally Identifiable Information That is Digitally Exchanged By Julie Cardosi, Esq., Law Office of Julie A. Cardosi, P.C. 14 2025 NADA Show 16 Dealers Renew Focus on F&I Profit Participation Strategies Learn What Steps Auto Dealers Can Take to Find the F&I Profit Program That Best Meets Their Goals By Truist Dealer Services, in partnership with Matt Joffe, Managing Shareholder for Total Warranty Services 20 Everything’s Right So Just Hold Tight By Francis Fagan, Regional Training Representative, Brown & Brown Dealer Services 22 Checkup Time! How To Avoid Burnout 10 4 Illinois Automobile Dealer News

CALIFORNIA • UTAH • TEXAS • ILLINOIS • OHIO • FLORIDA VIRGINIA • NEW JERSEY • ALBERTA • ONTARIO BROKERAGE SERVICES 949. 461. 1372 • PERFORMANCEBROKERAGESERVICES.COM Connect With Our Illinois Advisors Midwest Office West Jamie Farley, Partner - Business Development 773. 558. 7703 | jamie@performancebrokerageservices.com Emily Bourne, Partner 585. 957. 1593 | emily@performancebrokerageservices.com 5250 Old Orchard Road, Suite 300, Skokie, Illinois 60077 For a confidential consultation & complimentary evaluation on your business, please contact us: Emily Bourne Jamie Farley MATT WILLIS EMILY BOURNE JAMIE FARLEY PAUL KECHNIE Jamie Farley joins us after a successful 25-year career with Toyota and Lexus focusing on dealer network development. Emily Bourne has over 20 years of experience working in both retail and for luxury OEMs. BROKERAGE SERVICES EXPERIENCE THE DIFFERENCE! We pledge to do it right, every time, one client at a time. Helping Dealers Buy & Sell Dealerships As a family-owned company, we ensure every client gets the proper attention he or she deserves. We do not hoard listings to build an inventory. We work hard to accomplish the goals of our clients. We only charge a success fee with no upfront fees nor retainers. We are paid after you are paid. Straight-forward & flexible agreements with no fine print. Vigilant protection of confidentiality. Regular updates on activity flow and market feedback. Loyal, dedicated, and unwavering representation. Hundreds of extremely satisfied clients. MEET OUR TEAM!

IADA Will Again Fund Our Dealers to Defend the Illinois Dealership Model — Please Partner with Us Once again, the IADA Legal Defense Fund is throwing its support behind an important franchise dealer case soon to be in front of the Illinois Motor Vehicle Review Board. This new case has huge implications for all franchised dealers. And now, along with CATA, we plan to fund a fight against Volkswagen over the manufacturer’s plan to impose a warranty reimbursement surcharge on all Illinois Volkswagen and Audi dealers for warranty repairs made starting Sept. 1. These unjustified surcharges are a second attempt by Volkswagen to retaliate against dealers over expenses it incurred starting in 2022 from Public Act 102-232 that increased warranty time allowances. You’ll recall that Volkswagen’s constitutional challenge to P.A.102-232 was dismissed in federal court just a few months ago. IADA believes that the Motor Vehicle Franchise Act clearly prohibits manufacturers from recouping warranty expenses by surcharging dealers. As with other OEM issues, if one is successful in unfairly shifting revenue from dealerships, others will most likely follow. This is why IADA fights these battles, and this is why IADA exists: to protect your dealerships and defend the Illinois dealership model. These Important Efforts Cost Money Our commitment to funding the Volkswagen challenge to the dealership model isn’t our first. We spent more than a million dollars and won the case before the Illinois Motor Vehicle Review Board to help Ford dealers challenge the onerous requirements under the proposed Ford Model e Program. We also made a significant investment to challenge the Illinois SOS and AG offices from allowing Rivian and other manufacturers to deliver vehicles in Illinois without utilizing a franchise system. Our association business model allows us to keep membership dues to a minimum, and we intend to keep it that way. Because the cost of these fights is significant, we’re asking for your partnership so that together, we will have continued success. Please Support the IADA-CVR Program IADA created an easy way for our dealers to benefit from our united efforts. It’s simple — partner with us and utilize our significant IADA member programs. We earn our highest level of funding from our IADA-CVR program. This is not an outside-endorsed ERT service. The CVR program is a member benefit, and nearly our entire staff is responsible for inventory management, auditing and processing your customers’ transactions. We’re confident this is the best ERT program available. Equally important, the revenue generated goes back to you as we fight these battles to defend the Illinois dealership model. If you’re not in our IADA-CVR program, please consider joining us. If you recently left during the CDK cyberattack issue, please consider coming back. Absolutely no CVR data was compromised by the cyberattack on CDK, further strengthening the fact that CVR provides dealers with the highest level of cybersecurity in the industry. Don’t sacrifice security for untested shiny gadgets. CVR is back and better than ever. You can also check out all our other quality association member programs at www.illinoisdealers.com. Please work with us so we can most successfully fight for your dealership investment. Executive Director’s Message Legislative and Regulatory Update JOE McMAHON EXECUTIVE DIRECTOR IADA 6 Illinois Automobile Dealer News

Anticipate every turn In an industry that’s always evolving, your dealership can rely on our Dealer Financial Services team’s 90 years of experience to see what’s around the corner, forward-thinking insights to prepare you, and technology to keep you ahead of the curve. What would you like the power to do?® Brad Bartsch, bradley.w.bartsch@bofa.com Tony Garcia, anton.r.garcia@bofa.com Diana Zamudio, diana.zamudio@bofa.com business.bofa.com/dealer ©2024 Bank of America Corporation. All rights reserved. 5949042 12-23-0324 Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value “Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, derivatives, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc., which is a registered broker-dealer and Member of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. is a registered futures commission merchant with the CFTC and a member of the NFA.

Leading High Performers Is there truly a talent shortage in the automotive industry today? Why do some dealerships consistently attract top-level talent while other dealerships have trouble finding even average people to staff their business? At Ethos Group, through decades of experience, we know there are fundamental differences between high-performing organizations and those performing at or below average in the industry. Building a high-performance culture starts with the leaders and the vision they create to attract the right people who can execute their plan at the highest level. Creating a culture that fosters the growth of high performers is a crucial component of taking any organization from simply competing to dominating their market. High performers have an uncanny ability to generate new business, create income, exceed sales goals, attract new clients, attract new employees, inspire their peers and thereby help the organization succeed. In the case of high performers, what separates them from their peers is the fact that they are self-motivated and have high levels of personal accountability. What high performers need most from leadership is to remove obstacles that decrease productivity, demotivate them and, when left unchecked, cause them to exit the organization. If your organization is serious about hiring and retaining the very best, here are five of the most common mistakes you need to avoid. 1. Unclear Vision and Values High performers want to be part of something bigger than themselves. They need to connect with the greater purpose of the organization and want to feel they have a personal connection to the company’s vision and core values. Leadership needs to provide high performers with a compelling vision of “why” they would want to work in the organization and how their work will contribute to the fulfillment of that vision. Most ambitious employees want to work for leaders and companies that have a strong vision of what they want to achieve and find value in the commitment to making it happen. When high performers fail to reach self-actualization due to a lack of vision, they will look elsewhere. 2. Promotions Based on Tenure, Not Performance Promoting an employee because they have “earned the opportunity” based on tenure and not results will kill your organization’s momentum and make the high performers question the leadership’s commitment to excellence. Your best employees will consistently deliver exceptional results, are self-motivated and, by nature, will challenge weak managers. High performers crave a culture where employees earn rewards, pay and promotions through measurable performance standards. They want a culture based on merit and will not stick around to work for managers who were promoted because of tenure and not performance. When an organizational culture rewards longevity and not results, By Nate Blevins Ethos Group 8 Illinois Automobile Dealer News

it sends the message that not getting fired is more important than consistently exceeding expectations. High performers will not stick around to work for a manager they don’t feel will add value to their professional and personal growth. 3. Weak Leadership High performers don’t quit a company, they leave due to poor management. When an organization promotes average people into management positions, they don’t magically become great managers. These new managers will lack the same drive and high level of personal accountability that the high performers have, which means these weak managers will consistently struggle to lead the high performers. Over time, these managers will hire people who are average and will not be able to elevate employees on their team beyond their average skill level. Weak managers will put any organization on the fast track to mediocrity. 4. Lack of Recognition According to a recent case study published in the Harvard Business Review, high performers can deliver as much as 400% more productivity than the average employee. Behavior that gets recognized and rewarded gets repeated, and this is especially important in motivating your high performers. They are intrinsically driven to achieve results, but they want to be recognized and paid for their contributions. If they are not recognized, they will find that recognition with another organization. 5. No Accountability for Weak Performers When you ignore poor performance and don’t address employees who fail to live up to the performance standards, it will diminish your credibility as a leader. If you’re a leader who talks about your vision of being the best in your market and then sits by idly while employees fail to hit your high standards, your employees will rightfully question your commitment. High performers will show up to work on time, follow the process, display a great attitude and see their contributions as a crucial part of achieving your dealership’s team goals. When they feel your words as a leader are not aligned with your actions, they will look for leadership in another organization that will share their commitment to winning. For more information on how Ethos Group can help your dealership develop more leaders in your F&I office, sales management tower and your sales floor, please contact Chris Nesseth at cnesseth@ethosgroup.com or (319) 270-4779, or contact Austin Shane at ashane@ethosgroup.com or (319) 296-8760. We invite you to join us today. Contact us at ElectrifyIL@Ameren.com to get started. Learn more about our ChargeSmart program at AmerenIllinois.com/ChargeSmart. Engage. Learn. Share. 1. Engage: Join our webinars and boost your EV sales expertise 2. Learn: You and your customers can use our EV calculator to compare gas versus kWh cost savings and more 3. Share: Our ChargeSmart Program can help Ameren customers earn a bill credit and charge for less— sign up is FREE Dealer Partner Network Benefits: • We help you get noticed by listing you on our AmerenIllinois.com/EV web pages • As a Dealer Partner, you get access to a special portal offering resources to help you educate EV customers. Enrollees earn a bill credit and charge for less costs— sign up is FREE An Exclusive Offer to Dealers Join our network of Auto Dealers and let’s transform the EV journey for customers together. The Ameren Illinois Dealer Partner Network is FREE to join and provides resources to help ease the minds of potential EV drivers. 9 Illinois Automobile Dealer News

Engineering Your Complete Title and Registration Workflows, Now and in the Future By CVR Just as the Chicago skyline represents peak architectural excellence, CVR mirrors this achievement by delivering unparalleled service to Illinois auto dealerships. With a solid foundation in innovation and a forward-looking vision, our seamless DMS integration enhances your daily operations in meaningful ways: • Swift Processing to SOS: Thanks to our endorsed partnership with the IADA, our processing center has the fastest deal turnaround in the state (in as little as one day!). • Dedicated Local Support: Illinois’ largest team of expert account executives is committed to sustaining and enhancing your operational success. • 50-State Solution: We’ve forged strategic partnerships to better serve your needs, including our out-of-state title and registration solution integration with ATC. Standing the Test of Time With over 25 years alongside the IADA, CVR has a long history of enhancing dealership efficiency and advocacy, resulting in trusted, effective solutions that last. As the first provider to enter our great state, we’ve stood the test of time by consistently delivering excellence, offering unparalleled solutions and unwavering service to our valued clients. CVR takes pride in its long-standing history and proven track record of helping customers stay compliant while providing expert training on the latest state regulations, along with essential processing tips and insights. Innovation Built for You CVR’s seamless connections to major DMS systems give dealerships the cutting-edge tools that enable them to adapt and grow in a changing market. The introduction of Electronic Lien Titling (ELT) capabilities significantly enhances processing efficiency by streamlining turnaround times and minimizing the costs associated with traditional paper processing. We offer seamless out-of-state title and registration integration through Automotive Titling Corporation (ATC) and transparent service with no hidden fees. Unmatched Account Support Our dedicated team of account executives forms the largest on-the-ground team in the state and provides your dealership with expert-level consulting and support. Processing thousands of Illinois dealer transactions monthly, CVR has a deep understanding of what it takes to help you remain compliant and improve your title and registration workflow needs. With the support of the IADA processing center, title and registration deals are processed at the fastest turnaround times in the state, ensuring exceptional efficiency and speed. To learn more, contact CVR at www.cvrconnect.com or (800) 333-6995. 10 Illinois Automobile Dealer News

© 2024 Truist Financial Corporation, TRUIST, Truist purple and the Truist logo are service marks of Truist Financial Corporation. All rights reserved. Truist Securities is the trade name for the corporate and investment banking services of Truist Financial Corporation and its subsidiaries. Securities and strategic advisory services are provided by Truist Securities, Inc., member FINRA and SIPC. | Lending, financial risk management, and treasury and payment solutions are offered by Truist Bank. | Deposit products are offered by Truist Bank, Member FDIC. We’re more than a financial partner. We’re an invested one. True relationships matter. We don’t take this lightly. The best are built on a deep understanding of your short- and long-term goals and always backed by thoughtful, strategic advice in support of your vision. With full-service financial solutions and a deep bench of industry expertise, we’ll build a team around your organization to focus on your success. So, let’s drive further—together. To learn more, visit us at Truist.com/DealerServices.

Counselor’s Corner Dealerships Must Ensure Security Solutions Are in Place to Protect Personally Identifiable Information That is Digitally Exchanged BY JULIE CARDOSI, ESQ. LAW OFFICE OF JULIE A. CARDOSI, P.C. Following this year’s significant cybersecurity incident involving many dealerships’ third-party service provider, security and privacy questions continue to arise relating to various types of information and data. As a reminder, under the Federal Trade Commission (FTC) Safeguards Rule, additional changes went into effect last year impacting, among other things, dealerships’ digital communications. Additionally, along with these changes, the amended Safeguards Rule requires dealerships to have developed and implemented, and maintain a comprehensive security system to keep their customers’ information safe. After extension by the FTC, certain changes went in effect as of June 9, 2023. These provisions required dealerships to: • designate a qualified individual to oversee their information security program; • develop a written risk assessment; • limit and monitor who can access sensitive customer information; • encrypt all sensitive information; • train security personnel; • develop an incident response plan; • periodically assess the security practices of service providers; and • implement multi-factor authentication or another method with equivalent protection for any individual accessing customer information. The amended Rule also updated the employee security training requirement. Dealership security awareness training must reflect risks identified in a risk assessment, along with ongoing training for security personnel. This includes verification that security personnel are taking steps to stay current on emerging threats and countermeasures. While dealerships should by now have their policies in place and implemented, included in the Safeguards Rule changes are standards and procedures for data security which require dealerships, pursuant to their updated security programs, to notify the FTC of security incidents that affect at least 500 customers, and ensure “end-to-end” security encryption of personally identifiable information (PII) sent digitally over external networks. In other words, PII exchanged between dealership personnel and customers must be encrypted in transit. This means that for a dealership to be compliant, use of unsecured, unencrypted text messages and email is not permitted. One obvious problem, however, is that purchase transactions may routinely be initiated and conducted via email and text messages, including without limitation, communications that flow through the dealerships’ DMS and CRM systems and texting and messaging applications. And some have argued that the shortcomings of some dealership cybersecurity 12 Illinois Automobile Dealer News

consultants and certain software providers may not be facilitating solutions to satisfy the encryption requirements for in transit exchange. This becomes particularly problematic when one considers, for example, the volume of personal data on a dealership salesperson’s phone from existing and past customers. This data might be located in a number of places, including without limitation, in the phone’s text history, photo bank, and other repositories, as well as data backed up to a cloud service which might be shared. Each item mentioned would constitute an incident under the FTC Safeguards Rule and a fineable offense, with the maximum fine, per incident, being $50,120. Moreover, the Safeguards Rule broadly covers both past and current dealership employees and past and current dealership customers, with authority granted to the FTC to investigate retroactively. Pursuant to the FTC’s enforcement authority in the course of such an investigation, it may subpoena dealership email, text and phone records, including directly from the dealership’s vendor providers. Dealers need to ensure their full compliance with the FTC Safeguards Rule. This includes having in place security measures designed to protect customer PII that is exchanged in transit. At a minimum, this requires using secure technology for email, text messages, passwords, logins, accounts, etc. Consultation with the dealership’s cybersecurity advisor or technology consultant and legal advisor is warranted to ensure the dealership is compliant in every respect with the FTC Safeguards Rule. 1. The FTC Safeguards Rule updated the Gramm-Leach-Bliley Act (GLBA) of 1999; and previously, the FTC had amended the Rule in the year 2021 to address current technology and expand guidance for businesses. Julie A. Cardosi is Principal of the private firm, Law Office of Julie A. Cardosi, P.C., of Springfield, Illinois. She has practiced law for over 38 years and represents the business interests of franchised motor vehicle dealers throughout Illinois. Formerly in-house legal counsel for the Illinois Automobile Dealers Association, she concentrates her private practice in the areas of dealership operations and compliance matters, transfers of ownership, mergers and acquisitions, franchise law, commercial real estate transfers, dealership employment and other areas impacting day-to-day dealership operations. She has also served as former Illinois Assistant Attorney General and Deputy Chief of the Consumer Fraud Bureau of the Attorney General’s Office. The material discussed in this article is for general information only and is not intended as legal advice and should not be acted upon as such. Dealers should consult their own private legal counsel for application to their specific circumstances. For more information, Julie can be reached at jcardosi@autocounsel.com, or at (217) 787-9782, ext. 1. Dealers need to ensure their full compliance with the FTC Safeguards Rule. 13 Illinois Automobile Dealer News

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The Range of F&I Profit Participation Programs F&I profit programs vary greatly in structure, economics, flexibility, risk and tax consequences. To find the best fit for your situation, you’ll want to understand each type and its ability to deliver what your business, transition plan and personal wealth strategy demand. Program How It Works Key Features What It Achieves U.S. Federal Income Tax Consequences Guaranteed Retro Dealer receives commission for sale of F&I product plus guaranteed underwriting profit. Guaranteed flat dollar amount per contract (varies based on product and sales mix). Payment is based on contract count net of cancellations (not based on loss ratios). Not subject to losses. Accelerated cash flow. Upfront underwriting. Don’t have to set up reinsurance company. Taxed as ordinary income for Federal Income Tax purposes at 37% for individuals. However, the Tax Cuts and Jobs Act (TCJA) may allow a deduction of up to 20% of the income if paid to an S Corp or LLC taxed as a partnership. Participating Retro Dealer receives commission for sale of F&I product, plus underwriting and investment income. Dealer does not have to invest in or open a reinsurance company. Dealer must recognize revenue as received. Historically, all upside, no downside. Highest cash flow program. No reinsurance required. 100% of underwriting profits and any investment income that is available. Taxed as ordinary income for Federal Income Tax purposes at 37% for individuals. However, the Tax Cuts and Jobs Act (TCJA) may allow a deduction of up to 20% of the retro income if paid to an S Corp or LLC taxed as a partnership. Dealers Renew Focus on F&I Profit Participation Strategies Learn What Steps Auto Dealers Can Take to Find the F&I Profit Program That Best Meets Their Goals By Truist Dealer Services, in partnership with Matt Joffe, Managing Shareholder for Total Warranty Services As profit margins return to historical levels, auto dealers are looking for ways to generate additional earnings. Dealer finance and insurance (F&I) profit participation programs are often overlooked in the quest to boost profits — an expensive oversight. These established strategies can provide dealers with solid cash flows and investment returns. While many dealerships already have profit-sharing programs in place, these programs often fall short of a dealer’s goals. And dealers can miss their full profit potential if warranty programs aren’t aligned with their business and personal wealth goals — or if they aren’t optimally executed. F&I profit participation programs can support a dealership in: • Generating cash flow. • Funding acquisitions. • Managing tax strategies. To varying degrees, the programs can be used to: • Provide incentives and rewards to key management. • Establish a vehicle for wealth building and estate planning. • Support multigenerational succession and business transition. 16 Illinois Automobile Dealer News

Program How It Works Key Features What It Achieves U.S. Federal Income Tax Consequences Reinsurance Through Controlled Foreign Corporation (CFC) or Domestic Captive Dealer receives commission for sale of F&I product, plus underwriting and investment income in dealer-owned reinsurance company. Dealer participates in risk of loss through a wholly owned reinsurance company. Options for domicile of reinsurance company. Dealer controls program. Dealer hires an investment manager. Assets set aside for losses (A account). Earned income separately invested and controlled by dealer (B account). Funds held at U.S. banking institutions. Cost for setup, annual tax preparation and license renewal, and reserves/funding. High level of control over the program, allowing tailoring of investment options to meet various dealer objectives. Efficient tax vehicle. Dealer directs investment of earned funds in trust and receives investment income. Treated as a U.S. Company for ALL federal income tax purposes. For tax years beginning after 12/31/2016, with a total annual net written premium up to $2.8 million, tax on investment income only at 21% corporate rate under TCJA. (Irrevocable election is required to be taxed on investment income only.) If total annual premium exceeds $2.8 million, regular corporate income tax applies on ALL underwriting and investment income at 21% corporate rate, and a second layer of tax at the shareholder level once distributed at 23.8% (20% capital gains rate plus 3.8% Medicare NIIT). Domestic Captive Insurance Company Same as reinsurance company, but company is 100% U.S. based. Same as reinsurance company. Obligor Structures Dealer receives commission for the sale of certain F&I product, plus underwriting and investment income in dealer-owned obligor company. Dealer-owned company is obligated party to perform on any losses (not administrators). Dealer pays administration and claim processing fees. Dealer is responsible for maintaining reserves. Contractual liability policy may be required. No reinsurance required. Dealer keeps all funds received, less administration and claim processing fees. Obligor will be treated as a C corporation for U.S. Federal Income Tax purposes, subject to double taxation regime of IRC Subchapter C. Retail price to consumer (as opposed to reserve) counts against $2.8 million USD cap under Section 831(b). If premiums exceed $2.8 million annually, company is fully taxable on underwriting and investment income from first dollar. Initially generates tax losses because a 100% deduction is allowed for amounts above reserve (F&I commission, management money, etc.), and reserves earn over the life of the VSC, subject to the 20% UEP “haircut.” Eventually, all underwriting and investment income is subject to tax at 21% corporate rate (on a deferred basis), and shareholders will be taxed a second time upon distribution from the company (double taxation). Distributions/liquidations taxed at long-term capital gains rate of 23.8% (20% capital gains rate, plus 3.8% Obamacare tax). No premium tax is paid if no CLP required. Hybrid Structures Dealer receives commission for sale of F&I products plus underwriting and investment income through a combination of participating structures. Hybrid structures allow programs to be built to achieve specific dealer objectives. May be set up for partners, key associates or family members. Split business among a combination of participating retro/CFC. Customized. Varies. 17 Illinois Automobile Dealer News

A Strong Advisory Team Can Craft a Plan That Best Fits Your Goals Determining the right F&I approach requires having the right advisory team in place. Anchor your search with a strong team of specialized experts who can help you hone in on your specific objectives and identify a profit participation program that best meets those goals. Your team should include trusted individuals who bring insights and informed perspectives from many angles, including: • An F&I program provider who can bring numerous options to the table and is prepared to tailor a formula to your needs. • A tax advisor with a keen understanding of the tax code — current laws, in addition to clear projections for how future tax updates — including the sunset of provisions of the TJCA that may impact the direction you take. • A CPA who fully grasps how your strategy affects your business finances and impacts dealership valuation. • An attorney who has the experience to advise you on how to structure your program legally for maximum effect and resilience. • A banking advisor who can set up appropriate accounts and structure trusts for your plan. Flexibility is Key To Implementing an Effective Long-Term Strategy Change is a constant for your business. From evolving tax laws and fluctuating business cycles to market swings and macroeconomic ebbs and flows, external forces that affect your dealership are constantly shifting the playing field. Your goals and plans change over time as well, so your profit participation program shouldn’t be set in stone. Make ongoing conversations about your current F&I plan a priority — the effectiveness of your strategy can diminish if it remains static. It’s essential for dealers to work with From evolving tax laws and fluctuating business cycles to market swings and macroeconomic ebbs and flows, external forces that affect your dealership are constantly shifting the playing field. a program provider that brings multiple options and a proactive mindset — a partner who’s prepared to adapt your approach to address your changing needs. Your advisory team should meet regularly to assess the status of your plan (quarterly or semiannually is ideal). That includes discussing any changes to your objectives and examining any shifts in the broader business landscape or economic environment that might impact your dealership. Your strategy can provide meaningful earnings to support overall dealership profits or help meet your targets. Depending on your course of action, F&I profit participation can impact the timing of your business cash flow. As part of your planning, F&I and reinsurance can be invaluable tools that expand your options for dealership transition and succession planning. Special thanks to Matt Joffe, managing shareholder for Total Warranty Services (TWS). TWS specializes in creating customized F&I programs including vehicle service contracts, as well as all ancillary protection products. The TWS participation team can provide a customized underwriting participation program to fit each client’s unique goals. TWS has worked with over 1,600 auto dealerships and is one of the nation’s top 10 largest F&I product providers with over $1.5 billion in written premium and over seven million contracts sold. To find out more about how TWS can help your dealership, contact Matt Joffe at mjoffe@totalwarrantyservices.com. Truist Bank, Member FDIC. ©2024 Truist Financial Corporation. Truist, the Truist logo and Truist Purple are service marks of Truist Financial Corporation. Equal Housing Lender. 18 Illinois Automobile Dealer News

In September, Automotive News published an article about dealership profits plunging 33%. You might think that, based upon the title of this article, I am a purveyor of fake news; however, I can assure you that I am not. What’s more, I’m here to give you a plan to thrive in this current reality — and one that is not merely based on hope. Sure, margin compression has come into play since the highs of COVID. Have expenses risen? Yes! Some have even risen significantly. If you started selling cars in June 2020, you might see things that are happening now through a different lens — in that market, sales were easily gotten even without a plan. The reality is that success in this environment comes down to having a good plan and executing it. Many of you may be thinking: “So Fagan, what’s your plan?” Here it is: Focus on today and you’ll find a way! It’s not as simple as it sounds. Let me explain. First, all successful business plans begin with a vision. So, let’s discuss your vision. The owners set the standards and have specific KPIs because they are the risk takers (and therefore have the most to lose); they need to not only keep the lights on but to thrive and ensure all teammates have a great lifestyle. I know this firsthand, having recently attended a dealership group’s forecast meeting. Just like sports, the vision to win is paramount — except, of course, if you are the Chicago White Sox. The plan accounts for current conditions. Take the accounting office. If the Big 3 expenses have risen 19% over the past year, how much more gross profit needs to be made and what expenses can be cut to meet the standards of performance? There might be some anxiety and increases in the heart rate which then increases pressure to perform. But isn’t pressure part of the business? Yes, it is. So, once the standards of performance are set, what happens with them? They are given to everyone involved so that everyone knows the targets. Well, that doesn’t automatically mean there’s buy-in. If it were only that easy. How do you get everyone to buy in? You have clear standards and KPIs that can be measured and looked at daily to ensure compliance and timely course corrections. So, the first step is to have standards and KPIs that are looked at daily while holding your leaders accountable for hitting them. The second and most critical step relates to managing and inspiring your human capital. A few years ago, I wrote about hiring and training. How are you doing in this department? While discussing training not long ago with a group, there were plenty of comments along the lines of “We used to do this,” or “We used to do that.” The past few years have been phenomenal for store profitability because it was a seller’s market. That paradigm has changed, and how quickly it did. The old saying that “training isn’t an event” is so true today. Daily training in all areas to ensure the customer has a world-class experience and is given the opportunity to buy versus being sold is critical. This will only come through daily and consistent training. Someone once said, “Every day means every day.” You either train and get better or do not train and get worse — there is no middle ground. As a leader in your store, have you paid your dues daily to grow and stretch your team? If yes, congrats! If no, what are you waiting for? This crazy world I know doesn’t wait — you are either moving forward or slipping back into oblivion. When discussing your teammates, how are they doing with personal development? Are they growing in all areas of Everything’s Right So Just Hold Tight By Francis Fagan, Regional Training Representative, Brown & Brown Dealer Services 20 Illinois Automobile Dealer News

their life? Do they have goals with steps to attain them? Are they attending training on a regular basis? What books are you recommending they read on a daily basis? Finally, process. Are your processes in place and are they monitored hourly, daily, weekly and monthly? Take your sales department, did someone work the service drive at 7:00 a.m. when you opened? Did your salespeople attend a training class on your road to the sale? Did your management team sit and review each salesperson’s goals for the month and where they are tracking? Did you follow up with each person during the day and check them out after their shift? There are so many things to do, and if you do them right, you win, the customer wins and your teammates win. So back to the title, if you do these steps every day without fail, everything will be right with your business and any adversity will be met with a team that will make it happen. For more information, please contact Francis Fagan with Brown & Brown Dealer Services at (312) 608-4979 or francis.fagan@bbrown.com. Francis is the regional training director for Illinois and Indiana. At Brown & Brown Dealer Services we put the emphasis on training. Visit our website for our training calendar and to meet our nationally renowned trainers at bbdealerservices.com. 21 Illinois Automobile Dealer News

Checkup Time! How To Avoid Burnout Several times throughout the year, it’s important to slow down, take a deep breath and evaluate ourselves, our processes and our results. Whether we call it a checkup or a self-assessment, taking the time to evaluate your work provides a fresh perspective, creates a path for improvement and helps us to set goals: Burnout can occur when we fail to take the time to analyze our daily work habits, so let’s do what we can to prevent it! To ensure we stay on the right path, here are three things we should be checking up on regularly. 1. Check Your Expectations Expectations that are too high or too low can cause frustration and a sense that the results we seek are unattainable and out of our control. Setting realistic and measurable goals is a great way to keep ourselves and our expectations in check. Instead of setting a specific number to reach, we must set the steps and activities that will produce what we expect. Practicing the process, researching areas of focus and overcoming common objections we hear from customers will bring about change and improvement. Our numbers never define us; our habits do. So inspect what you expect. 2. Check Your Feedback We have entered a world where everyone is guided by feedback. It’s not just a cultural phenomenon; it’s a discovery that everything improves when we look at it from the eyes of others. So be open to feedback, and in fact, you should welcome it! The best and most profitable ideas often come from customers, leadership and, at times, from the most unsuspecting places, like role-play. Role-play can be one of the most productive uses of our time. It provides an opportunity for fellow employees to look at what we do and tell us one thing we can do better. The name of the game is constructive feedback. The cumulative effect of this feedback can bring about tremendous improvement and cause us, and our teams, to reach levels we could never achieve by ourselves. The most successful individuals and companies are top-performing because they have honed the power of feedback. We must check to ensure we are listening to feedback and using it to improve. 3. Check the Clock In our increasingly busy world, time has become a commodity more important than money! For example, it is easy to focus on the total time a customer is in the F&I office and try to hurry through the process to shorten it in the hope of eliminating any frustrations for them. However, customers are not frustrated with the amount of time spent in the office but rather how that time is spent. If customers gain insightful information and are able to ask questions to understand how a product will help them, they’ll have a better ownership experience, time will fly by and the second hand on the clock will be less concerning. A good goal to set is for every customer to leave the office feeling that their time was respected and they were enlightened. If we are making a point to be fully present in our conversations, listening to others with purpose and sharing relevant information to provide an understanding, our customers will have a better experience! It’s all about what we are doing with the time as the clock moves each day! Regular checkups always produce better results and a better future. You will never be sorry that you took a moment to take a step back and evaluate yourself. This applies to teams and individuals. So, give yourself a checkup, and watch as you become the efficient, successful and fulfilled worker everyone strives to be! 22 Illinois Automobile Dealer News

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Illinois Automobile Dealers Association 300 W. Edwards St. Springfield, Illinois 62704 This magazine is designed and published by The newsLINK Group LLC | (855) 747-4003 BROWN & BROWN Overview Brown & Brown Dealer Services (BBDS) is an F&I performance company aimed at helping to build tailored solutions for today’s vehicle retailer. The complexities inherent to the F&I business demand a white glove approach with the flexibility to satisfy a variety of brands or markets. The BBDS network of providers helps ensure the proper F&I program is developed and executed to help maximize upfront sales and profits, provide a top-tier customer ownership experience and create wealth-building opportunities downstream. How We Can Help Our BBDS team is comprised of experienced and knowledgeable F&I specialists that have worked with dealers for decades. They are equipped with access to the industry’s top product providers, a top-rated training and development program and commercial insurance products to help you find solutions to fit your business needs. F&I Products • Flexibility to help fit your needs • Access to A-rated providers • Two in-house administration companies • Wealth-building opportunities on products Training Solutions • F&I Management Certification School • Learning Management Systems (LMS) delivering online training • Monthly webinars and video training archive • Ethics & Compliance Certification Participation Programs • Program selection based on your goals and objectives. NCFC, CFC, Retro or DOWC • Nationally recognized team that specializes in evaluating and configuring personalized solutions • No obligation evaluation of your current program Property & Casualty • More markets for your risks mean more choices to help meet your individual business and personal needs • Knowledgeable professionals to help identify your unique risks and find solutions to help protect your assets Employee Benefits • • Health Collective Purchasing Arrangement that includes a dedicated service representative to help you with premium savings, national and regional coverage and to DEALER SERVICES The Broker for the Dealer Custom F&I Programs That Help Deliver Results and Profits Brown & Brown Dealer Services 263 Shuman Blvd. • Naperville, IL 60653 | bbrown.com | (847) 612-9361

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