PUB. 10, ISSUE 1 | GLANCDA.ORG OFFICIAL PUBLICATION OF THE GREATER LOS ANGELES NEW CAR DEALERS ASSOCIATION OVER-SHARING IN THE WORKPLACE? WHY YOUR COMPANY MAY NEED A TIKTOK AND BEREAL POLICY DEALER SPOTLIGHT — GETTING TO KNOW MORE ABOUT BRAD MUGG
• Business Transactions • Buy-Sell Agreements • DMV, BAR and other governmental approvals • Lender flooring and capital loan agreements • Entity formation and structure • Shareholder Agreements • Manufacturer approvals and relations • NMV non-profit association representation Estate Planning • Succession planning for business continuation • Family estate planning (wills and trusts) Tax • Property tax planning, audits and appeals • Federal estate and gift tax controversies with IRS • EDD audits BUSINESS LAW | LITIGATION | ESTATE PLANNING | REAL ESTATE | TAX | EMPLOYMENT PRACTICES FERRUZZO & FERRUZZO, LLP | A Limited Liability Partnership, including Professional Corporations 3737 Birch Street, Suite 400, Newport Beach, California 92660 | PH: (949) 608-6900 | ferruzzo.com Business Litigation • Consumer Legal Remedies Act lawsuits • Sales and Service Agreements • Disputes before the CA New Motor Vehicle Board • Consumer claims regarding the sale/lease of autos • Manufacturer audit disputes • Hearings before the AQMD, RWQC and OSHA Real Estate • Dealership site acquisitions and lease agreements • Lender opinion letters • Relocations Employment Practices • Arbitration agreements • Wage and hour class action lawsuits • Private Attorneys General Act (PAGA) claims Ferruzzo & Ferruzzo, LLP began providing legal representation to new car and truck dealers nearly four decades ago. Over the course of that time, one of the central goals of the firm has been to remain rooted in our client relationships. With the strength of over 20 attorneys, we provide a spectrum of legal services to support every aspect of running and owning your new car and/or truck dealership. Each member of our team is available to service the needs of you and your dealership.
LOS ANGELES | ONTARIO | SAN DIEGO | SACRAMENTO | OAKLAND | scalirasmussen.com Avoiding litigation when it’s possible. Protecting you when it isn’t. •Franchise Advice & Litigation •Labor & Employment •Regulatory & Licensing •Complex Litigation •General Counsel Services •Mergers & Acquisitions AV® and AV Preeminent® are Certification Marks used under license in accordance with the Martindale-Hubbell® certification procedures, standards and policies.
Originally founded in 1907, the Greater Los Angeles New Car Dealers Association provides valuable educational and philanthropic benefits to the Los Angeles Community. The Association believes that involvement with local charitable organizations makes a positive difference for everyone involved. We are GLANCDA PRESIDENT David Ellis Glendale Dodge Chrysler Jeep VICE PRESIDENT Howard Tenenbaum Keyes Automotive Group SECRETARY/TREASURER Jeanne Brewer Acura of Glendale IMMEDIATE PAST PRESIDENT Fritz Hitchcock Hitchcock Automotive Resources GLANCDA DIRECTORS Jake Kahen Ian Thomas Peter Hoffman Darryl Holter Pete Smith Tim Smith Matt Browning Evan Ellis 10 GLANCDA BOARD OF DIRECTORS 24 700 North Central Avenue, Suite 320 Glendale CA 91203 213-748-0243 | fax 213-748-0245 4
©2023 Greater Los Angeles New Car Dealers Association | The newsLINK Group, LLC. All rights reserved. Los Angeles Dealer is published four times each year by The newsLINK Group, LLC for GLANCDA and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and dealer 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 GLANCDA, 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. Los Angeles Dealer is a collective work, and as such, some articles are submitted by authors who are independent of GLANCDA. While GLANCDA 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. 26 06 | Ask Alison By Alison McCallum, EPIC Insurance Brokers and Consultants 10 | Dealer Spotlight — Getting to Know More About Brad Mugg 14 | The Right Time For A Risk Management Reset By Brandon Artigue, Director, Financial Risk Management, Truist Securities 18 | Succession Planning for Dealers in an Evolving Business Environment By Bank of America Corporation 20 | Refrigerant Recycling Requirements For Motor Vehicles Under Clean Air Act (CAA) By Sam Celly, BChE, MChS, JD, Certified Safety Professional 24 | The Secret to Controlling Dealership Expenses By Sharon Kitzman, VUE DMS 26 | Over-Sharing in the Workplace? Why Your Company May Need a TikTok and BeReal Policy By Fisher Phillips 14 5 Pub. 10, Issue 1
Are you sure your dealership is in compliance? Have you received an IRS 226J letter? IRS Penalties for ALE’s (Applicable Large Group Employers) not offering Affordable Health Coverage? Background As the IRS continues to actively enforce the employer shared responsibility payments and associated employer reporting requirements, we are reminded that the employer mandate under §4980H of the ACA (Affordable Care Act) remains in effect and requires compliance to avoid potential penalties. ALEs who fail to comply with §4980H offer of coverage requirements may face penalties for full-time employees who enroll in subsidized coverage through a public Exchange. Q: Is Your Dealership an ALE? A: Status as an ALE is determined based on data from the previous calendar year, regardless of the employer’s group health plan year. It doesn’t matter whether the employer exceeded 50 FTEs (Full-Time Eligible Employees) in any given month, but whether the employer averaged 50 or greater FTEs over all 12 months of the previous calendar year. Important to note if a Multi Dealership Group: When more than one entity is involved due to common ownership or shared services (e.g., a controlled group or affiliated service group under §414 rules), the entities must aggregate FTEs to determine the average for the previous calendar year. If the combined entities average 50 or greater FTEs (an “aggregated ALE group”), then each entity is an ALE, subject to §4980H offer of coverage requirements and §6056 employer reporting requirements for the following calendar year. Q: What Are the §4980H Offer of Coverage Requirements? A: The offer of coverage requirements for ALEs under §4980H are as follows: • §4980H(a) – ALEs must offer minimum essential coverage (MEC) to at least 95% (or all but five, if greater) of full-time employees and their dependent children each month. An offer of coverage is not required for spouses. • §4980H(b) – ALEs must offer coverage that provides minimum value AND is affordable to all full-time employees each month. There is not a 5% “margin of error” for §4980H(b) requirements like there is under §4980H(a). Q: How Do You Determine Affordability? A: Affordability is generally determined by applying the applicable affordability percentage, which changes yearly, to an individual’s household income. If the employee contribution for the lowest-cost minimum value plan for self-only coverage does not exceed the applicable affordability percentage of the employee’s household income, the coverage is affordable. However, because an employer will not typically know household income, the employer is protected from any potential penalties under §4980H(b) so long as the coverage is affordable under one of three safe harbors. Employers may use any of the affordability safe harbors for any reasonable category of employees, provided the safe harbor applies on a uniform and consistent basis for all employees in a category. The affordability safe harbors are as follows: • Federal poverty level (FPL) safe harbor – Employee contribution for single, minimum value coverage does not exceed the applicable affordability percentage of FPL for a single individual. • Rate of pay safe harbor – Employee contribution for single, minimum value coverage does not exceed the applicable affordability percentage of hourly rate x 130 (or monthly salary). • Form W-2 safe harbor – Employee contribution for single, minimum value coverage does not exceed the applicable affordability percentage of the employee’s Box 1 wages. Ask Alison By Alison McCallum, EPIC Insurance Brokers and Consultants 6
Q: How Much Are the §4980H Penalties (Employer Shared Responsibility Payments)? A: §4980H(a) If the employer fails to offer MEC to at least 95% (or all but five, if greater) of full-time employees, a penalty will apply if any full-time employee enrolls through a public Exchange and qualifies for a premium tax credit. The penalty is multiplied by the total full-time employee count minus the first 30, regardless of how many employees were offered coverage. Penalty calculation = (full-time employee count – 30) * §4980H(a) penalty. §4980H(b) If the employer satisfies §4980H(a) requirements, they may still owe a penalty for any full-time employee who is not offered minimum-value, affordable coverage if that employee enrolls through a public Exchange and qualifies for a premium tax credit. This penalty applies on a per-employee basis rather than against the total full-time employee count. Penalty calculation = §4980H(b) penalty for each full-time employee who is not offered minimum-value, affordable coverage who enrolls through a public Exchange and qualifies for a premium tax credit. If you are not sure your dealership is in compliance and have concerns about penalties, fines, or have not had a compliance audit done in the last year, EPIC will perform a compliance audit at no cost to GLANCDA members. EPIC ranks among the top 15 retail insurance brokers in the United States and is the largest insurer of auto dealers in the state. Alison McCallum has been in the employee benefits industry for over 20 years and personally works with more than 60 Southern California Dealerships. She is a Principal with EPIC Insurance Brokers and Consultants, the only CNCDA licensed broker. With this partnership, EPIC offers unique services available to GLANCDA dealer members at no cost. If you have questions or would like further information, please feel free to contact her at (949) 417-9136 or alison.mccallum@epicbrokers.com. §4980H(a) §4980H(b) 2015 $2,080 ($173.33/mo.) $3,120 ($260/mo.) 2016 $2,160 ($180/mo.) $3,240 ($270/mo.) 2017 $2,260 ($188.33/mo.) $3,390 ($282.50/mo.) 2018 $2,320 ($193.33/mo.) $3,480 ($290/mo.) 2019 $2,500 ($208.33/mo.) $3,750 ($312.50/mo.) 2020 $2,570 ($214.16/mo.) $3,860 ($321.66/mo.) 2021 $2,700 ($225/mo.) $4,060 ($338.33/mo.) 2022 $2,750 ($229.16/mo.) $4,120 ($343.33/mo.) 2023 $2,880 ($240/mo.) $4,320 ($360/mo.) 7 Pub. 10, Issue 1
Plan ahead for your dealership’s long-term legacy Setting up a succession plan is an important consideration for the future of your dealership. Now’s the time to think about your priorities, such as maintaining control, taxes, liquidity, employees and family. What would you like the power to do?® Learn more with our comprehensive overview of Dealer Financial Services Succession Planning at business.bofa.com/dealer. “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, 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. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: | Are Not FDIC Insured | Are Not Bank Guaranteed| May Lose Value | ©2022 Bank of America Corporation. All rights reserved. 4882341 05-22-0512 Setting up a succession plan is an important consideration for the future of your dealership. Now’s the time to think about your priorities, such as maintaining control, taxes, liquidity, employees and family. What would you like the power to do?® Learn more with our comprehensive overview of Dealer Financial Services Succession Planning at business.bofa.com/dealer. “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, 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. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: | Are Not FDIC Insured | Are Not Bank Guaranteed| May Lose Value | ©2022 Bank of America Corporation. All rights reserved. 4882341 05-22-0512
Brad Mugg, the managing partner at Honda of Downtown Los Angeles, recently sat down with GLANCDA to discuss his life, career, auto industry, and family. Brad grew up in Lafayette, Indiana, and lived there until he was 37. From there, he moved to Chicago for three years, California for 15 years and then Oregon for two years. Afterward, he returned to California, where he’s been ever since. Although there were no other automotive dealers in his family, his dad had a body shop with a used car lot out front, kind of a miniature version of a dealership. And, since he’d always liked cars and wanted to be a part of the automotive business since he was four or five years old, a dealership was a good fit for him. After studying supervision technology in the 1980s at the Purdue University West Lafayette, Indiana, campus, he learned a lot about management skills, including time management. After college, he worked at Bob Rohrman Honda for 10 years in Indiana and three years in Chicago. “Bob could be a tough guy to work for,” Brad told us, “but if you performed, he rewarded you well and made it fun to work.” He went from the Honda store in Chicago to run the Norm Reeves Honda Superstore in Southern California for nine years. The store sold 1,000 cars per month, and Brad was given a chance to be a partner. He also bought a Honda Volkswagen store in Irvine, California, and ran it for five years. Next, he partnered with Jeff Swickard at Swickard Honda in Gladstone, Oregon. According to Brad, “He was a great partner, and he is a great human being. But I couldn’t handle going from everyday sunshine to eight or nine months of rain a year.” So he headed back to California in April 2021. Brad explained that he and Brandon Steven are now partners at Honda of Downtown Los Angeles and the Hyundai of Downtown Los Angeles that just opened. Brandon is the majority partner at both dealerships. Of their partnership, Brad said, “[It’s] the most amazing one I’ve ever had because Brandon does everything right. He is trusting and fun and has an amazing work ethic. It is a wonderful time to be in the car business.” We next asked Brad to tell us about his mentors. He told us, “My grandfather was a big mentor, and I learned a lot from him at a young age. Bob (Rohrman) was another mentor. He was pretty spectacular. [He] owned about 30 dealerships himself without a management company, which is unbelievable. He was a wonderful human being and Dealer Spotlight GETTING TO KNOW MORE ABOUT BRAD MUGG
did a lot of giving back. I worked for [him] for 13 years; he passed about two years ago.” Since mentors played a great role in defining Brad’s career, we asked him to define three things he would pass along to someone he had an opportunity to mentor. “One,” he said, “always have a positive attitude. Two, always care for every employee and customer. And three,” he concluded, “have fun every day.” We asked him to explain his take on the biggest issues facing California dealers in the next five to 10 years. He said, “We must always have our voices heard in any political decisions affecting the business. It is always a concern when manufacturers go around our businesses. We want to ensure the dealer body continues to sell and deliver vehicles so that dealerships stay dealerships.” He also talked about electric vehicles and where that part of the industry is headed. “Electrification laws will put some challenges in our industry and change how we service or sell cars, too,” he stated. “Electrification will be a challenge in two ways: manufacturing the cars, and installing the infrastructure the cars need. Installing enough charging stations will be a big project. It will be interesting to see how everything comes to the finish line.” And finally, on this subject, he said, “I think a lot of people will want to keep their gas vehicles.” He drives one himself: a Honda Ridgeline. We wanted to know how he would recommend dealing with those issues. He told us, “The dealer body must have a good relationship with all manufacturers. Get on the dealer council and ensure our voice is heard with all manufacturers.” “Tesla is having growing pains,” he went on. “The company is successful and makes a great vehicle, but their work is cut out for them, too. Over time, Tesla will have to satisfy their customer base by having more brick-and-mortar stores to support parts and service. There are different challenges when you don’t have a dealer body.” GLANCDA’s Brad Mugg presenting a check to the California Hospital Foundation. GLANCDA’s Brad Mugg presenting a check to Jennifer Hull and Josie of the Once Upon a Room Foundation. To learn more about Once Upon a Room scan the QR code. https://youtu.be/M5M52Me7Jd8 11 Pub. 10, Issue 1
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EPIC is proud of its partnership with more than 300 California dealerships and is the CNCDA’s only licensed broker for Health Insurance and Workers’ Compensation. As the dealers’ consultant, experience what EPIC can do for you today, including: • A team producing real results and decades of experience with dealerships and their specific needs • Proprietary Workers’ Compensation and specific insurance products tailored for dealerships • Full compliance, along with audit and claims management EPICBROKERS.COM ©2023 Edgewood Partners Insurance Center. All rights reserved. | CA License: 0B29370 LEARN MORE ABOUT OUR SERVICES BY CONTACTING: Alison McCallum (949) 422-6431 alison.mccallum@epicbrokers.com Eric Kitei (949) 228-2779 eric.kitei@epicbrokers.com Switching gears a little bit, we asked him to paint a picture of the “best day in the business” and how it looked for him. He said, “Saturday is our biggest day for sales and service, so I get pretty fired up about that day. We often sell 40 cars and service 150 cars. We have our highest energy that morning and day because it is just a busy day all the way around. Being part of that is an absolute rush, and we have sunshine to top it off. I love sunshine so much.” When we asked him if he’d ever experienced an “aha” moment in his career and how it mattered in his life and work, he told us, “I started my first general manager job in 1992 at a Honda store that had never done well. I focused on teamwork. We pulled together and did whatever it took to win. Toyota had always beat that store in the market, but we outsold Toyota for 42 months in a row. It was thrilling. That is when everything started for me.” He continued, “The biggest thing I learned from that experience was the importance of caring for everyone on your team. ‘Care’ is the one word that takes a business and turns it into a family. If you genuinely care about your people, they care back. People can’t wait to get to work and don’t want to leave.” Next, we asked Brad how he came to be involved with GLANCDA. He told us that when he first arrived in California, a friend introduced him to Daryl Holter, a board member. “I told him I wanted to get involved, he recommended the organization, and I joined immediately.” He told us it has been a pretty amazing experience. “GLANCDA lets our voices be heard in all the places where it needs to be heard to protect us against laws that are not dealer friendly or advantageous.” Further, he explained, “When you join, you are giving back to the business that has been so good to you. It is great to be a part of helping the dealer body have dealer support.” We then wondered how his membership in GLANCDA has benefited him and the business and what he would say to someone thinking of joining. He said, “This organization has the best interests of the dealer body in mind. When you join, your membership shows you truly care about the industry and making the dealer business as good as possible.” Community service is an important part of any dealership, so we asked Brad to tell us about the experiences he and his dealerships have had in this effort. “We always look for good things to help the community every month and quarter,” he told us. “We just adopted the highway around the dealership and donated an entire workout gym for the fire station down the street. We always have something going on.” We then asked him to share with the GLANCDA readers and us what he does for fun, if he has any hobbies, and to tell us about his family. He told us he enjoys racing cars, although he doesn’t currently own a race car. “I want to get back to that,” he said. Also, he told us his family “tries to get on the boat at least once a weekend. We all love boating.” “I met my wife Jill in Indiana because our parents are friends,” he continued. “We lived on a lake four houses away from each other and went out for a date on a boat. That was it. We’ve been married now for 33 years.” He and Jill have three children: daughter Kylie (32), son Quincy (30) and another son, Cooper (26). “My two boys work with me. One is a general sales manager, and the other is our sales and e-commerce director. My daughter works for the Mullen agency for Acura, so they are all in the business.” He and Jill also have three grandchildren. “We spend a lot of time together,” he said, smiling. We asked for a final summary of our interview and how he wanted to end the article. His response was simple. “You have one life, one time and one try. Every day matters and is a blessing. Enjoy it to the fullest.” Good advice, indeed.
The past two years have seen auto retailers adapt to limited vehicle inventory and pandemic restrictions while driving profits to new heights. Now dealers face rising interest rates – a critical concern for an industry that relies on capital to fund operations and growth. For some, it’s time for a balance sheet review and risk management reset. Changing Conditions Dealers Must Watch The Fed (Federal Reserve) has already taken aggressive steps by raising rates to throttle persistent inflationary pressure in the U.S. In the past year, we’ve seen the Fed hike the short-term rate by 3.00% (300 basis points). But with low inventory and reduced need for floor plan loans, many dealers haven’t yet felt the full impact of rising rates. 1-Month CME Term SOFR Since the Beginning Of The Pandemic As you imagine what’s next for the economy and your dealership, the impact of rising rates comes into sharper focus. For instance, if vehicle supply and demand start to realign, higher inventory levels could mean more floor plan loans on balance sheets. As you look at business assets, the recent surge in inflation strengthening real estate values could provide an additional source of funds that you can tap into if needed. Unfortunately, when it comes to expansion and new construction, inflation will cut the other way by driving up building costs and the loans needed to finance them. Sustained volatility in economic and market conditions makes planning for these possibilities and others both challenging and critical. Your risk management planning needs to focus on balance sheet moves available to you today – options that may be closed off tomorrow – to protect your dealership from economic and rate volatility and keep your cost of capital low. The Right Time For A Risk Management Reset By Brandon Artigue, Director, Financial Risk Management, Truist Securities
Actions To Get Ahead As economic and market conditions are shifting, you’ll want to ground your capital decisions in your business plans for your dealership and your personal goals as an owner. You can walk through a few steps – on your own or with your banker – to gauge the impact that rising rates will have on your business and identify actions you can take to mitigate their effect: Step 1 – Start with your goals and plans: Balance sheet risk management starts by asking, “Where will my business be in five years?” Your goals might lead you to look for funds to grow, seek ways to release capital to equity holders or lenders, or explore other restructuring moves that might accomplish a bit of both. Timing of those capital flows matters, and your options may look very different if you’re planning to exit the business versus being committed for the long haul. Step 2 – Evaluate funding flows: Look at where you need funds, where you have them, and what sources (and especially at what cost) you can tap into to find capital. What happens to your cost of capital and valuation as rates rise? Where do you have needs in the future that will likely have to be met with additional, higher-cost capital? Have you considered ways to manage cash more strategically now that effective liquidity management can yield elevated returns? Step 3 – Envision what the future looks like for your dealership: Add the dynamics that you expect will change over the coming years. When do you think floor plan inventory will return to normal levels? One year? Two years? Potentially a longer time frame? What do higher construction costs mean for your dealership? Will the economy cool before you have to undertake your next building project? What changes will the ongoing electrification of vehicles and any regulatory shifts bring to your dealership? Step 4 – Get specific about actions you should take: When you’re protecting yourself in a rising rate environment, your primary move is to raise capital earlier when rates are lower and consider financial instruments like swaps as insurance. It doesn’t make sense for all situations, but commercial real estate and blue-sky loans are often amenable to this strategy. As you’re thinking about what works for your business, some of the strategies below might fit your situation: • If you expect inventory to return to more normal levels but want to protect your business from the risk of higher floating rates, you could target more liquidity to cushion against increased interest expense on floor plan lines. Or, to protect your bottom line, consider fixing rates on other outstanding loans that may currently be variable and subject to future rate hikes. • If you want more cash to invest in growth or to be ready for whatever comes next, you can secure loans now. Consider a cash-out commercial mortgage that, if fixed, could protect you from higher interest rates down the road and give you funds for capital expenditures like renovations or preparing for the shift to EVs. If rates continue to climb, you’ll have the peace of mind of having funds at a lower cost to cover future uncertainty. (Don’t forget that the cashout proceeds from the loan can be earning interest all along.) • If you need cash for family/shareholder dividends or to finance a transition or succession, think about a dividend recap, particularly if you need liquidity now while you’re continuing to make moves that could help your dealership draw a higher valuation in the future. Or, as mentioned before, you could tap into increased real estate values to provide these proceeds. Step 5 – Look at all elements of financial risk: Interest rates may be front and center, but a comprehensive approach to financial risk needs to look beyond the cost of capital. Cyberfraud threats and weather events, along with business property, lot inventory, and liability exposure, can have a devastating effect on a thriving dealership. Insurance can protect you from events that can put your dealership at financial risk – talk to Truist’s McGriff Insurance to see how we can help. Preparing your dealership for a range of financial possibilities should be a priority for you and your financial advisors. With a rising rate environment, now’s the time to talk to your Truist Dealer Services relationship manager about a balance sheet risk management review. Have You Taken Measures to Keep Your Cost Of Capital Low While Rates Rise? Preparing your dealership for a range of financial possibilities should be a priority for you and your financial advisors. With a rising rate environment, now’s the time to talk to your Truist Dealer Services relationship manager about a balance sheet risk management review. 15 Pub. 10, Issue 1
Turn heads. Advertise in this magazine and let the entire industry know who you are. 801.676.9722 | 855.747.4003 thenewslinkgroup.org sales@thenewslinkgroup.com 16
Running a dealership comes with its share of uncertain terrain. But one thing is certain. Our Dealer Financial Services team is dedicated to being by your side with the resources, solutions and vision to see you through. John Alexander john.f.alexander@bofa.com 213.621.8724 business.bofa.com/dealer Making business easier for auto dealers. Especially now. “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, 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. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: | Are Not FDIC Insured | Are Not Bank Guaranteed | May Lose Value | ©2022 Bank of America Corporation. All rights reserved. 4826555 08-22-0145 Running a dealership comes with its share of uncertain terrain. But one thing is certain. Our Dealer Financial Services team is dedicated to being by your side with the resources, solutions and vision to see you through. John Alexander john.f.alexander@bofa.com 213.621.8724 business.bofa.com/dealer Making business easier for auto dealers. Especially now. “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, 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. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: | Are Not FDIC Insured | Are Not Bank Guaranteed | May Lose Value | ©2022 Bank of America Corporation. All rights reserved. 4826555 08-22-0145
By Bank of America Corporation While there are many considerations in running a thriving dealership, one of the most important – and often overlooked – is developing and maintaining a succession plan. A strategy that allows for the transfer of ownership to the next round of leaders – whether family members, a trusted partner or an outside buyer – will position you and your business for future success. Why Now? Having a succession plan is important for many reasons; however, in today’s environment, there are three crucial reasons that rise above the rest: 1. There’s a lot of buy/sell activity in the industry and accelerated consolidation. If your long-term plan is to exit the industry, you should consider the current market valuations and buyer interest. 2. The U.S. is on the verge of material changes in tax laws that could affect your finances and the value of your business if passed on to future generations. The estate and gift tax exemption, currently at a historic high of $12.06 million per person or $24.12 million per married couple, will drop by half in 2026 when the current tax law lapses. It could drop even faster if Congress passes a new law before 2026. 3. The market, labor costs, supply chains and other factors influencing dealerships continue to fluctuate. As the pandemic brought home to us, every business needs a plan in place in case top leadership can’t run day-to-day operations. Consider Your Priorities To begin the succession planning process, you need to identify your goals. Perhaps you’d like to sell – to family, management or a third party – to generate liquidity. You may also want to maintain some level of control of the business, particularly during a transition, if you’re gifting or selling the business to family members or selling to trusted employees. Or, you may want to step away completely and allow a third party to take over. 18
In addition to identifying your goals, it’s important to consider how your decision will affect employees and the community to assess whether your actions align with your goals. Finally, you’ll want to consider the financial implications of your decision, whether it’s reducing the amount of taxes you pay or generating liquidity for future needs. Identify Key Players One of the most critical succession planning decisions is determining the organization’s future leadership. While it can be difficult and emotional to talk with family and key managers about the future, it’s an essential piece of the process. An honest talk about your goals and theirs will help clarify your options and develop a more realistic succession plan. Facilitating the process will be two crucial teams: internal and external. Your internal team will consist of key family members, senior dealership managers, your banker, lawyer and accountant. Your external team will consist of advisors who think broadly and are strategic and defensive, like a transition attorney, estate lawyer, investment bank and appraiser or auditor. Maximize the Value of Your Dealership Once your team is in place, you’ll want to get your documents in order. These include: 1. Financial and business information: You should pull out your business’s financial statements and consider conducting an audit if you plan to sell the dealership. An audited statement is a more powerful statement to share with a prospective buyer. 2. Updated appraisal: An appraisal will compare your business to other dealerships, their gross margins and growth rate. Key metrics are important, whether you’re selling or benchmarking the success of your business for future managers. 3. Strategic plan: It’s an excellent time to create or update the strategic plan for your dealership. It will help you look at your dealership in the context of how the industry is changing and evolving. Opportune times to update your strategic plan include any time you experience changes in your family situation or senior management team. Initiating a succession plan can be emotional, and the process will take time. However, once you get started, you’ll find relief in clarifying your goals, understanding the intent of your family and senior managers and creating strategies that maximize the value of your business and legacy. © 2022 Bank of America Corporation 19 Pub. 10, Issue 1
By Sam Celly, BChE, MChS, JD, Certified Safety Professional REFRIGERANT RECYCLING REQUIREMENTS FOR MOTOR VEHICLES UNDER CLEAN AIR ACT (CAA) 20
Since July 1992, regulations promulgated under the CAA require that motor vehicle air conditioning refrigerant be recycled. In 2006, auto dealers in the San Francisco area were penalized for violations arising under this act. Serious penalties and legal drama followed. (https://www.epa.gov/archive/epapages/ newsroom_archive/newsreleases/bfbf6466f34e57b78525736 8007177bc.html.) We must note that these CAA regulations are federal regulations and are applicable to all auto dealers in the U.S. and not to San Francisco dealers alone. To achieve compliance under this regulation, dealers must act as follows: • Clean Air Act Section 609 Technician Certification Program: All employees working on A/C systems must be trained and tested by a program approved by EPA on how to properly recover and recycle refrigerant (such as Freon 12, HFC-134(a) or any other EPA approved refrigerant). • Clean Air Act Section 609 Approved Equipment: Section 609 mandates that technicians must use EPAapproved equipment to perform refrigerant recovery and recycling. Visit https://www.epa.gov/mvac/ section-609-certified-equipment for a list of approved equipment. Technician Certification: All shop employees repairing/ servicing/diagnosing or working in any way on A/C systems must receive training and a certificate from an EPA-approved training program. The list of training programs is available at https://www.epa.gov/mvac/section-609-techniciantraining-and-certification-programs. We note that training programs on A/C systems provided by auto manufacturers are a requirement to repair and service automobiles, but they do not, in any shape or form, help in compliance with this law. Training programs provided by other government bodies such as the South Coast Air Quality Management District also do not help achieve compliance with this law. The training program undertaken by the employees must be on the EPA-approved list. We recommended that you do not allow any employee without training to work on A/C repair or service unless the employee has provided the management with a copy of certification from an EPA-approved body. A copy of the certificate should be retained in the Black Box under the file “Air Quality” and a copy sent to Human Resources (Business Office) for retention in the employee file. You may need a copy of the certification three years beyond the date of departure of the tech! (More reading on this issue is available at https:// www.epa.gov/mvac/epa-regulatory-requirements-mvacsystem-servicing.) 21 Pub. 10, Issue 1
Straight Talk on Refrigerant Recycle Training The Law: Federal law prohibits releasing CFC-12 into the atmosphere. The prohibition on venting Freon-12 to the atmosphere has been in effect since 1992. This 1992 regulation established standards for equipment that recovers and recycles CFC-12 refrigerant from motor vehicle air conditioners, rules for training and testing technicians to handle this equipment, and record-keeping requirements for service facilities and for refrigerant retailers. Another rule, published in May 1995, established a standard for equipment that recovers but does not recycle CFC-12, and training and testing technicians to handle this equipment. Approved Equipment: Technicians repairing, or servicing Motor Vehicle Air Conditioners must use either recover/ recycle or recover-only equipment approved by the EPA. The EPA-approved recovery/recycling equipment cleans the refrigerant so that oil, air, and moisture contaminants reach acceptably low levels. This dealership has selected approved equipment from the EPA-approved list. The EPA list is available at https://www.epa.gov/mvac/section-609-certifiedequipment. Technician Training and Certification: Technicians who repair or service CFC-12 and HFC-134a motor vehicle air conditioners must be trained and certified by an EPA-approved organization. R-1234yf is now the choice of refrigerant for new models of automobiles. As of Jan. 1, 2018, technicians are required to show their certification card to purchase R-134a and R-1234yf refrigerant in quantities of two pounds or more. Training programs must include information on the proper use of equipment, the regulatory requirements, the importance of refrigerant recovery, and the effects of ozone depletion. To be certified, technicians must pass a test demonstrating their knowledge in these areas. Recent Happenings: EPA has started rigorous enforcement against dealers and has fined dealers $20,000+ for having non-certified technicians work on air-conditioning systems on automobiles. As a technician, you are required to adhere to this training and certification in a diligent manner. What To Do: All technicians must obtain a copy of their certification and forward a copy to the Service Manager and a copy to the Business Office for retention in the employee files. Employees not certified must decline all A/C-related jobs and notify the dispatcher and the Service Manager of their inability to do the work. Anyone working on A/C without certification is in violation of Federal law and is subject to disciplinary action including termination from the dealership. If you have lost your certificate card, please contact the issuance company to receive a new copy immediately. If reissuance is not possible, please retake the training from the list of EPA-approved training programs in the link provided in the paragraph below. How Do I Verify My Certification: Only EPA-approved training programs are valid for the purposes of this law. Training from auto manufacturers or other governmental agencies such as SCAQMD is NOT valid for the purposes of this law. The list of EPA-approved training programs is available at https://www.epa.gov/mvac/section-609technician-training-and-certification-programs. Verify that the training certificate issued to you is from an agency on the approved list. If not, complete your certification through one of the agencies listed on the site prior to working on any A/Crelated job. I Am a Lube Tech or in the Body Shop: If you are a lube tech, sooner or later you will get to be a regular tech, so get your A/C training certificate now. The language of the federal law is very expansive. It states that “… no person repairing or servicing motor vehicles for consideration may perform any service on a motor vehicle air conditioner involving the refrigerant.” So if you work in a body shop installing A/C hoses or condenser, it involves the refrigerant and hence requires certification. ©Celly Services, Inc. 22
One of the significant challenges of running any automotive dealership is moderating expenses. General managers and dealer principals are responsible for controlling many costs, including payroll, vehicle inventory, floorplan, and parts inventory. Monthly bills add up, and there is less revenue to put toward necessary resources. A major opportunity for expense control may be the dealership’s software stack. According to the 2022 DMS Market Report by the Dealer Tech Nerd, the average franchise dealership spends $30,000 a month on software. With a mindset shift and careful evaluation, those costs can be reduced. A Breakdown of Dealership Software Costs Dealership software can be broken down into 29 categories. Here is an outline of the most expensive and necessary solutions for a typical franchise dealership: • The Dealer Management System or DMS is the core hub that connects all dealership data between departments and even multiple stores within a dealership group. The average monthly cost is $6,300. • Many areas of a business use Customer Relationship Management (CRM) tools to execute, track and analyze communications with customers and prospects, and maintain a historical profile of these interactions to help grow relationships. This software costs $2,000 per month. • Equity Mining software helps a dealer use customer information from a CRM and evaluate the revenue potential of a customer, considering trade-ins, future potential services, and more. This tool costs $2,000 per month. • Vehicle Inventory Management is software that holds the details for each vehicle on the lot, including owner history, the going market value, photos, and more. This software averages $1,700 per month. Amounts vary by category, but all tools contribute to this significant monthly cost. Knowing the value of each tool will allow you to evaluate your needs and consider how you might reduce costs. How to Evaluate Your Software Integrations Take stock of the software vendors you use. Gather your contracts, invoices, and any other information. The tools are likely integrated with your DMS. Here are some suggestions on how to evaluate them: • Take Note of Redundant Services: As tools evolve and update, the features between some of them can become similar. After several enhancements, the CRM you originally purchased to manage communications with your contacts may now be able to manage your website. This may no longer be necessary if you are also paying for a website maintenance tool. Do not immediately cut out every duplicative resource. Make sure any tool you decide to remove from your stack can be sufficiently replaced. Consider how much longer you have on individual product contracts. It may be financially beneficial to wait before ending your relationship with one or more of them. • Tie The Value of Each Vendor to Historical Revenue: Some software in your dealership may play a significant role in the success of your business, and others may have less of an impact. If you find some tools fall into the latter category, you may want to consider eliminating them. The Secret to Controlling Dealership Expenses By Sharon Kitzman , VUE DMS 24
Beyond expense control at your dealership, consider why a particular tool is not benefitting your business. Is it not doing its intended job, or has your business changed in ways that make the tool no longer a good fit? This is a great opportunity to involve your staff by discussing their usage of the software and how well they like it. If the general purpose of the software is valuable, but the current product does not provide a good experience for your staff, consider replacing the software with another vendor rather than removing it altogether. Replacing a key tool that the staff does not value with a better one could increase your revenue. • Consider How Efficiently the Software Works Together: Dealership software should be integrated in a way that can share data efficiently. Data typically flows through the DMS, so consider this during your evaluation. If your tools are not communicating with each other, that means some of your staff may need to log into different interfaces and move data manually. It could also mean you are not getting the complete picture of what is happening in your dealership. Your staff may spend more time dealing with the tools and less time bringing in revenue. Putting a focus on the integration of your software with your DMS can increase the efficiency of your dealership and offset costs. • Reduce Your Software Costs but Not the Value: Now that you have evaluated your software stack, chosen what software can be removed, and have a better picture of how your tools tie to overall revenue, it is time to take action. Talk to selected software vendors about finishing but not renewing contracts. Make sure your chosen tools integrate well with your DMS. This should not only reduce costs but make the combination of your chosen tools more valuable to the dealership. Consider what you can do with these savings to benefit your dealership even further. Can you upgrade any software that would increase productivity? Perhaps somewhere else in the dealership needs an increase in budget. Can these savings go towards increasing customer satisfaction? These are all possibilities that may not have been an option before. Good luck reducing your costs and increasing your profits! Sharon Kitzman leads the launch and long-term growth of VUE DMS. Her expertise in DMS technology is key to helping VUE clients to optimize their operations with innovative solutions. Previously, Sharon managed the strategic direction and product development for Reynolds & Reynolds and Dealertrack. Her experience spans every area of dealership software development including sales, marketing, product lifecycle management, process re-engineering, OEM management, professional services and customer service. Sharon is a recognized leader in the automotive industry and has received many accolades including Automotive News Top 100 Leading Women 2015 and 2020, Auto Remarketing Women in Retail 2021, and AutoSuccess Women at the Wheel 2021. She has a Bachelor of Business Administration from Ohio State University. 25 Pub. 10, Issue 1
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