PUB. 5 2024 ISSUE 3 THE OFFICIAL PUBLICATION OF THE VIRGINIA AUTOMOBILE DEALERS ASSOCIATION Transparency and Talent on the Minds of Automotive Association Leaders It’s Time to Use a Microscope to Examine Your Advertisements Dealers Step Up to Help Helene Impacted Regions
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?® JL Winslow, jl.winslow@bofa.com business.bofa.com/dealer ©2023 Bank of America Corporation. All rights reserved. DFS-699-AD 5949042 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.
©2024 Virginia Automobile Dealers Association (VADA) | The newsLINK Group LLC. All rights reserved. Virginia Auto Dealer is published four times each year by The newsLINK Group LLC for VADA and is the official publication for the association. The information contained in this publication is intended to provide general information for review and consideration. 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 specific circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the association, 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. Virginia Auto Dealer is a collective work, and as such, some articles are submitted by authors who are independent of VADA. While VADA and The newsLINK Group encourage 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 newsLINK Group at (855) 747-4003. CONTENTS Pub. 5 2024 Issue 3 Virginia Automobile Dealers Association A Message From President and CEO Don Hall 4 Transparency and Talent on the Minds of Automotive Association Leaders 6 VADA PAC United as One for the Franchise System 8 Loyalty’s Perno Named TIME Dealer of the Year for Virginia 2025 Dave Perno Wins National Recognition for Community Service and Industry Accomplishments 10 VADA ‘25 11 It’s Time to Use a Microscope to Examine Your Advertisements By Barrie Charapp, Beaty, Charapp & Weiss LLP 16 4 11 16 Dealers Step Up to Help Helene Impacted Regions 21 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 26 Leadership 27 Thank You VADA Allied Members 28 Thank You VADA Program Partners 30 The VADA ASE Partnership Advancing Automotive Technology Education vada.com 3
Transparency and Talent on the Minds of Automotive Association Leaders This summer, I spent a few days with my southern retail automotive association executive peers in the foothills of the Appalachian Mountains of North Carolina. It’s an annual opportunity to gather and talk about our own work and issues on our members’ minds. The biggest topic of discussion: state and federal regulators putting dealers in the bullseye over advertising practices. And, to be frank, for good reason. As dealers face margin pressure on new vehicles, they are increasingly forced to find creative ways to maintain profitability. While understandable, it’s important you know — and if you know, follow — state and federal advertising practices and fee disclosures. It takes only a Google search to find examples of dealerships nationwide that have been targeted by regulators. The FTC, of course, has pushed A MESSAGE FROM PRESIDENT AND CEO DON HALL the CARS Rule, implementation of which has been postponed pending a judicial review pushed by the National Automobile Dealers Association and our Texas counterparts. While we continue to believe the Rule adds time, costs and complexity for car buyers and makes it harder to conduct online sales, it’s proof positive that your livelihood is under the Feds’ microscope. That delay aside, you are still bound to clear-cut rules in both the federal and state law: Dealers must disclose all fees upfront in advertising. Yet, many still hide additional costs until the final stages of the buying process. Some dealers do so intentionally. Others aren’t aware of the rules. There’s no excuse for either. This practice of withholding fees is not only illegal but also undermines consumer trust. Some dealerships argue they have no choice, citing the fact that the competition may be doing it or the razor‑thin margins imposed by manufacturers — particularly with the rise of electric vehicles, which often come with no margin at all. No matter the reason, the argument won’t stand up to scrutiny. The FTC and state attorneys general are increasingly holding dealerships accountable, and as pressure mounts, our businesses must adapt or face heavy fines — and worse, reputational damage. 4 Virginia Auto Dealer
Meanwhile, the biggest push for change isn’t coming from regulators — it’s the consumers. Consumers approach direct‑to-consumer sellers like Tesla, Lucid and Rivian with rose-colored glasses. These manufacturers are challenging traditional dealership models by eliminating haggling and having the appearance of standardized pricing. Try it yourself if you haven’t done so already: Visit any of these manufacturers’ websites, go through the sales process and ask yourself if your online or in‑person transaction process is as simple and clear. If dealerships don’t adjust their practices soon, they risk falling behind — and the “so-called experts” will use it to validate the direct-sales model over the franchise system as the future of retail automotive sales and service. The most successful dealerships are the ones that provide a great customer experience — part of which is price clarity at the get-go. And speaking of great service — you won’t have a chance to provide it if you don’t have a team who cares about doing so. Beyond regulatory challenges, our industry also faces a recruitment crisis. Technicians, sure. But I’m talking about comptrollers, sales and F&I, too — dealers simply lag behind other industries in offering competitive benefits like health plans, paid time off and even air‑conditioned service department work environments. A study by Automotive News found work-life balance woes were the No. 1 reason for employee discontent among 1,000 people surveyed — a factor for 38% of those who’d found another job or considered leaving their current role. Increased workload without additional pay followed at 27%, and toxic workplace culture was third at 22%. In an era where workers have more options, companies that fail to improve working conditions and benefits will continue to struggle with both recruitment and retention. If we do not adapt and evolve, government intervention and shifting worker and consumer preferences will force changes that could reshape the industry entirely. The path forward requires more than just compliance — it demands a proactive approach to leadership and innovation. Those who rise to the occasion will set the standard for the future of automotive retail. Keith A. Laudenberger, CPA klaudenberger@cbmcpa.com Councilor, Buchanan & Mitchell’s automotive dealership accounting team is your trusted partner in achieving your financial goals. Our professionals are experienced leaders with a deep comprehension of the challenges and opportunities faced by the automotive industry. Contact us today if you are ready to experience personalized service. cbmcpa.com 301.986.0600 7910 Woodmont Ave, Suite 500 Bethesda, MD 20814 John R. Comunale, CPA jcomunale@cbmcpa.com STEERING YOUR FINANCIAL SUCCESS IS OUR BUSINESS Tax Planning & Preparation Cost Segregation Analysis Mergers & Acquisitions Audits, Reviews & Compilations Business Process Review Succession Planning LIFO Inventory Fraud Prevention Buy/Sell Agreements Business Valuations Financial Planning Wealth Management Our Services: vada.com 5
vadapac.com VADA PAC United as One for the Franchise System Virginia dealers fiercely compete with one another. But when it comes to politics, they are united as one under the Virginia Auto & Truck Dealers Political Action Committee. Auto dealers support pro-business, pro-dealer candidates regardless of political affiliation. Our support gives us access to candidates and lawmakers to share our stories and discuss the important issues impacting the auto industry. We need every member of VADA to contribute to our PAC, including dealership owners, general managers, dealer operators, parts and service directors, finance and insurance managers, and used/new car managers. Whether you are an owner, GM or principal, give to the PAC. Forward this message to your leaders and have them give, too. Even a few dollars from sales or service members is appreciated. If every one of Virginia’s 61,000 retail automotive employees gives, consider the impact. INVEST IN YOUR FUTURE BY CONTRIBUTING TO THE VIRGINIA AUTO & TRUCK DEALERS PAC Our dealerships rely on a strong, united voice to tell our story to elected officials who craft the regulatory rules of the road impacting our stores. Every dealership role, from owners and general managers to salespeople and technicians, depends on the pro-business environment that comes from supporting candidates who value the work our industry does every day in keeping customers on the road, creating jobs and serving as an economic engine for Virginia. Securing pro-dealer laws and regulations takes hard work, and it’s a fight we can’t win unless we have your investment to help elect candidates who support our industry. Please give to the Virginia Auto & Truck Dealers PAC and help us continue on the road to success. 6 Virginia Auto Dealer
Everyone wins when your dealership simplifies and streamlines registration and titling workflows. Your team finalizes more deals with ease, your dealership realizes revenue gains when fast title release drives quick trade-in turns, and your customers drive away with a great last impression to boost CSI. Only Dealertrack offers a complete suite of reg and title solutions backed by Cox Automotive to simplify the complex and send profits soaring. User-friendly reg & title Today’s customers want to be in and out of your dealership as fast as possible. You can simplify and streamline deal finalization with digital solutions that help your team catch errors, drive accuracy, and complete and submit paperwork directly to the Virginia DMV in under 4 minutes1. Customers are happier when you get the deal out the door faster — and that’s reflected in higher CSI. Smooth cross-border deal finalization Your dealership may hesitate to take on the complexity of out-ofstate reg and title transactions. Yet with the right technology, your team can navigate each state’s specific reg and title requirements quickly and accurately with deal checklists, while driving the best deal forward via key connections to every state DMV nationwide. Straightforward trade-in title release Used vehicle shoppers often find a shortage of options when it comes to selecting their best-fit vehicles. Getting trade-ins front-line ready fast is vital to boost your inventory and keep your cash flowing. Yet it typically takes 20 days or more to get a clean lien and title for vehicles taken in on trade. An expedited trade-in titling solution can streamline your process, helping you gain liens and titles up to 70 percent faster2. Shoppers get more vehicle choice, and you optimize your process to help keep your cash moving. Simplify your way to business growth Backed by the power of Cox Automotive, Dealertrack’s complete suite of registration and titling solutions can help you simplify your way to business growth. Simplify your way to business growth today. Schedule a no-obligation call with Kim Haddaway, regional sales manager for Virginia, to discuss how Dealertrack solutions streamline workflows to send profits soaring. Simplify Your Way to Profitability Streamline reg & title workflows with Dealertrack. 1 Dealertrack User Timing report through Google Analytics 1/1/2023 to 12/31/2023. 2 Based on average industry timeframe for vehicle title release and vehicle payoff process of 18+ days, as determined by 2023 Dealertrack data. <4min submission of in-state transactions1 70% faster payoff, lien and title release2
Loyalty’s Perno Named TIME Dealer of the Year for Virginia 2025 Dave Perno Wins National Recognition for Community Service and Industry Accomplishments The nomination of Dave Perno, president of Loyalty Toyota in Chester, Virginia, for the 2025 TIME Dealer of the Year award was announced by TIME. Dave is one of a select group of 49 dealer nominees from across the country who will be honored at the 108th annual National Automobile Dealers Association (NADA) Show in New Orleans, Louisiana, on Jan. 25, 2025. The TIME Dealer of the Year award is one of the automobile industry’s most prestigious and highly coveted honors. The award recognizes the nation’s most successful auto dealers who also demonstrate a long-standing commitment to community service. Dave was chosen to represent the Virginia Automobile Dealers Association in the national competition — one of only 49 auto dealers nominated for the 56th annual award from more than 20,000 nationwide. “The ability to help people grow and succeed in the automotive business — including my own sons Shaun and Ryan — has been one of the most rewarding parts of my career,” Dave said. Dave himself learned the business from the bottom up at his father’s Ford dealership in Chicago, where he started as a porter at age 14. He then washed cars, swept floors and did everything he could to learn the inner workings of 8 Virginia Auto Dealer
the dealership. He attended the Northwood Institute (now Northwood University) and DePaul University while working his way through the departments. He even met his wife, Kathy, when she brought her car in for service. In 1977, Dave’s parents sold the store and moved to northern Virginia, with Dave and his wife following suit. He worked at various dealerships throughout the region, consistently rising to new levels of management. By 2003, he was a partner/operator at Priority Toyota and Priority Used Car Supercenter in Richmond, Virginia, and in 2014, he acquired 100% ownership of Priority Automotive. Dave rebranded the group with a new name, Loyalty Automotive, and began to expand his footprint. Today, he oversees five new car stores in Chester and Williamsburg, Virginia, representing brands Cadillac, Chevrolet, Nissan, Toyota and Volkswagen. His sons, Shaun and Ryan, are the next generation to continue his family’s legacy. “A long time ago, I learned the value and power of loyalty — to my customers, to my employees and to my community,” he said. “That’s where the name of my company originates.” Dave credits his father with giving him the foundation to launch his successful career. During those early years at his father’s store, he learned everything from accounting to car repair to F&I (Finance & Insurance). “Understanding those different job functions taught me how to lead and motivate and adapt to the ever-changing world of the automotive industry,” he said. “My father also instilled in me the value of hard work, education and giving back.” An active member of the Virginia Automobile Dealers Association, Dave has served on the group’s board for the past 10 years and was chair from 2020 to 2021. “We have worked diligently to advocate for car and truck dealers on the issues and industry challenges that matter most to their businesses,” he said. “And we have made a significant impact by strengthening Virginia’s laws to protect dealers from unfair trade practices.” Another way Dave supports the auto industry is through his scholarship program with Reynolds Community College in Richmond, Virginia, which he created to address an industry‑wide technician shortage. Students receive scholarship money for the two-year program, and they apprentice in Loyalty Toyota’s service department while studying to become a certified Toyota technician. “For students, it’s a chance to join the Loyalty service team right out of college,” he said. “And for us, it’s a great way to find new qualified technicians.” Dave helps young students by participating in the Kids In Need Foundation’s Supply A Student program. Each year, his dealerships fill 400 backpacks with school supplies which are distributed to children in need. He has also donated more than $700,000 over the past seven years to buy state-of-the-art football helmets to protect young athletes at area schools from concussions and head injuries. Golf tournament sponsorships are another way that Dave gives back. Beneficiaries include Colonial Heights Food Pantry, VCU Massey Comprehensive Cancer Center, American Cancer Society, and Chesdin Landing Women’s Association, to name a few. He has also donated funds to high school athletic programs, the Virginia War Memorial, Susan G. Komen and many others. “Everything we do in the communities we serve is done with purpose and a company-wide conviction that we can do more than just sell cars,” Dave said. “We can be a vehicle for change.” Dealers are nominated by the executives of state and metro dealer associations around the country. A panel of faculty members from the Tauber Institute for Global Operations at the University of Michigan will select one finalist from each of the four NADA regions and one national Dealer of the Year. Three finalists will receive $5,000 for their favorite charities and the winner will receive $10,000 to give to charity, donated by Ally. In its 14th year as the exclusive sponsor, Ally will also recognize dealer nominees and their community efforts by contributing $1,000 to each nominee’s 501(c)3 charity of choice. Nominees will be recognized on AllyDealerHeroes.com, which highlights the philanthropic contributions and achievements of TIME Dealer of the Year nominees. “At TIME, our commitment to recognizing the exceptional contributions of automotive dealers remains as strong as ever,” said Jessica Sibley, CEO of TIME. “The TIME Dealer of the Year award continues to celebrate those who not only excel in their profession but also make a meaningful impact in their communities. We are thrilled to continue this legacy in partnership with Ally.” Doug Timmerman, Ally president of Dealer Financial Services, said, “Auto dealers are the backbones of their communities, providing civic support and significant business leadership. Ally is proud to recognize the unwavering commitment these TIME Dealer of the Year nominees are living every day through their volunteerism, sponsorships and support of charitable causes. They are the epitome of community heroes, making important and positive impacts in the lives of the people they serve.” Dave was nominated for the TIME Dealer of the Year award by Don Hall, president and CEO of the Virginia Automobile Dealers Association. Dave and his wife, Kathy, have three children. vada.com 9
vada.com/convention Jeffrey McMillion, PNC Bank - Dealer Finance 615 Third Avenue South, Suits 604 Nashville, TN 37210 (878) 208-2099 | jeffrey.mcmillion@pncbank.com Daniel P. Cannaday, VP, PNC Bank - Dealer Finance 1 E. Pratt Street Baltimore, MD 21202 (443) 605-7334 | daniel.cannaday@pncbank.com 10 Virginia Auto Dealer
Consumers form their first impressions of dealers through advertisements. The majority of dealers advertise through the internet, allowing dealers the ability to change and update their advertising in real-time, several times a day. Advertising compliance is critical for not only federal and state regulators but consumers. The FTC and state regulators have certain objectives for advertising compliance, which are: (1) the advertising must be truthful and not misleading; (2) advertisers must have evidence to substantiate (i.e., back up) their claims; and (3) advertisements may not be unfair. These objectives are not new and are well-known to dealers. Under Regulation Z (which governs consumer credit sales) and Regulation M (which governs consumer leases) of the Truth in Lending Act (TILA), dealers’ advertisements must provide additional mandated disclosures for vehicle financing and leasing that contain “trigger terms.” An FTC hot-button item is properly advertising the price of a vehicle. Now more than ever, consumers are looking for a certain vehicle at an affordable price. Based on the publicity surrounding the FTC’s CARS Rule and actions against dealers by the FTC and state regulators, consumers are on high alert, and the internet has made everyone a “lawyer.” Dealers do not want the headaches associated with legal actions because salespeople did not sell vehicles at the advertised price and overcharged the consumers. A screenshot of an improper advertisement or selling the vehicle at a price over the advertised price is a “gotcha” by a regulator and/or a consumer. Dealers need to follow the roadmap of proper advertising to avoid very costly advertising violations. PRICE The price advertised must be available to everyone. The failure to sell the vehicle at the advertised price is the cardinal sin of bait and switch. Even if a consumer does not know of the advertised price at the time of purchase, the failure to give that advertised price can still lead to a bait-and-switch claim or regulators launching an investigation. The advertised price shall not include any manufacturer incentives or rebates that are not available to everyone. Some dealers believe that advertising a price that is not available to everyone may be solved by a disclaimer. That is a wrong belief, and such a disclaimer is used It’s Time to Use a Microscope to Examine Your Advertisements By Barrie Charapp, Beaty, Charapp & Weiss LLP vada.com 11
by the FTC and regulators as proof that the dealer did not intend to sell vehicles at the prices advertised. No “Bait” Advertising “Bait” advertising is a deceptive sales tactic in violation of section 5 of the FTC Act which prevents unfair or deceptive acts or practices. However, many state laws also prevent bait advertising. For example, Va. Code §46.2-1581 states that “For purposes of this chapter, a violation of the following regulated advertising practices shall be an unfair, deceptive, or misleading act or practice …” Bait advertising, in which an advertiser may have no intention to sell at the price or terms advertised, shall not be used. By way of example, but not by limitation: 1. If a specific vehicle is advertised, the seller shall be in possession of a reasonable supply of said vehicles, and they shall be available at the advertised price. If the advertised vehicle is available only in limited numbers or only by order, that shall be stated in the advertisement. For purposes of this subdivision, the listing of a vehicle by stock number or vehicle identification number in the advertisement is one means of satisfactorily disclosing a limitation of availability. 2. Advertising a vehicle at a certain price, including “as low as” statements, but having available for sale only vehicles equipped with dealer added cost “options” which increase the selling price, above the advertised price, shall also be considered bait advertising. 3. If a lease payment is advertised, the fact that it is a lease arrangement shall be disclosed. MSRP If you list the MSRP only on the advertisement, the MSRP is the price of the vehicle and should be sold at that price (or lower). FTC does not look kindly at advertisements that have the MSRP for the vehicle but due to market conditions, the consumer pays over that price. If you want to charge over the MSRP, the “Dealer’s Price” must state the price you want to sell the vehicle at (even if it’s over MSRP). Listing a disclaimer that states you are charging $10,000 over MSRP due to market conditions is nothing more than evidence that you advertised a price you never intended to sell the vehicle at. Manufacturer Incentives that Require Qualifications Dealers should avoid telling a consumer that they are not eligible for the vehicle’s advertised price because they don’t meet the rebates or incentives that the advertised price includes. If there are rebates and incentives offered by manufacturers that are not available to everyone (i.e., not all consumers are qualified to receive it), or rebates are mutually exclusive (i.e., $1,500 loyalty rebate and $1,500 first-time buyer rebate), those incentives or rebates are deceptive and should not be included in dealer’s advertised price. There may be manufacturer rebates and incentives available based on specific criteria (i.e., military rebate), which can be listed but not subtracted from the advertised price since it may not be available to everyone. EV Tax Credits and Gas Savings A vehicle’s advertised price should not include the Federal EV tax credits that may not be available to everyone. Federal EV tax credits should be treated like manufacturer incentives that require qualifications, thus advertised as an additional item that can reduce the advertised price but is not included in the advertised price. Additionally, stating the advertised price of the vehicle includes estimated gas savings per month or year is a misrepresentation and deceptive. Saving on gas is an estimated cost (not verified) and does not bring down the actual price of the vehicle. It should not be included in an advertised price. Internet Price There is no such thing as an “Internet Price.” Advertising on the internet is the norm and is plain advertising. Under the law, if a dealership advertises a price for a vehicle, that price should be made available to customers whether or not they mention the internet-special advertising. That is why sales staff should understand what you are advertising. A sales manager who did not know that a vehicle was advertised at a price lower than which it was sold to a customer will not insulate the dealer from a lawsuit if a customer later discovers the lower advertised price. It makes no difference whether the customer knew of the lower internet price at the time of purchase or not. Geographic Price There is no such thing as a “Geographic Price.” Dealers shall only advertise the price of the vehicle that is available to ALL consumers/purchasers, whether the consumer lives in your PMA or not. The law does not differentiate between those purchasers in the dealer’s state from those that are out of the state. Dealers cannot give a disclaimer to disclaim the price they are advertising from one group of purchasers from another. This is similar to the violation of having a disclaimer that the advertised price is $X, but due to market conditions, the price may be increased at the point of sale. Dealers must be prepared to sell the vehicle at the advertised price regardless of the geographic location of the consumer. There is no disclaimer that can absolve a dealer from advertising a price that won’t be available to ALL consumers. 12 Virginia Auto Dealer
FREIGHT CHARGE It has become customary in competing markets that the advertised price of a vehicle excludes the “Freight” charged for delivery of the vehicle, which is listed on the Monroney sticker. If you are removing the “Freight” from your advertised price, dealers must remember and adhere to the following: • Clearly and conspicuously (and within reasonable proximity to the advertised price of the vehicle) disclose the amount of the freight to be charged by the model in the advertisement. • Freight cannot be advertised as a range. The exact amount of each model’s freight should be listed. Consumers should easily be able to add the freight amount for the vehicle they are looking at to the advertised price. Dealers often do this by a hyperlink so that they can easily update the hyperlink page should the freight charge change instead of changing the disclosure on every advertisement for freight charge changes. • The freight charge should be the exact amount charged to the dealer. Dealers should consider freight similar to a pass-through charge (paid by the dealer when invoiced and reimbursed by the consumer upon purchase of the vehicle). Customers should not be double charged for freight. If the dealer’s price is the vehicle’s MSRP price, that means the freight is already included and dealers should not do a pencil that has an added charge for freight. • Freight should not be charged on used vehicles. “TRIGGER TERMS” FOR SALES AND LEASES In vehicle sale advertisements, a Regulation Z “trigger term” is: • The amount or percentage of a down payment (i.e., “10% down,” “$1,000 down,” “90% financing,” “trade-in with $1,000 appraised value required”); OR • The amount or percentage of any payment (i.e., “monthly payments less than $250 on all our loan plans,” “pay $23.44 per $1,000 amount borrowed,” “$210.95 per month”); OR • The number of payments; OR • The period of repayment (i.e., “up to four years to pay,” “48 months to pay”); OR • The amount of any finance charge (i.e., “financing costs less than $300 per year,” “less than $1,200 interest”). If any Regulation Z “trigger term” is in a vehicle sales advertisement, then the following disclosures must appear “clearly and conspicuously” and in proximity to the trigger term in the advertisement. 1. The amount of the installment payment; AND 2. The amount or percentage of the down payment; AND 3. The number of installments for repayment (term); AND 4. The “annual percentage rate,” which may be abbreviated as “APR.” Dealers also must disclose if an APR can be increased after the credit transaction is complete. Dealers should not advertise “No down,” “$0 down” or the equivalent in an advertisement unless, in fact, no payments or Add-Ons For dealer-installed add-ons prior to sale, such as roof racks (i.e., hard adds), the advertised price needs to reflect those add‑ons so that the consumer is not deceived into additions to the advertised price. If there are voluntary add-on packages that the consumer may purchase at the point of sale, they can be advertised but should be disclosed as “optional” and not be a required purchase by the consumer to get the price advertised. For example, an add-on package that includes 10 oil changes, all-weather mats, unlimited car washes and rental vehicles is a voluntary package and should not be added to the vehicle’s advertised price but chosen by the consumer at point‑sale. Add‑ons are an FTC hot-button item, and dealers should be wary of preinstalling add-ons to increase the sale price of the vehicle. The FTC does not look favorable to add-ons such as paint protection and etching to vehicles to increase prices for which the consumer has no option but to purchase because they cannot be removed from the vehicle. Dealers should reconsider pre-installing add-ons to vehicles prior to purchase. Compliance Advertisements The “Dealer’s Price” is one that is available to every consumer. When someone walks through your doors and is looking at that vehicle, the customer’s price starts at the “Dealer’s Price” (whether they have seen the ad or not) and the only additions to that should be tax, tags/title, freight (if not included in the advertised price), processing fees (if not included in the advertised price) and add-ons that the consumer voluntarily purchases (at point-of-sale and separately itemized on the buyer’s order). If the consumer meets the qualifications for other incentives offered, the “Dealer’s Price” is reduced for those incentives. Dealers should not be adding qualifying incentives that buyers cannot qualify for (i.e., military or college grad) back into the price and thus increasing the “Dealer’s Price.” To view an example of a compliant advertisement, scan the QR code. vada.com/wp-content/uploads/2024/09/ Compliant-Advertisement.pdf vada.com 13
trade-in of any kind is required at delivery (not even sales tax, license fees or use of any manufacturer’s rebate). Likewise, if manufacturer captives want dealers to advertise “no interest” loans but said the offer is “no interest” because the consumer is buying down his or her own rate through the life of the loan, it is technically not a “no interest” loan and should not be advertised as such. In vehicle lease advertisements, a Regulation M “trigger term” is: • A statement of any capitalized cost reduction or other payment required before or at lease consummation, or by delivery if delivery takes place after consummation, or that no payment is required; OR • The amount of any payment. If any of the above Regulation M trigger terms appear in a vehicle lease advertisement, then the following disclosures must appear “clearly and conspicuously” and in proximity to the trigger term in the advertisement: 1. A statement that the transaction advertised is a lease; AND 2. The total amount of any payment (such as security deposit or capitalized cost reduction) required before or at the consummation of the lease, or by delivery if delivery takes place after consummation, or a statement that no such payment is required; AND 3. The number, amounts and due dates or periods of scheduled payments under the lease; AND 4. Whether or not a security deposit is required; AND 5. In leases where the consumer’s liability is based on the difference between the vehicle’s residual and its realized value at the end of the lease term, that an extra charge may be imposed at the end of the lease term. Many manufacturers are requiring dealers to advertise through their chosen third-party sites that dealers may not have control over all terms and conditions advertised. In the event the third‑party site is advertising a “trigger term” such as the amount of any payment if the follow-on disclosures cannot appear or they aren’t accurate with the third party, dealers should look at changing how they advertise with the third party such as using the advertised price of the vehicle instead. DISCLOSURES Disclosures in advertisements should be “clear and conspicuous” and used to explain an advertised term, not to negate it. Disclosures should: • Tell the consumer what is included and excluded from the advertised price (i.e., freight is included, but tax and processing charge (voluntary and cost of $895) is not included). • State that the MSRP is the Manufacturers Suggested Retail Price, and that the price is set by the dealer. • Have the consumer contact the dealership to verify the vehicle’s availability, options, price and incentive eligibility prior to purchase. • State the processing fee as voluntary and the price the dealer charges for that fee. • Let the consumer know that financing and leasing are subject to credit approval. However, it is noted that dealers should never tell a customer that they must finance through the dealership to get the advertised price. The vehicle should be sold at the advertised price to ALL customers whether the customer is paying cash, using dealer-arranged financing or using their own financing. • Disclose whether the pictures online are stock photos or actual images of the vehicle being sold. If stock photos are used, tell the consumer that it’s a stock photo example and not the actual car itself, and thus, the photos may not reflect the exact vehicle color, trim, options or other specifications. For proper disclosures, dealers should seek legal advice from experienced dealer counsel to determine if their disclosures are appropriate. “CLEAR AND CONSPICUOUS” DISCLOSURES Whether disclosures in vehicle advertisements meet the standard of “clear and conspicuous” depends on whether consumers actually perceive and understand the disclosure in the overall context of the vehicle advertisement. 14 Virginia Auto Dealer
Essentially, there is no set formula prescribed to determine whether a disclosure is clear and conspicuous, the following recommendations should be considered: • The placement of the disclosure in an advertisement should be in close proximity to the claim they qualify (i.e., “trigger” term, the “price” or the incentive to be met). • Consumers should likely notice and understand the disclosures and that they are in connection with the representations that the disclosures modify. Simply making the disclosure available somewhere in the ad, where some consumers might find it, does not meet the clear and conspicuous standard. • The prominence of the disclosure. • Whether there are items that distract and draw attention away from the disclosure in other parts of the advertisement. • If the disclosure is understandable to the intended audience. • For disclosures in audio messages, they must be presented in an adequate volume and cadence. • For visual disclosures in televised messages, they must appear for a sufficient duration. • The size of the font of the disclosure should be readable (i.e., Maryland law requires font size 10 and bold for freight and processing charge disclosures if the charges are not included in the advertised price). • Hyperlinks • The hyperlink’s label should make it not only obvious to consumers to click on it for more information, but it should also show the consumer that the hyperlinked information relates to the qualifying information. • Label the hyperlink appropriately and in a style that is a typical hyperlink. • Since different websites use different signals for hyperlinks, dealers should use similar text, graphics, format and color throughout a single web page for easier identification of hyperlinks by consumers. • If you use a click-through page, it should display the complete disclosure prominently. It should not provide distracting visuals or extraneous information. Any “close” or “click-away” opportunities should be displayed discreetly and not block the disclosure information. • Consumers should not have to scroll to the entire bottom of the page to determine if they qualify for an incentive or financing offer. • If consumers have to scroll, then: • Use text and visual design cues to indicate that scrolling is required. • Text prompts such as explicit instructions should be used to alert the consumer that more information is available. • Avoid placing disclosures at the bottom of the screen with a blank space between the disclosure and the product because consumers may not continue reading or may not scroll to the bottom. vada.com 15
Dealers Step Up to Help Helene Impacted Regions 16 Virginia Auto Dealer
When the storm hits, people in impacted communities need resources and a way to get those resources to them. Thankfully, auto dealers have the means. And several Virginia dealers have stepped up in the wake of Hurricane Helene’s devastation in western North Carolina and eastern Tennessee. At Dick Myers Chrysler Dodge Jeep Ram in Harrisonburg, leaders coordinated with their friends at a nearby Glass & Metals shop to fill a 30-foot box truck with pallets of water to take to Roan vada.com 17
Mountain, Tennessee. The dealership also filled up a Ram ProMaster cargo truck full of food and paper products. “God bless our community for stepping up this past week! Clubs, businesses and families brought trunk loads of supplies for us to transport down! Our employees graciously spent most of their work week unloading cars and Saturday morning loading up the supplies! What an impact a community can make to help others in a time of need!” they wrote on Facebook. Richmond’s Whitten Brothers Chrysler Jeep Dodge Ram was the drop-off point for supplies for those in need. Community member Whit Brooks spearheaded the effort. High-demand items included generators, camping stoves, disassembled commercial shelving, solar lights and solar charges, flashlights and propane adapters. Dealers at Charlie Obaugh Chevrolet GMC coordinated local companies George Owen Construction and H&R Contractors to send a truck full of supplies to North Carolina. Bob Wade Autoworld in Harrisonburg was the drop‑off site for a coordinated response led by local parishioners at New Beginnings Church, collecting donations to help survivors. Has your dealership assisted with Helene relief efforts? Email us at jkelley@vada.com and let us know! 18 Virginia Auto Dealer
BUILD YOUR BRAND, CONTACT US TODAY! (855) 747-4003 sales@thenewslinkgroup.com
Dealers Renew Focus on F&I Profit Participation Strategies 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 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 vada.com 21
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. 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). 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 multi-generational succession and business transition. 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. 22 Virginia Auto Dealer
Program How It Works Key Features What It Achieves U.S. Federal Income Tax Consequences 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. 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 vada.com 23
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 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 semi-annually 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. 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. 24 Virginia Auto Dealer
www.thenewslinkgroup.orgRkJQdWJsaXNoZXIy ODQxMjUw