WE ARE A STRONG COLLECT I VE VO I CE , DED I CATED TO ADVANC I NG THE AUTOMOT I VE I NDUSTRY I N WEST V I RG I N I A . inside: BY THE NUMBERS OVERCOMING OBSTACLES IMPACTING DEALERSHIP PROFITS AND VALUATIONS THE NEW FTC RULES: WHAT YOU NEED TO KNOW
Driving excellence in all we do. 304-624-5564 www.tetrickbartlett.com T &B Tetrick & Bartlett, PLLC is an accounting and consulting firm serving clients throughout West Virginia. We are dedicated to providing our automobile dealer clients with professional, personalized services and guidance in a wide range of financial and business needs.
WE HAVE West Virginia COVERED! In Business in West Virginia For Your Business for 30 years Responsible Attorney, Johnnie E. Brown www.pffwv.com Beckley 304-254-9300 | Charleston 304-344-0100 | Martinsburg 304-260-1200 | Morgantown 304-225-2200 WHEN IT COMES TO BEING LEGALLY COMPLIANT AND AGGRESSIVELY DEFENDED, YOU HAVE A CHOICE. WHY NOT CHOOSE A LAW FIRM THAT KNOWS YOUR INDUSTRY AND IS FOUNDED IN WEST VIRGINIA WITH FOUR OFFICES COVERING EACH REGION OF THE STATE TO PROTECT YOU? OUR FOUNDING MEMBERS AND ATTORNEYS LIVE IN THE COMMUNITIES WE SERVE. PULLIN, FOWLER, FLANAGAN, BROWN & POE, PLLC KNOWS WEST VIRGINIA AND WEST VIRGINIA’S AUTOMOBILE DEALERS.
CONTENTS WVCAR.COM ©2022 West Virginia Automobile Dealers Association (WVADA) | The newsLINK Group, LLC. All rights reserved. The WVADA News is published four times each year by The newsLINK Group, LLC for the WVADA and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the WVADA, its board of directors, or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The WVADA News is a collective work, and as such, some articles are submitted by authors who are independent of the WVADA. While the WVADA News encourages a first-print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at 855.747.4003. 22 18 14 6 President's Message 9 Motor Vehicle & Title Registration Seminar 10 Counselor's Corner: The New FTC Rules: What You Need to Know 14 By The Numbers: Overcoming Obstacles Impacting Dealership Profits and Valuations 16 WVCar Contribution & Pledge Form 17 Thank You To All Our WVCar Pac Contributors For 2022! 18 Succession Planning for Dealers in an Evolving Business Environment 21 Preferred Partner Programs 22 Is Your Dealership Prepared to Deal with Cybercrime? Identify threats and build defenses. 27 A Timeline for Implementation New Clean Vehicle Tax Credit 28 The Secret to Controlling Dealership Expenses 33 Save The Dates 34 In The Community 38 Executive Committee wvcar.com 4 WVADA
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. JL Winslow jl.winslow@bofa.com 804.489.5043 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 on thing is certain. O r Dealer Financial Services team is de icated to being by you side with the resources, solutions and vision to see you through. JL Winslow jl.winslow@bofa.com 804.489.5043 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 jurisdictio s, by locally registered entiti s. BofA Securities, Inc. a d Merrill Ly h Professional Clearing Corp. are registe ed as futures commission merchant with the CFTC and a e members of the NFA. I vestment pr ducts offered by Investm nt Banking Affiliates: | Are Not FDIC Insured | Are Not Bank Guaranteed | May Lose Value | ©2022 Bank f Am rica Corporation. All rights reserved. 4826555 08-22-0145
The Importance of Amendment Two As we begin to enter fall and experience some cooler temperatures, races for the general election on Tuesday, November 8th are heating up. Half of the State Senate’s 34 seats, and all 100 House of Delegates seats are up for election this year. In addition to the Senate and House races, there are four potential amendments to the West Virginia Constitution. The amendments cover a wide variety of topics; however, the most important of these, as it relates to West Virginia businesses is Amendment Two. In 2021, after years of trying to reform West Virginia’s tax structure, the West Virginia Legislature adopted House Joint Resolution 3, also known as the Property Tax Modernization Amendment. The constitutional amendment seeks to modernize our Constitution and will give our Legislature the flexibility to cut or eliminate property taxes on personal motor vehicles, and the taxes businesses pay on their equipment, machinery, and inventory. Because personal property taxes are a constitutional provision in West Virginia, changes to the tax structure can only be made through a constitutional amendment. If passed, Amendment Two will give legislators the authority to revisit our State Constitution and to start the process of adjusting certain personal property taxes (i.e., machinery and equipment, inventory, and personal motor vehicles). The impetus behind Amendment Two is ultimately to create a modernized tax structure that will create more jobs, attract economic development, and cut taxes for hard-working West Virginians. WVADA has joined forces with several other state associations in rolling out a “Make West Virginia First” campaign. We have a live website (makewvfirst.com), where you can sign up for information updates and notices. We will also be supporting the regional roundtable discussions with local community members from September 29 – October 10 in Teays Valley, Parkersburg, Clarksburg, Martinsburg, Beckley and Wheeling. We expect to have a broad representation of supporters for these discussions – business owners, legislators, and manufacturers all aimed at providing positive earned media opportunities. Amendment two will help move West Virginia to the front of the list for economic development, spurring new jobs and career opportunities, strengthening communities, and allowing West Virginians to keep more of their hard-earned money. It is important to note that Amendment two costs taxpayers nothing but gives the legislature the authority to address critical tax policy at a time when schools and local governments can benefit from the fruits of responsible government. With over $1 BILLION in surplus revenues, Amendment two paves the way for tax relief with protections for local government budgets, education, and other funding. I highly encourage each of you to visit makewvfirst.com to familiarize yourself with the benefits Amendment two can bring to our State. Please do not hesitate to contact me if you have any questions. Support Amendment Two. Scan this QR code, like the Facebook page and share! https://www.facebook.com/profile. php?id=100085528047548 wvcar.com 6 WVADA
Washington Conference on Capitol Hill A special thanks to Richard Stephens, NADA Director for West Virginia, and Jack Stewart, Dealer of Country Club Chrysler, for attending the Washington Conference last month in D.C. Richard and Jack met with Senators Capito and Machin and Representatives Miller and Mooney to discuss NADA’s legislative priorities. Those priorities consist of the: • “Supply Chain Disruptions Relief Act” which would allow businesses on LIFO an extended time to replace vehicle inventory as pandemic-related global disruptions and reduced auto production have made it nearly impossible to replenish new vehicle supply. • Catalytic Converter Anti-Theft Legislation which would help to address the growing national problem of catalytic converter thefts. • Urging changes to the FTC’s new UDAP Rule that would impose a wide range of unwarranted and ill-advised new duties and restrictions on motor vehicle dealers. Each of these issues has bipartisan support and NADA is working diligently to protect the interests of new motor vehicle dealers. I will keep everyone updated as each of these legislative initiatives develop. Please do not hesitate to contact me if I can be of any assistance. I am honored to serve you. Please stay in touch. Issue 3, 2022 7 WVADA
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COUNSELOR’S CORNER By Johnnie E. Brown, Esq. Pullin, Fowler, Flanagan, Brown & Poe, PLLC Let me state the obvious: things are changing fast and furious in our marketplace. The challenges come simultaneously from the Federal Trade Commission (FTC) and our manufacturers. Manufacturers are attempting to change the franchise model to an agency model used in Europe that gives substantial, if not complete, control over the retail process of selling a motor vehicle to the retail customer. Likewise, the FTC is attempting to create legal regulations to mandate precise actions by finance and insurance office employees. The purpose of this article is to provide you with a summary of a proposed FTC rule which specifically deals with how a new motor vehicle dealer will be allowed to sell a motor vehicle and voluntary protection products to a retail customer. Currently, the proposed rule is receiving comments. The West Virginia Automobile Dealers Association (WVADA) has filed opposing comments on your behalf. Those full-length comments are available on the FTC and WVADA websites. Amazingly, while a motor vehicle dealer is anxiously engaged in complying with the new safeguard rules – which are also implemented by the FTC if the FTC is successful in implementing these proposed regulatory changes – the FTC will dramatically change how any motor vehicle dealer operates within the finance and insurance office with the retail customer. The rule is only 13 pages long, but there are a total of 126 pages of explanation and rationale to consider. Following is a summary of the more significant changes. 1. The proposed rule uses the broad term “addon product(s) and service(s)” to encompass not only voluntary protection products but also those accessories which may be described as hard add-ons or accessories to a motor vehicle. After using the broad term “add-on product(s) and service(s),” the new FTC proposed rule will require an extremely detailed showing of how each “add-on product(s) and service(s)” must be disclosed to a retail customer. For example, the FTC states that the disclosure for each product or service must contain pricing for “the typical consumer” without really providing a standard or definition of what the “typical consumer” looks like. We all can appreciate that there is no “typical consumer” and that voluntary protection products can be customized. Extended service contracts come in a variety of terms and coverage and are priced differently depending upon the make, model and age of the vehicle. Consequently, there is no “typical consumer” in our marketplace to cover any one product. The proposed rule would require the dealer to disclose, clearly and conspicuously, a list of all “add-on product(s) and service(s)” on its website, online service, or mobile application. This requires disclosure of the pricing of these add-ons when advertising a motor vehicle. 2. One of the more significant changes is that a dealer would have to provide the motor vehicle’s cash price without any optional “add-on product(s) and service(s)” so that the customer can purchase the vehicle without considering any voluntary protection products. This would be called the “offering price.” This could certainly change the dynamic of the transaction and vehicle pricing when many dealers currently look at the transaction as a whole instead of only focusing on the price of the motor vehicle. I believe this will undoubtedly increase the price of motor vehicles for retail customers. 3. The FTC has also proposed a rule requiring that all disclosures be “clear and conspicuous” and uses a seven-part test to illustrate this standard. The proposed rule generally defines “clear and conspicuous” as “difficult to miss (i.e., easily noticeable) and easily understandable . . .” 4. This “clear and conspicuous” standard will further be complicated by the requirement that the motor vehicle dealer will have to prove that a customer gave their “express, informed consent” when purchasing any “add-on product(s) and service(s).” The proposed rule literally states that a mere signature or customer initials on a form or a “checkmark” on a pre-printed Continued on page 12 The New FTC Rules: What You Need to Know wvcar.com 10 WVADA
Amazingly, while a motor vehicle dealer is anxiously engaged in complying with the new safeguard rules – which are also implemented by the FTC if the FTC is successful in implementing these proposed regulatory changes – the FTC will dramatically change how any motor vehicle dealer operates within the finance and insurance office with the retail customer. Issue 3, 2022 11 WVADA
box will not be enough to be the customer’s “express, informed consent” to purchase “add-on products and services.” First, this is an amazing statement to make and denies any rational and reasonable way by which business is conducted. Second, this will require additional documentation or language on all disclosure forms, which contradicts the FTC’s consistent statements that the transaction to buy a motor vehicle is too complicated and confusing, which increases the likelihood of consumer confusion. 5. The new FTC rule also contains language which prohibits misrepresentations about “the cost or terms of purchasing, financing or leasing a vehicle,” or “any cost, limitation, benefit or any other material aspect of an add-on product or service,” and even one broader that states “the availability of any rebates or discounts that are factored into the advertised price but not available to all consumers.” Of course, these are already governed by our West Virginia Consumer Credit and Protection Act and other West Virginia common law governing misrepresentation, actual fraud and constructive fraud. In addition, there exist federal laws that govern advertising. This proposed rule can lead to inconsistent application or interpretation of existing laws and makes it very difficult to determine how to interpret and apply current relevant law. 6. One interesting attempt by the FTC is to govern what we refer to as “conditional delivery.” The new proposed section would prohibit misrepresentation that a dealer would keep cash down payments or trade-in vehicles, charging fees or initiating legal process or any action if a transaction is not finalized or the consumer does not wish to engage in the transaction. This is an overt attempt to control conditional deliveries to customers. I would encourage our West Virginia dealers to take this opportunity to review their conditional delivery or spot delivery forms to make sure that they are very clear on how this legal contractual “condition subsequent” will operate and what remedies may be available to a dealer should a consumer either misuse or damage a motor vehicle while in their possession. 7. The FTC would make it a violation for a dealer to misrepresent “whether or when a motor vehicle will pay off some or all of the financing or lease on a customer’s trade-in vehicle.” This is a blatant misunderstanding of who is in control of this fact. While a dealer will promptly attempt to initiate these actions to obtain its monies and funding, it is up to third parties to determine how quickly the motor vehicle is paid off and when a new title can be given on a purchased motor vehicle. Dealers are at the mercy of Continued from page 10 various lenders and how soon the Department of Motor Vehicles (DMV) can process titles. While our own DMV is making great strides and progress with electronic titling, again, this is placing a burden on the motor vehicle dealer, which is outside their control. 8. Interestingly, the FTC is attempting to promulgate more rules that control prizes and sweepstakes, how motor vehicles can be repossessed and representations about the exporting of vehicles. This seems rather strange as already existing laws govern these scenarios. 9. The FTC is attempting to place new record-keeping rules within this proposed rule even though they have passed the comprehensive new safeguard rule with which we are all striving to comply by the deadline on Dec. 9, 2022. For example, the new record-keeping requirements would require that a motor vehicle dealer maintain, for 24 months, all records “necessary to demonstrate compliance with this proposed rule.” They list things such as all advertisements, sales scripts, training materials and marketing materials, all add-on lists and all documents describing the products and services offered to customers, all purchase and lease orders, all financing documentation and communications, and all written consumer complaints related to sales, financing or leasing, and of course, the add-ons. 10. Perhaps the most blatant part of this proposed rule would strictly govern how dealers actually do business within the F&I office and how presentations of “add-ons” must be made. The dealer must disclose the “offering price” only for a vehicle referenced in advertising or the first response to an inquiry by a customer. This would prevent a dealer from offering various voluntary Interestingly, the FTC is attempting to promulgate more rules that control prizes and sweepstakes, how motor vehicles can be repossessed and representations about the exporting of vehicles. wvcar.com 12 WVADA
protection products as a “package” to a consumer to distinguish the value it can provide to the consumer, who would be comparing it to other dealerships. The dealership would have to “clearly and conspicuously” advise the consumer of the “cash price” as well as any discounts, rebates, trade evaluation and required government charges separately. Remember, West Virginia documentary fees are not “required government charges.” Be careful about confusing the two. Only after the dealer obtains a signed written declination from the customer stating they do not wish to buy only the car can the dealer discuss addon products and services. That is correct: you would have to have the customer decline, in writing, purchasing the car before discussing voluntary protection products. The rule would then require the dealer to address each add-on product or service separately and disclose each price clearly and conspicuously before moving on to the next addon product or service. This is fraught for honest mistakes in which no one is harmed or misled. The National Automobile Dealer Association (NADA) and most state associations have submitted opposing comments. I hope you have also taken the time to voice your opposition to these regulations, as numerous statutory and common laws prevent the actions that the FTC is attempting to control arbitrarily. Of course, all these arbitrary steps and requirements are being mandated in a market where the brick and motor vehicle dealer is pressured to streamline the retail process and make retail transactions more efficient. I believe it is reasonable to predict that the proposed FTC rules will not only increase the cost of a motor vehicle and voluntary protection products to the consumer but will also require new forms to be created and old forms to be modified to comply with the express informed consent language within the rule. These rules counter how a consumer wishes a motor vehicle transaction to occur these days. I also believe that the FTC rule ignores the reality that the overwhelming majority of motor vehicle purchasers have purchased many cars over their lifetimes and are familiar with the process. To place an additional burden on these sophisticated consumers who regularly engage in financing transactions is unnecessary and duplicative of existing law. I apologize in advance for the serious tone of this article, but again, overzealous and arbitrary regulations are being imposed on our industry. The West Virginia Dealer’s Association is closely monitoring this and will keep you advised as this proposed rule proceeds. The Association stands ready to assist you in any efforts to comply with existing and future regulations. Brokerage | Leasing | Appraisal | Consulting 304-840-1781 | Quintie Smith at INVS@aol.com | 3818 MacCorkle Avenue SE Charleston, WV 25304 Office: 304-925-7000 | Website: realcorpinc.com An unmatched level of knowledge and experience in the real estate market. Commercial Real Estate Issue 3, 2022 13 WVADA
BY THE NUMBERS Overcoming Obstacles Impacting Dealership Profits and Valuations By Tasha R. Sinclair, CPA/ABV, Chairperson, AutoCPA Group member of Tetrick & Bartlett, PLLC’s Dealer Services Team Leading publishers of Blue-Sky multiples agree that buyers have shifted the application of Blue-Sky multiples from historical adjusted profits from the last twelve months to a three-year average of adjusted profits as a predictor of future earnings. For 2022, this approach incorporates two out of three years of outperformance. The decreased supply of new vehicles resulting from the pandemic and other supply chain issues coupled with strong consumer demand has created the best environment for retailing new and used vehicles that we have encountered. Year-to-date 2022, we have seen new record profit months. But is this level of net profit truly sustainable for the long term? I ask this question considering the following current conditions: • FTC New Safeguards Rule – Most of the substantive provisions of the new Safeguards Rule will go into effect Dec. 9, 2022. NADA had estimated that wvcar.com 14 WVADA
compliance will average $293,000 for startup costs and another $275,000 to maintain annually. While these estimates have proven to be high in most cases, the cost of compliance will be significant. For most dealers, this is a cost that cannot be fully offset by reductions in other areas. • Interest rate increases – While most dealers are still turning their inventories at a rapid pace, the interest rate increases already seen in 2022 and those expected to come may not have a significant impact on floorplan interest expense. But what about the effect the interest rate increases have on consumers’ ability to purchase vehicles? Loan terms of 72 and 84 months have become more commonplace, and monthly payments are at an all-time high. If consumers are already at the maximum length and payment, and interest rates available to the consumer rise, they will be forced to finance a lower amount. What impact will this have on dealers’ ability to maintain the exceptional turn ratios keeping interest expense down? What impact will this have on dealers’ gross profits and back-end profits? • Inflation – The annual inflation rate in the U.S. was 8.1% in August 2022. With used cars being the component with the highest level of price inflation, car dealers have benefited from inflation. However, used car prices are declining. Experts expect used car prices to continue to decline through the end of the year. Considering the quick turn ratio mentioned above, dealers may now feel the effects of the decline in their used inventory values. Used write-downs may be stronger in 2022 than in prepandemic years due to dealers having larger used car inventories to offset the shortage in new inventories. Compounding the dealers’ dilemma with inflation is that expenses are sure to increase as experts expect only a gradual ease in overall inflation. So why do I raise the red flag on predicting future profits? The reason is two-fold. If you are a dealer with excess cash looking to buy a dealership, you may want to consider these factors when projecting sustainable profits for the Blue-Sky offer. In addition, now is the time to develop your contingency plan for when and if these factors start impacting your net profits. Tasha R. Sinclair, CPA/ABV is the current Chairperson of the AutoCPA Group, a nationwide organization of CPA firms specializing in services to automobile dealers. In addition, she is a member of Tetrick & Bartlett, PLLC’s dealer services team and has provided accounting, tax, valuation, and consulting services to automobile dealers since 2002. Tetrick & Bartlett, PLLC currently serves approximately 50 automobile dealers in West Virginia, Virginia, Pennsylvania, and Ohio. Tasha can be reached at tsinclair@tb.cpa or 304-624-5564. Issue 3, 2022 15 WVADA
WVCar is the West Virginia Automobile and Truck Dealers Political Action Committee, and your support is vitally important in order for us to have a voice at our state capitol in Charleston. WVCar is the best platform for our message to be heard by legislators and signify our value in West Virginia communities. The WVCar PAC contributes to West Virginia candidates who support a pro-business, pro-dealer mentality. Dealer member personal contributions are the pillar of the WVCar PAC, and your contribution is imperative. Not only is your financial participation a crucial part of having a successful PAC but also having WVADA dealers involved to show legislators that we care about an issue. WVCar gives our members the ability to extend their influence well beyond their own legislative districts. President's Club Lee Baierl Lithia Motors Inc David Ball Advantage Toyota Shawn Ball Ball Toyota Chase Barton Stephens Auto Center Brad Blake Dutch Miller Auto Group Liza Borches CMA Group Ginny Bowden McClinton Chevrolet Andrew Cognac Premier Chevrolet John Cognac Premier Chevrolet Bill Cole Cole Automotive Group Charlie Cole Cole Harley Jason Cole Cole Automotive Group Tom Cole Cole Chevrolet Jack Garrett Jack Garrett Ford Joel Goldy Goldy Auto Harry Green Harry Green 7 Acres Nick Green Harry Green Chevrolet Brad Greene Cole Chevrolet LeeAnne Greene Cole Chevrolet TR Hathaway Superior Toyota Brett Holland Joe Holland Chev Joseph Holland Joe Holland Chev John Howerton Howerton Honda John Jenkins Jenkins Ford Jonathan LeRose Midstate Chev Rodney LeRose II Midstate Chev Mike Matheny Matheny Motors Tim Matheny Matheny Motors Chris Miller Dutch Miller Auto Group Matt Miller Dutch Miller Auto Group Bob Moses Moses Auto Group Jason Moses Moses Inc. Meghan Moses Moses Auto Group Steve Moses Moses Auto Group Richard Nourse Pioneer Honda Roberta Olejasz Bob Robinson GMC Fred Parsons Kent Parsons Ford Lincoln Bruce Pauley Pauley Motor Cars Suzanne Persinger Moses Auto Group Martin Peters Dutch Miller Auto Group Keith Powell Yes Chevrolet/Ford Charlotte Pyle Capital City Auto Auction Lester Raines Lester Raines Honda/Mazda Robert Ramey Ramey Motors Inc. Dennis Sheets Sheets Auto Group Jamie Spears Astorg Auto Group Joanna Spears Astorg Auto Group Richard Stephens Stephens Auto Center Jack Stewart Country Club Chrysler Louis Thomas Lou Thomas Subaru Wally Thornhill Thornhill Auto Group Fred Timbrook Jr. Timbrook Auto Group Matt Urse Urse Honda Ralph Vines Advanced DMS Don Warner Warner Kia Champion Promoters Jim Robinson Bob Robinson Chevrolet, Cadillac, Buick GMC Patrons Loren Daniel Daniel Chevrolet Scan the QR code for easy and convenient access to the 2022 Franchise Law Booklet: https://wvcar.com/wp-content/uploads/ 2022/06/2022-Franchise-Law-Booklet.pdf West Virginia Franchise Law 2022 Thank You To All Our WVCar Pac Contributors For 2022! Issue 3, 2022 17 WVADA
for Dealers in an Evolving Business Environment 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. 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 Succession Planning wvcar.com 18 WVADA
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 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. Issue 3, 2022 19 WVADA
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 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 gl bally 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
WVADA Preferred Partner Programs are designed to meet the needs of our members while providing competitive pricing. Supporting our Preferred Partners benefits YOUR association and helps maintain low dues for our membership. WVADA works for WV Dealers, buying from our Preferred Partners is like buying from yourself. Preferred Partner Programs ACV Auc�ons is a full-service, coast-to-coast, wholesale automo�ve marketplace, providing unmatched transparency that thousands of dealers trust. Capital Automo�ve’s Safe Buy Limited Powertrain Warranty is the brand for dealers that are serious about selling pre-owned vehicles. Capital allows dealers to differen�ate and increase profits through customer confidence in a Safe Buy warranty. Building value allows dealers to sell more cars and increase gross profits. For over 60 years, Certegy has managed risk by staying at the forefront of payment innova�on. Through our suite of sophis�cated technologies, we process and verify check and ACH transac�ons more seamlessly than other methods. Heritage Crystal Clean provides its customers with parts cleaners, parts washers, drum waste management, oil collec�on, oil re-refining, vacuum services, parts cleaning solvent as well as other products and services pertaining to the environmental services market. CVR supplies fast, secure electronic �tling and vehicle registra�on solu�ons to help dealerships and other businesses provide great customer service, while also allevia�ng heavy traffic through states’ Departments of Motor Vehicles (DMVs). The Accelerated Title program offers faster payoff, as fast as 4-6 days, by turning a tradi�onally manual process electronic. Accelerated Title now uses over 81 lenders and s�ll growing! ACCELERATED TITLE The NADA Re�rement Program from Empower Re�rement focuses on op�mizing par�cipant outcomes through innova�ve 401(k) plan design. We feature the industry’s only Retail Management System to help you manage every area in your dealership. Whether it’s online interac�ons, selling and servicing vehicles, or managing the business, we’ve got you covered. Contact WVADA today to learn more about our preferred partners, hjustice@wvcar.com or 304-343-4158 Integrum Advisors provides one-stop, strategic enterprise solu�ons that make it easy to take care of your people. As full-service consultants, Integrum Advisors delivers complete peace of mind to every client. USI’s dedicated team designs comprehensive programs that include coverage not only for physical damage for your inventory but also the�, false pretense, collisions, and more to safeguard your dealership. They also provide loss control services to evaluate your poten�al threats before they occur and access to online training courses to help reduce workplace incidents. ComplyAuto LLC is a RegTech company offering cloud-based so�ware that helps dealerships enhance their compliance capabili�es while becoming more efficient and cost-effec�ve. ComplyAuto uses data analy�cs and AI to provide real-�me automated compliance decisions, performing tasks that would normally require manually intensive processes and human intelligence.
Identify threats and build defenses. By Erik Nachbahr, President and Founder, Helion Technologies Cybercrime poses a constant threat to businesses and their customers, with criminals committing fraud by stealing identities or using phishing to illegally gain access to a company’s computer network. In recent years, cybercriminal attacks have caused major consumer information breaches at retailers, social media platforms, and credit information providers. Seventy-four percent of companies have been the targets of attempted or actual payments (check, wire, or ACH) fraud. The pace of attack increased in 2020, with two-thirds of companies reporting an increase in fraud attempts since the COVID-19 crisis began.2 And anti-fraud professionals are almost unanimous in predicting an increase in fraud in 2021.2 Cybercrime attacks – from ransomware to payments fraud – show no sign of going away. “Many dealers don’t think hackers are looking at them,” explains Erik Nachbahr, Certified Information System Security Professional (CISSP) and President and Founder of Helion Technologies, an IT/cybersecurity services provider exclusively serving the needs of auto and heavy truck dealers. “Dealerships are increasingly a target of cyber threats with their high volume of large dollar transactions and lack of digital security.” As criminals develop more sophisticated cybercrime techniques and states implement stricter consumer privacy legislation, cybersecurity and data protection should be top priorities for dealers. That means heightened security to ensure data privacy, combat potential attacks, and mitigate losses. According to the 2021 IBM/Ponemon “Cost of a Breach Report,” it takes an average of 287 days to identify and contain an attack. Data breaches that took longer than 200 days to identify and contain cost an average of $4.87 million, while those that took less than that cost an average of $3.61 million. Lost business accounted for 38% of the overall cost, including increased customer turnover, lost revenue from system downtime, and additional marketing expenses to overcome damage to the business’s reputation.3 Key dealership cybercrime threats Dealerships generally have a complex technology architecture that makes cyberattack protection challenging. “Many dealership computer systems have hardware added in a one-off manner, are built without a complete system plan, and utilize older, outdated software. In some cases, they underpower their virus protection by using freeware software. Further, weak security protocols that allow user account sharing can undermine a dealer’s business,” Mr. Nachbahr explains. Increasingly sophisticated ransomware attacks targeting dealerships are on the rise. “These criminals know dealerships have money and are aware of dealer vulnerabilities. That makes dealerships a lucrative target,” continues Mr. Nachbahr. “The attacks aren’t typical automated intrusions; they are enterprise-grade attacks, with live hackers combing through Is Your Dealership Prepared to Deal with Cybercrime? wvcar.com 22 WVADA
a dealer’s systems. Because dealers have many, disparate components and don’t tend to use standard protocols, once their systems are exploited, the breach is difficult to fix.” Other cyber threats focus on personally identifiable information (PII) which can be stolen and resold to bad actors. Forty-four percent of data breaches included customer PII, making it the number one type of data stolen.3 Dealerships regularly handle vast amounts of PII, particularly financial information, so it’s no wonder they’re an attractive cybercrime target. In today’s environment, protecting dealership computer systems and their customer data is essential. “As cybercriminals are becoming increasingly adept, more dealers are realizing an attack could be a ‘business-ender.’ Forward-thinking dealers are investing in technologies that protect against these full-scale attacks. Information technology security is now being viewed as a priority, not simply an expense to be controlled,” states Mr. Nachbahr. The cost of cybercrime The likelihood that a business will experience financial damage after a cybercrime attack is rising quickly. The average cost of downtime from a ransomware attack has doubled over the past year to $274,200.4 The average downtime is now 19 days, a three-fold increase from 2019.2 Direct economic losses are compounded by lost revenues from operational disruptions, brand reputation damage, and decreased customer loyalty. A 2021 IBM/ Ponemon Institute survey found that a data breach costs U.S. businesses an average of $180 for each accessed/stolen record containing customer PII.3 For dealerships with thousands of records, the damage can add up quickly, not to mention the impact on customer relationships. A Ping Identity consumer attitude survey reported that 25% of respondents would stop using a business after a data breach.6 The potential for cybercrime to inflict direct losses, reputational damage, and customer loss highlights the importance of making data security and cyberfraud defense a priority. A salesperson responded to a phishing email, opening a malicious file with ransomware and providing cybercriminals access to that computer. The salesperson did not suspect an intrusion. Once behind the firewall, the hackers were able to access the dealership’s entire system and servers. The hackers used the compromised computer to probe the network, looking for vulnerabilities to lock up the dealership’s computer operations. The criminals were able to shut down the dealership’s systems for over a week – asking for payment in bitcoin to relinquish control of the systems. All of the dealership’s servers and emails and one-third of their 300 computers were inoperable. They chose not to pay the ransom, but instead took the next month to rebuild their systems completely. How could this cyberattack have been prevented? • Through employee education on the hazards of downloading unsubstantiated files or clicking on suspicious links • With proper web filters and controls to block hazardous links • By implementing fraud software to quickly find, mitigate, and recover information compromised by fraud and ransomware attacks Limiting primary fraud threats When it comes time to address criminal activity targeting payments, banking transactions, customer data, communications, and computer systems, it is important to analyze both non-cyber and cyberfraud. Equally important is identifying the sources of threats – internal and external – and dealing with each accordingly. Simple protection measures along with insurance for business crime, cybercrime, or data breaches can dampen losses. Measures to limit risks include: Employee education is the top method for lowering the risk of fraud in general, and cyberfraud in particular. A company culture that values overall fraud prevention Continued on page 24 Issue 3, 2022 23 WVADA
sends a powerful signal to employees. Employee education about fraud awareness is one of the best ways to get started. Fraud barriers include: • Clearly defined fraud prevention roles and responsibilities for you and your employees • Separation of duties, checks and balances, and multi-factor authorizations for funds transfers • Secured computers with password protection, changed periodically • Restricted user account access to individual owners with no shared access • Web filters and controls that block clicks on potentially fraudulent links Check and wire fraud are the top two payment fraud threats for any business. Sixty-six percent of companies reported that check payments were subject to fraud, and 39% were victims of wire fraud attempts.1 Dealership payment volumes – both paper and electronic – make an attractive target for fraud. Implementing a few simple, inexpensive processes can protect your dealership. • Use positive pay services. You’ll be able to verify the authenticity of checks by looking over the issue date, check number, amount, and payee name to catch check fraud. • Protect check stock with dual authorization before use. • Authentication is further enforced through online banking platforms which require additional authentication for wire transfers through assigned user ID and password logins, requestor authentication, and dual approvals. Phishing and social engineering attacks scam employees into believing an email is from a reputable company or dealership employee. The recipient then reveals sensitive information, passwords, and credit card or account numbers. Phishing emails can appear to be from the dealership owner, ordering large sums to be wired to external accounts, which then vanish moments after the transfer. Phishing emails entice unsuspecting employees to download innocent looking files or click on malicious links and infect computers with spyware, viruses, or ransomware. “Phishing attacks are one of the most common and damaging ways for hackers to access your systems,” Mr. Nachbahr explains. “Your employees should be the frontline defense against attack – your ‘human firewall’. Ongoing employee training, education, and support allows them to recognize social engineering attacks and thwart costly episodes before they begin.” Preventative measures include: • Web filters and controls that restrict access to phishing links • Multi-factor authorizations for wire transactions • Limits on payment amounts that a single employee can authorize • Cloud backup for restoration following a malicious software attack • Intrusion detection software to identify suspicious network activity Synthetic identity fraud is another risk to dealers today. Imposters use fake information to create fictitious identities, combining stolen identity information to create new credit files. These new synthetic identities allow criminals to qualify for a loan to buy vehicles, putting dealerships at risk for losses. Background checks verifying customer identity offer the best protection. When cyber fraud does penetrate a dealership, speed is the key to mitigating its impact – the faster an attack in progress can be detected and stopped, the less its damage. Quick detection and speedy remediation deploys an entire set of technologies, processes, and expertise – including digital forensics, threat hunting, malware reverse engineering, and technical surveillance countermeasures – that most dealers don’t have. Mr. Nachbahr explains, “Dealers need a Security Operation Center (SOC) to monitor the network 24/7/365 looking for signs of malicious behavior. Tools like advanced endpoint threat protection and security information event management (SIEM) allow security professionals to sift through and correlate data and identify suspicious patterns Continued from page 23 wvcar.com 24 WVADA
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