2024 VIP Gala and WV Auto Show PICTURES WE ARE A STRONG COLLECTIVE VOICE, DEDICATED TO ADVANCING THE AUTOMOTIVE INDUSTRY IN WEST VIRGINIA.
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.
DILIGENT DECISIVE DETERMINED More than 35 years of dedicated service! Our nationally recognized automotive dealership attorney group specializes in West Virginia’s franchise law and regulatory compliance. Areas of expertise: • Consumer Litigation • Advertising • Employment • Manufacturer Disputes • Buy-Sell Transactions • Dealership Industry Compliance CALL TODAY! 304.344.0100 Or scan the QR code for more information. We will help YOU through any legal, regulatory and legislative challenge. JOHNNIE BROWN jbrown@pffwv.com
©2024 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. CONTENTS 6 PRESIDENT’S MESSAGE Legislative Wrap-Up BY JARED WYRICK, PRESIDENT, WVADA 8 Fredrick Timbrook Honored at 2024 NADA Show in Las Vegas! 10 2024 VIP Gala and WV Auto Show Pictures 12 2024 WVADA Dealer Family Convention 14 Cross-Sell Is Now a WVADA Endorsed Partner 16 COUNSELOR’S CORNER West Virginia Franchise Law Strengthened BY JOHNNIE BROWN, ESQ., PULLIN, FOWLER, FLANAGAN, BROWN & POE PLLC 18 Save the Dates! Motor Vehicle & Title Registration Seminar 19 BY THE NUMBERS Estate Tax Exemption Is Now the Right Time to Gift? BY TASHA SINCLAIR, CPA/ ABV, PRINCIPAL, TETRICK & BARTLETT PLLC 20 Structure Reinsurance To Get the Most From Your Warranty Programs BY TRUIST DEALER SERVICES 22 WVADA Preferred Partner Programs 23 Give Me a Brake A Summary of the CARS Rule BY HAO NGUYEN, CHIEF LEGAL OFFICER, COMPLYAUTO 26 In the Community 30 Executive Committee, Board of Directors, Directors At Large, and Meet Our Team 2024 Issue 1 8 12 10 WVADA News 4
© 2024 Truist Financial Corporation, TRUIST, Truist purple and the Truist logo are service marks of Truist Financial Corporation. All rights reserved. Truist Securities is the trade name for the corporate and investment banking services of Truist Financial Corporation and its subsidiaries. Securities and strategic advisory services are provided by Truist Securities, Inc., member FINRA and SIPC. | Lending, financial risk management, and treasury and payment solutions are offered by Truist Bank. | Deposit products are offered by Truist Bank, Member FDIC. We’re more than a financial partner. We’re an invested one. True relationships matter. We don’t take this lightly. The best are built on a deep understanding of your short- and long-term goals and always backed by thoughtful, strategic advice in support of your vision. With full-service financial solutions and a deep bench of industry expertise, we’ll build a team around your organization to focus on your success. So, let’s drive further—together. To learn more, visit us at Truist.com/DealerServices.
By JARED WYRICK, President, WVADA PRESIDENT’S MESSAGE Legislative Wrap-Up T he 60-day legislative session has concluded, and all WVADA-supported bills passed! A special thank you to all dealers who attended committee hearings and reached out to their local representatives on behalf of WVADA’s legislative agenda. WVADA’s number one priority bill this session — SB 173: Modifying certain guidelines for motor vehicle dealers, distributors, wholesalers, and manufacturers, otherwise known as our franchise bill — has been signed by the governor and will take effect June 5, 2024. Senator Rupie Phillips was the lead sponsor of our franchise bill this session, and he absolutely delivered every step of the way. “The dealer franchise model has proven time and time again that it is the absolute best model for consumers,” said Phillips. “I was honored to be the lead sponsor and appreciate the local economic impacts franchise dealers bring to their communities.” Here’s a brief summary of SB 173: • Clarifies the timeline for manufacturers to dispute the motor vehicle dealer’s request for adjustment to parts and labor rates. • Clarifies that the 15-year period on dealer facilities applies to any subsequent dealer who obtains ownership. • Prohibits a manufacturer from amending the dealer agreement without the motor vehicle dealer’s consent. • Clarifies a manufacturer obligation to provide a dealer with all of its makes and models, regardless of whether the model is electric, hybrid, gas or other means of propulsion. • Prohibits a manufacturer from exercising a right of first refusal when a motor vehicle dealer enters into a transaction to sell. • Clarifies that a manufacturer may not interfere with or prejudice a dealer to set his own prices, trade-in values, financing terms and the price of voluntary protection products. • Prohibits a manufacturer from treating a franchised motor vehicle dealer as simply an agent for the manufacturer as it relates to the sale and lease of motor vehicles. Other WVADA Bills of Interest That Passed HB 5178 permits dealers to utilize the Insurance Verification System (IVS) to verify a consumer’s insurance in real-time. This system can be tied to the current Vehicles Registration System (VRS) which is the system that is administered by the DMV and currently utilized by every WV dealership. This bill will help assist dealerships and their employees with the verification of customers insurance, especially after hours and on weekends. Permitting car dealerships in this state to utilize a search engine to determine if buyers of vehicles have valid vehicle insurance will save time and assist in streamlining customer experience. SB 583 caps damages in a personal injury or wrongful death claim arising out of a vehicular accident with a commercial motor vehicle. Under current law, there is no cap on any type of damages in a personal injury or wrongful death claim involving a commercial motor vehicle. This bill places a $5 million cap on noneconomic damages against an employer defendant. Of note, WVADA News 6
that cap is per plaintiff and per occurrence on personal injury and wrongful death claims. For an employer defendant to take advantage of the cap, it must have liability insurance in the amount of at least $3 million dollars. The cap would also not apply in certain circumstances where, at the time of the incident, the operator of the commercial motor vehicle (1) was under the influence of drugs or alcohol; (2) subsequently refused to submit to a breathalyzer exam per West Virginia law; (3) was driving in excess of the hours permitted under state/federal law; (4) was engaging in reckless driving; (5) was operating an overloaded vehicle; or (6) was engaged in distracted driving. There is an indexing provision for the cap, which is similar to medical malpractice caps. Specifically, the cap would be adjusted upward annually using the consumer price index, but it could not exceed 150% of the original $5 million dollar figure. The section is effective on July 1, 2024, and only applies to claims arising after that date. SB 841 provides stability for businesses on their unemployment taxes. Following the Unemployment Insurance Trust Fund growing above a $220 million balance (to a current of approximately $380-$400 million), triggers were activated which allowed both the benefits and taxes to rise and fall based on the change in the state’s average annual wage. Projections showed significant tax increases in the near future for businesses, and the legislature passed SB 841 to freeze the program at current levels. The business community strongly and successfully advocated to keep the wage base at its current level of $9,500 rather than a higher amount. HB 5338 addresses a critical need in today’s digital landscape. With cyber threats becoming increasingly sophisticated and prevalent, dealerships must prioritize cybersecurity measures to protect customer data. This bill aims to incentivize businesses to implement effective cybersecurity measures by offering them a safe harbor from legal action in the event of a data breach, provided they have implemented and maintained a cybersecurity program. SB 850 brings more transparency to commercial litigation by requiring the disclosure of who is financing litigation behind the scenes. Current law provides this transparency to consumer cases, and SB 850 extends the bill to commercial cases. Also, after a potential $465 million federal claw back of pandemic-era funds for education was thrown into this year’s budgeting process, legislative leaders passed a slimmed-down budget to serve as a placeholder until lawmakers return to Charleston for a special session planned for May. As always, thank you for your continued support. Jared Wyrick WVADA President On Wednesday, March 20, WVADA held a fundraiser for Governor Justice for his U.S. Senate bid. We had a great turnout and greatly appreciate your support. Governor Justice has been a great supporter of our industry, and I encourage each of you to support his campaign for the U.S. Senate. Scan the QR Code to support Governor Justice with an online contribution. https://secure.winred.com/jim-justice-for-ussenate/website?sc=20230427_JJUSTICE_WEB_ WEB_WEBSITE_PROC&utm_source=web&utm_ medium=proc&utm_campaign=website WVADA News 7
E xcitement filled the air at the 2024 NADA Show. It was such an honor to have our own Fredrick Timbrook honored as TIME Dealer of the Year Nominee. Congratulations, Fredrick! Fredrick Timbrook Honored at 2024 NADA Show in Las Vegas! WVADA News 8
A Better Core in 2024 DominionDMS.com (866) 928-3210 1515 South Federal Highway, Suite 406 Boca Raton, FL 33432, USA SCHEDULE YOUR DEMO Discover how VUE By Dominion DMS gives your dealership: Hearing the cries of the automotive community, we developed a brand new cloud core DMS, called VUE. This software is flexible, efficient and innovative. Schedule a demo and upgrade to a Better Core in 2024. EFFICIENCY INNOVATION FLEXIBILITY SAVINGS Personalization, Engagement, and Speed – the holy trinity of an amazing customer experience. Being a cloud-core DMS and using agile development methodologies means that we can keep dishing out top-notch solutions for our dealers and partners. Dominion DMS is easy to learn and simple to use. You have easy access from any web connection and you get to choose the apps you want and need to drive your success. Behold, VUE! Waving a magic wand to make DMS core fees vanish into thin air. Franchise dealerships can now save while still enjoying our best in class accounting, parts, sales, and service modules.
WVADA’s VIP Charity Gala, A Night in Disguise, benefiting Good News Mountaineer Garage, was another successful event. We were able to raise close to $40,000 for the charity! We cannot thank all the people enough who helped put this event on — especially all the dealers and sponsors who step up to help when we need them. A special thanks to the Civic Center staff, Good News Mountaineer Garage for volunteering, Imagine Circus, AAA Entertainment, and Swinging with Sinatra & Elvis by Lee Dean for helping with the entertainment!! Also, a shoutout to Astorg Auto for getting Bryce Leatherwood to perform as well. We greatly appreciate everyone’s support! 2024 VIP Gala and WV Auto Show Pictures WVADA News 10
To view more photos from the events, scan the QR code. https://www.dropbox.com/scl/fo/ fh87j80czz7clo1x3w4pq/h?rlkey=3ear0b 4p6ru7xikihs394bg3b&dl=0 A Special Thank You to Our Gala Sponsors Phantom Sponsor • Protective Chandelier Sponsors • Capital Automotive • DSI • United Bank Grand Mask Sponsors • King Cut Rate/CJs • USI Masquerade Sponsors • Capital City Auto Auction • Champ Titles • ComplyAuto • Cox Automotive • Huntington Bank • Integrum • Jackson Kelly PLLC • Mountain State Auto Auction • Pullin Fowler Flanagan Brown & Poe • Reynolds & Reynolds • Specialty Underwriters Group • Tyler Technologies Jester Sponsors • Ally • Brightline Dealer Advisors • CVR • Forvis • Heritage Crystal Clean • True Car • WSAZ Feather Sponsors • ACV • Bakertilly • DDI • JM&A Group • People’s Bank • Tetrick & Bartlett • Titos • WCHS/Fox11 • WOWK • Zurich WVADA News 11
2024 WVADA DEALER FAMILY CONVENTION SOUTH CAROLINA June 2-5 Please join us for an unforgettable experience your family will not want to miss! We are looking forward to hosting a coastal convention. Please contact Haley Justice for more information. Register today! https://wvcar.com/ 2024-convention/registration-form/ Hotel Reservations If you have not done so already, please reserve your room today! https://wvcar.com/2024-convention/hotelreservations/ WVADA News 12
SPONSORSHIPS AVAILABLE! Become a sponsor today! https://wvcar.com/2024convention/sponsorship/ We are excited to welcome you to the 2024 Dealer Family Convention! As a sponsor, you’ll have the opportunity to talk with the dealers, exhibit products and have a little fun! We anticipate another great turnout this year and hope that you will join us. Your support as a sponsor contributes to the success of our convention, the association and its dealers. All sponsors will receive proper recognition through our program events: • WVADA Newsletter • WVADA Magazine • Social Media Posts • Website and Signage • On the Convention App • Identifying your company placed at the entrance to the event WVADA News 13
Dear WVADA Members, On behalf of the WVADA staff, we are very excited to announce a new strategic partnership with Cross-Sell, an industry leader in automotive market data and reporting. After many years of WVADA providing subscription vehicle registration data to WVADA members, WVADA is now partnering with Cross-Sell to serve our members’ needs in this area. Cross-Sell, also known as the “Cross-Sell Report,” has provided new and used vehicle registration data reporting to thousands of dealers across the country since 1989. Dealerships, both small and large, use Cross-Sell vehicle data to determine the top-selling makes, models and segments within their market using interactive heat mapping tools, zip code breakdowns and dealer summaries. Over the past few years, Cross-Sell has developed the ability to instantly email reports after the data is processed each month and has also created an online interface that allows you to analyze, filter, print and download the specific data or reports that you need. On March 1, WVADA sunsetted our registration data platform and is now directing all registration report inquiries to Cross-Sell. To ease the transition, Cross-Sell is offering a free trial month to all WVADA dealer members of their premium product, Cross-Sell Interactive. This tool allows you to drill down geographically into your local market at a zip code level and create custom areas to monitor specific trends that you care about “on demand” within 24 hours of the data being delivered by the DMV. This tool also allows historical trend analysis so you can see your performance versus your market. Cross-Sell is also offering a special 40% discount for any WVADA dealer members who sign up for a 12-month subscription in 2024. WVADA encourages all dealer members to explore all that Cross-Sell has to offer. To get more information on the WVADA/CrossSell partnership and to set up a meeting with Cross-Sell, please go to www.cross-sell.com/ WVADA to chat with a dedicated representative, email info@cross-sell.com or call (800) 369-5870 to set up a consultation. We welcome Cross-Sell as a WVADA Preferred Partner and are confident they will deliver quality services for our dealer members. Cross-Sell Is Now a WVADA Preferred Partner WVADA News 14
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?® Clay Lanctot, clay.lanctot@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.
West Virginia Franchise Law Strengthened COUNSELOR’S CORNER H appy spring, everyone. I hope everyone is excited to come out of the cloudy and cold winter and look forward to the sun and warmth. Sounds like the car-buying season. Great news: For the second time in three years, the West Virginia Dealers Association has been successful in obtaining significant changes to your franchise law. Senate Bill 173 was passed unanimously in the West Virginia Senate and on an 87-13 vote in the House of Delegates. Congratulations to Jared and all involved in helping pass West Virginia’s new franchise law. I have the pleasure of getting to deliver the particulars of this good news. We have some exciting changes that protect the franchise model in West Virginia and provide for a West Virginia dealer to maintain control over their West Virginia business. Here are our changes, which become effective June 5, 2024: 1. Right of First Refusal. West Virginia became the 12th state to prohibit the manufacturer’s right of first refusal. This was a hard fault victory. Over the last five (5) years, there have been numerous times that I have personally been involved in transactions in which a manufacturer exercised a right of first refusal against a West Virginia dealer who was purchasing a store. These stores are then assigned to out-of-state entities and take away a business owner’s right to sell their business to whomever they wish. More importantly, our West Virginia dealers wish to sell to individuals who will continue to serve their West Virginia community and provide a smooth change for their employees. These rights were previously lost under the old statute. This preserves your right as a dealer to control your business. 2. Anti-Agency Laws. This is what I am personally most excited about: protecting the franchise model, which is consumer-friendly and allows for intra-brand competition. The changes this year preserve the franchise model for our West Virginia dealers. The first change prohibits a manufacturer, through any program, agreement, incentive or otherwise, from requiring the following: (a) maintaining a website in which the manufacturer negotiates prices or other terms of sale; (b) retaining ownership of motor vehicles and using the dealer for a consignment arrangement or as a delivery agent; and (c) reserving the right to negotiate any terms of sale of the motor vehicle. A second change was more specific to the reservation system which has become so popular over the last few years. Our new law states that a manufacturer, through a retail vehicle sale or reservation system, is specifically prohibited from “interfering with” a dealer pertaining to setting price, trade-in value, financing terms or the sale of voluntary protection products. 3. Unilateral Change in Sales and Service Agreements. Another significant change impacts all Sales and Service Agreements. Our West Virginia franchise law now specifically By JOHNNIE BROWN, ESQ., Pullin, Fowler, Flanagan, Brown & Poe PLLC WVADA News 16
prohibits any term or condition of the “dealer agreement,” which allows a manufacturer a unilateral right to change the agreement. The provision is now considered null and void. After the effective date, any amendment concerning the purchase, sale, lease or service of any new motor vehicle must be agreed to by the dealer. How many years have our West Virginia dealers had to contend with the constant change of “dealer agreements,” which is defined quite broadly in West Virginia to include not only the specific Sales and Service Agreement but all agreements related to the sale and service of motor vehicles? This is now stopped. 4. Manufacturer New Product Lines. As you are aware, over the last few years, manufacturers have been threatening not to allow their same-line dealers to sell a new model of motor vehicle that exists under the same manufacturer’s badge or line. By way of examples, we have seen this with Ford and their electric vehicles, and Volkswagen has strongly suggested the same with its new Scout model. West Virginia’s new franchise law now states that a manufacturer cannot refuse to offer to its same-line make dealers all models, including any model with a separate label or badge, regardless of its “means of propulsion.” Importantly, this includes a new line established by a subsidiary or an affiliated company in which the manufacturer owns at least 25%. In practice, this should stop this artificial arbitrary line of manufacturers making claims that a dealer can not sell an electric vehicle merely because it is electric, i.e., its “means of propulsion.” This also prevents a manufacturer from attempting to prevent its long-time dealer body from selling a new model or line solely because a new model may be marketed as electric or brought to market through a subsidiary or affiliate owned by the manufacturer already doing business in West Virginia. 5. Protection of Facility Upgrade Investments. West Virginia has one of the strongest laws in the country on protecting a dealer’s investment in facility upgrades. Our West Virginia franchise law protects a dealer’s investment in facility image requirements for 15 years and further grandfathers a dealer into any program or incentive related to the facility for 15 years after completion. Now, we take it a step further. If a dealer is selling his store and is still within the 15-year safe harbor, the buying dealer is able to obtain the store with the same protection for the remainder of the 15-year period. This prevents a selling dealer’s investment from being devalued by a manufacturer demanding the buying dealer spend millions of dollars on new facility image upgrades causing the buying dealer to offer less to the selling dealer. 6. Warranty Service Reimbursement. The association was able to make a few small changes that, we hope, you will find provide significant protection and help ensure a fair return for your service technicians. First, a dealer must now be reimbursed for “time communicating with the manufacturer” for warranty repair and recalls. This work has been an overlooked item for many years but has become more significant and frequent over the years with the complexity of the motor vehicle. Second, when there is a disagreement over the warranty time allowance, the dealer’s request for modification is now to be “presumed reasonable.” This places a greater burden upon the manufacturer to challenge a dealer who makes the request for modification when the pre-determined guide simply is not practical and does not reflect reality. Last, when requesting a submitted labor rate or parts markup, our new franchise law clarifies that a manufacturer shall only have 30 days to provide a detailed analysis of why the requested labor rate or parts markup is not reasonable or it will come into effect automatically. This cleared up any ambiguity that may have existed in our prior statute. Again, congratulations to the association on a highly successful legislative year. Stay tuned for emails and updates from the association on these new changes, but if you have any questions, please don’t hesitate to call me or the association for assistance. WVADA News 17
October 1 VIENNA Grand Pointe Conference Center 1500 Grand Central Ave Vienna, WV 26105 October 2 CHARLESTON Charleston Coliseum 200 Civic Center Dr Charleston, WV 25301 October 8 WHEELING Wheeling Country Club 906 Oglebay Dr, Wheeling, WV 26003 October 9 MARTINSBURG Hilton Garden Inn 65 Priority Dr Martinsburg, WV 25401 October 3 BECKLEY Beckley-Raleigh County Convention Center 200 Armory Dr Beckley, WV 25801 October 10 BRIDGEPORT Bridgeport Conference Center 300 Conference Center Way Bridgeport, WV 26330 MOTOR VEHICLE & TITLE REGISTRATION SEMINAR Save the Dates! 6 Locations Registration forms to come later. If you have any questions, please contact Haley Justice at 304-343-4158. WVADA News 18
BY THE NUMBERS Estate Tax Exemption IS NOW THE RIGHT TIME TO GIFT? By TASHA SINCLAIR, CPA/ABV, Principal, Tetrick & Bartlett PLLC T he Tax Cuts and Jobs Act of 2017 more than doubled the lifetime estate tax exemption, increasing from $5.6 million for individuals and $11.8 million for married couples to an inflationadjusted $13.61 million for individuals and $27.22 million for married couples in 2024. Unless Congress acts, this legislation will expire on Jan. 1, 2026, and the exemptions will revert or “sunset” to the 2017 amounts adjusted for inflation. This will be approximately $7 million for individuals and $14 million for married couples. With the boom in the auto industry over the last few years, more dealers will be facing a taxable estate after the exemption sunsets. However, there is an opportunity to utilize the higher exemption amounts through gifting before 2026. Appreciating assets subject to valuation discounts (such as a minority interest in an automobile dealership) are ideal for gifting because future appreciation escapes estate tax and valuation discounts allow the assets to be valued at a lower amount for gift tax purposes. It is worth noting that these types of gifts are subject to more IRS scrutiny, so using a business appraiser who frequently values auto dealerships to provide a business valuation report is highly recommended. Let’s look at an example of the estate tax savings that could result from gifting a 20% interest in a dealership worth $20 million today. For simplicity purposes, let’s assume a 10% discount for lack of control and marketability and an annual appreciation of 5%. When considering which assets to gift, if any, remember that you will lose control over the assets and the income they generate once you transfer them to someone else. Assess your cash flow needs before making any transfers, but don’t wait too long to act. Experts predict there will be an uptick in gift tax return filings leading up to the sunset date. Start working now with your estate planning advisors to develop the right plan for you and your family. Tasha Sinclair, CPA/ABV is a principal of Tetrick & Bartlett PLLC and has been providing accounting, tax, valuation and consulting services to automobile dealers since 2002. Tetrick & Bartlett PLLC currently serves over 50 dealers in West Virginia, Virginia, Ohio and Pennsylvania and is a member of the AutoCPA Group, a nationwide organization of CPA firms specializing in services to automobile dealers. Tasha can be reached at tsinclair@tb.cpa or (304) 624-5564. Tax Savings on Gift of 20% Interest of $20 Million Dealership Equity value of 20% interest 12/31/24 $4,000,000 Assumed Annual Appreciation 5% Implied Equity Value 12/31/34 $6,515,579 Equity Appreciation in 10 years $2,515,579 Tax Savings on Appreciation at 40% Rate $1,006,232 10% discount used for Gift value $400,000 Tax Savings on Discount at 40% Rate $160,000 Total Tax Savings $1,166,232 WVADA News 19
Structure Reinsurance To Get the Most From Your Warranty Programs By TRUIST DEALER SERVICES T ailwinds in the auto retailing business continue to provide resources for dealers to build out programs that strengthen their business model and deliver more value to customers. Properly structured and managed finance and insurance (F&I) reinsurance programs are an example of programs that can deliver a steady boost to dealer financial performance. While dealers need to focus on the product and sales side of these programs, it’s the often-overlooked reinsurance components that can deliver added profitability and provide a means of accumulating assets. The structure of F&I programs often changes over time. Many dealers start by offering warranty plans and service contracts that are directly managed and collateralized by a third-party provider or insurance company. In this arrangement, premiums are deposited into a custodial account that holds the premium reserve funds used to cover warranty and service claims. The provider, or insurer, is responsible for the funds in the custodial account. Profits are earned from any unused funds (profits) retained after claims are paid out. Different reinsurance opportunities emerge as programs mature. By setting up their own reinsurance company and trust, dealers can assume more risk and capture a greater share of the underwriting profits and investment income that these programs generate. How Does a Dealer-Owned Reinsurance Trust Work? A dealer establishes a reinsurance company for the purpose of reinsuring F&I products. This approach shifts the risk to the dealer, but acting as your own reinsurer means you gain more control over how the premium funds are invested — and impacts the returns you earn. Dealer-owned reinsurance companies partner with a commercial insurance company that underwrites the F&I products. Referred to as the “fronting” company, this insurance partner gets a portion of the premiums paid, although the dealer reinsurance company assumes the risk and responsibility for the payment of claims. Unearned Premium Reserve (UPR) funds are used for paying out claims. Premiums are deposited into trust accounts set up by the dealer insurance company. The state, or the insurer, sets guidelines restricting how UPR funds can be invested. WVADA News 20
A Surplus Account Could Mean Higher Returns At the end of a policy or contract term, unused premiums create a surplus. Some dealers choose to set up a separate “B” account within the reinsurance trust for these surplus or “earned” funds. Unused premiums are considered “earned” funds and are not subject to the same restrictions as the UPR funds. This means they can be invested in equities and other securities that offer higher expected yields than the more conservative investments required for the UPR funds. The dealer has full access to money in the “B” account, which can be used at any time. A lower loss ratio generates more surplus. If it remains in the trust, it can grow without triggering an increase in your taxable income. Beyond The Obvious Benefits Although the primary objective of forming your own reinsurance company is to have more control and capture more profit and income, it can provide additional benefits when used strategically. Your reinsurance program can help you build wealth, fund your succession plan, create golden handcuffs for key employees and much more. Plus, you can establish as many reinsurance companies as you like. An effectively structured and well-managed reinsurance program can generate considerable wealth and you can put it to use in several different ways: • Diversify your retirement income stream and help you reach your financial goals more quickly. • Designate funds for succession planning by building the working capital future leaders will need as they assume a leadership position. If you hope to pass on the dealership to your children one day, a reinsurance trust for their benefit can be a source of capital they can use to purchase the dealership. • Funds to reward and retain valuable employees on your team. In this scenario, you’d form a reinsurance trust for key employees to serve as a type of deferred compensation plan. • Capital for expansion through strategic buy/sells or for scaling the existing operations to compete in the consolidating auto retail sector. Optimizing Your Investment Performance Minimize risk and maximize performance by seeking out an investment manager with a track record of investment performance and expertise in auto dealer reinsurance trusts. The right investment manager will outline the structure and investment policies for your UPR funds to stay within insurer and regulatory requirements and help you set realistic expectations for the returns from your “B” account. They’ll build your portfolio to meet your risk tolerance and timing goals. Fees and expenses are often overlooked but can impact your reinsurance trust returns. Some investment managers augment low management fees for investment portfolios by including their own proprietary funds. These funds, which generate incremental fees, are easy to miss, so look for them and ask for a full disclosure of all fees and expenses, along with an explanation of each. Truist Dealer Services has the specialized expertise and experience to help you structure your reinsurance programs and get the most out of them. We offer a dedicated team of experts focused exclusively on collateral management and reinsurance trust investing, and we’re ready to help you set up your program. To learn more about Truist Dealer Services, visit our website at Truist.com/ DealerServices. 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. Is your business in the dark? ADVERTISE IN THIS MAGAZINE AND SHINE A LIGHT ON YOUR COMPANY. QR Code: website /ad-space CONTACT US TO LEARN MORE. 801.676.9722 • 855.747.4003 sales@thenewslinkgroup.com WVADA News 21
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 Auctions is a full-service, coast-to-coast, wholesale automotive marketplace, providing unmatched transparency that thousands of dealers trust. Capital Automotive’s Safe Buy Limited Powertrain Warranty is the brand for dealers that are serious about selling pre-owned vehicles. Capital allows dealers to differentiate and increase profits through customer confidence in a Safe Buy warranty. Building value allows dealers to sell more cars and increase gross profits. Heritage Crystal Clean provides its customers with parts cleaners, parts washers, drum waste management, oil collection, oil re-refining, vacuum services, parts cleaning solvent as well as other products and services pertaining to the environmental services market. ComplyAuto LLC is a RegTech company offering cloud-based software that helps dealerships enhance their compliance capabilities while becoming more efficient and cost-effective. ComplyAuto uses data analytics and AI to provide real-time automated compliance decisions, performing tasks that would normally require manually intensive processes and human intelligence. CVR supplies fast, secure electronic titling and vehicle registration solutions to help dealerships and other businesses provide great customer service, while also alleviating 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 traditionally manual process electronic. Accelerated Title now uses over 81 lenders and still growing! With over 75 years of automotive experience, Dealer Merchant Services has a proprietary solution to help dealers save up to 75% of their credit card processing fees without disrupting CSI. ACCELERATED TITLE The NADA Retirement Program from Empower Retirement focuses on optimizing participant outcomes through innovative 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 interactions, 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 solutions 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 theft, false pretense, collisions and more to safeguard your dealership. They also provide loss control services to evaluate your potential threats before they occur and access to online training courses to help reduce workplace incidents. Cross-Sell has developed the ability to instantly email reports after the data is processed each month and has also created an online interface that allows you to analyze, filter, print and download the specific data or reports that you need.
T he FTC continues its deep dive into the automotive industry with its latest opening chess move in the Combating Auto Retail Scams Rule, simply known as the CARS Rule. The Rule is comprehensive and will fundamentally change the way dealers do business. In this article, I will briefly cover all of these topics to provide a better understanding of what is to come on the new regulations’ effective date. The keyword here is “briefly” because the regulations that the FTC released spanned over 370 pages. In order to fully understand the CARS Rule and how it can potentially affect your daily operations, we will publish a series of articles over the next few months, with each focusing on a specific area of the regulations to give each portion the attention that it deserves. Hopefully, you will be well-equipped to meet the demands by the Rule’s effective date of July 30, 2024. Overview and Applicability By now, you’ve heard about the CARS Rule by its original name, the “Motor Vehicle Trade Regulations Rule” (or some variation of it), either from your state trade association or the National Automobile Dealers Association. For those of you who have not, the CARS Rule is essentially a set of regulations that purports to provide dealer guardrails (or a euphemism I like to use: “instructions with legal ramifications”) on how you are to advertise, market and sell motor vehicles to customers. Touted as a consumer protection regulation, the goal of the CARS Rule is to reduce the number of unscrupulous dealers and poor transaction experiences that thousands of Americans ostensibly face every year. It is interesting to note that those dealerships that only sell motorcycles, ATVs, RVs, boats, scooters, electric bikes Give Me a Brake A SUMMARY OF THE CARS RULE By HAO NGUYEN, Chief Legal Officer, ComplyAuto and golf carts will be unaffected. From advertising disclosures to record-keeping requirements, let’s jump into the thick of it to provide you with a bit more clarity as to what will need to change at the dealership level. Advertising Prohibitions You have a car. You want to sell that car. You advertise the car for sale. A consumer sees the advertisement, inquires about it, and the vehicle is sold. Sounds simple enough, right? The FTC has always overseen this advertising process under its current authority in Section 5, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” It was broad, but the CARS Rule effectively groups the FTC’s fire on automotive transactions. Here is a list of prohibited activities when advertising a motor vehicle for sale. The list is long, so buckle up. You cannot misrepresent the following: 1. The cost or terms of purchasing, financing or leasing a motor vehicle; 2. The costs, limitations, benefits or any other aspect of an add-on product or service; 3. Whether or not the terms advertised are for financing or leasing; WVADA News 23
4. The availability of any rebates or discounts by factoring into the advertised price those that are not widely available to all consumers; 5. The availability of vehicles at an advertised price; 6. Whether any consumer has been, or will be, preapproved or guaranteed for any product, service or term; 7. The information about a consumer’s application for financing; 8. Whether a transaction is final or binding on all parties; 9. Whether cash down payments, trade-ins, charging fees are refundable or initiating legal proceedings if a transaction is not finalized; 10.Whether or when a dealer will pay off some or all of the financing or lease on a consumer’s trade-in; 11. Whether reviews or ratings of the dealer or the dealer’s products/services are unbiased and independent; 12.Whether the dealer is affiliated with any United States government or branch of the armed forces; 13.Whether a consumer has won a prize or sweepstakes; 14. Whether, or under what circumstances, a motor vehicle may be moved, including across state lines or out of the country; and 15.Whether, or under what circumstances, a motor vehicle may be repossessed. As you can see, there is a lot to digest here in just the vehicle advertisements. What I said earlier about separate articles should now make a lot more sense! Disclosure Requirements Through the CARS Rule, the FTC wants to further “instruct you” on what you need to disclose when placing advertisements and during the entire documentation process. “Offering Price” Whenever you advertise a specific vehicle or finance special for a group of vehicles, you will have to identify the vehicle’s “offering price.” This offering price includes everything except any required government charges (all fees or charges imposed by federal, state or local government agencies, including taxes, license and registration costs, inspection or certification costs, and any other such fees or charges). Long gone are the days of “MSRP only” pricing or “click here for details” links, and if you have not yet noticed, you can no longer state “Plus” document processing charges, mandatory add-ons or filing charges in a disclaimer. They must be included in the offering price. “Offering Price” in First Communication with Consumer The regulation is as novel as it is strange. We have received multiple questions about this during a live webinar co-hosted by me, Chris Cleveland (CEO) and Andy Graff (COO) and posted the answers in our Frequently Asked Questions (FAQ) brochure that was distributed to attendees. If a consumer contacts you about a specific vehicle (or financing special for a group of vehicles), whether it be an online chat, over the phone, in an email or in a text message, you must respond to them with the offering price of the vehicle. One of the questions fielded was whether you had to tell the consumer the offering price even if the consumer did not ask about the price specifically. The regulations point to “yes.” If you did not attend our webinar, you can find more questions about these communications and about other aspects of the CARS Rule in our FAQs brochure by scanning the QR code. https://sales.complyauto.com/ ftc-cars-rule-faqs Rebates, Discounts and “Pre-approved” Loans The FTC prohibits you from factoring them into the advertised price but further clarifies that this prohibited activity involves rebates and discounts that are limited to only a few consumers (i.e., those rebates that are only available for the most expensive trim of a particular model or only to consumers with high credit scores). What is more important, suggests the FTC, is that you don’t make misrepresentations and will allow you to advertise rebates and discounts, and their limitations, in a “truthful manner.” This tells us that any rebates or discounts, and their limitations, must be clearly and conspicuously identified in the advertisement. Add-Ons That are Not Required Specifically, the FTC requires you to disclose in writing that the purchase of optional add-ons is not required for vehicle purchase or lease. This, the FTC assures, was prescribed for the purpose of preventing unfair or deceptive acts or practices. Total Lease or Finance Payments and Comparisons A purported common practice that the FTC aims to curtail is dealers emphasizing a low monthly payment while diverting a consumer’s attention away from the overall cost of financing or leasing the vehicle. Therefore, anytime you advertise or mention a monthly lease or finance payment, you must also identify the total amount the consumer will pay to lease or purchase the vehicle at that monthly payment after making all payments as scheduled. Comparing Monthly Payments Many of the complaints the FTC received were about dealers lowering monthly payments without telling consumers that the length of the loan is extended, thus making the purchase or lease of a vehicle more expensive over the life of the payments. Now, anytime you compare two monthly payments (such as via a desking tool’s proposal sheet or payment quote), you must include a clear and conspicuous disclosure that the lower monthly payment will increase the total amount the consumer will pay to purchase or lease the vehicle. WVADA News 24
Other Prohibited Activities Add-Ons That Provide No Benefit You cannot charge a consumer for an add-on that provides no benefit to the consumer. The FTC provides some examples: 1. Nitrogen-filled tire-related products or services that contain no more nitrogen than naturally exists in the air; 2. Sale of service contracts that are duplicative of manufacturer warranties; 3. Supposed rust-proofing add-ons that do not actually prevent rust; 4. Add-ons that the vehicle itself cannot support (like engine oil-change services on an electric vehicle); 5. Software or audio subscription services that the vehicle cannot support or use; and 6. GAP agreements on vehicles with a low LTV. Charging a Consumer Without Consent You cannot charge a consumer for any item unless you obtain the consumer’s “express, informed consent” to be charged for that item. The FTC defines “express, informed consent” as “an affirmative act [that communicates] unambiguous assent to be charged, made after receiving and in close proximity to a Clear and Conspicuous disclosure, in writing … of the following: 1. What the charge is for; and 2. The amount of the charge, including if the charge is for a product or service, all fees and costs to be charged to the consumer over the period of repayment with and without the product or service.” Furthermore, the FTC identifies the following as not being “express, informed consent”: 1. A signed or initialed document by itself; 2. Pre-checked boxes; or 3. An agreement obtained through any practice designed or manipulated with the substantial effect of subverting or impairing user autonomy, decision-making or choice (which sounds eerily similar to “dark patterns” as it is related to consumer privacy choices). Though not explicitly stated in the regulations, we believe that this will require you to provide the customer with an additional disclosure form that they must acknowledge and sign. We will cover that in more detail in an upcoming article. Recordkeeping For 24 months, dealers must create and retain copies of the following: 1. Copies of all materially different advertisements, sales scripts, training materials and marketing materials regarding the price, financing or lease of a vehicle; 2. Copies of all purchase orders, financing and lease documents signed by the consumer (whether you sold a vehicle or not); 3. All written communications relating to sales, financing or lease between you and any consumer in which you sold or leased a vehicle. Another question we regularly saw during our live webinar was whether text and email communications between a salesperson and a customer, in which a vehicle was sold, needed to be retained for 24 months. The answer is “yes,” and we recommend that you train your staff to use software that tracks and records this electronic communication. Outlook Though the regulation itself spans only 12 pages (with over 358 pages of comments), the ramifications to the industry are significant and very complex, but that’s why we’re here. Led by dealers and industry compliance experts, ComplyAuto has been preparing a solution for the CARS Rule since 2020 called “Guardian,” which was announced at the NADA Convention in Las Vegas. To learn more, visit complyauto.com/guardian. As the FTC continues to receive commentary about the CARS Rule and ratchets up enforcement in other areas of the automotive industry, ComplyAuto intends to remain the nation’s leading automotive compliance software solution by bringing you the latest information that affects your dealership. This article is intended to be for INFORMATIONAL PURPOSES ONLY and is NOT to be construed as legal advice. The Rule is comprehensive and will fundamentally change the way dealers do business. WVADA News 25
IN THE COMMUNITY Sheets Chrysler Dodge Jeep Ram Ryan Miller is Sheets Chrysler Dodge Jeep Ram 2023 Service and Parts Advisor of the Year! Ryan does a great job and he’s always happy to assist his fellow employees and our great customers in the parts department. Congrats, Ryan! Wally Thornhill and Thornhill Toyota We would like to thank Wally Thornhill and Thornhill Toyota for their very generous contribution to the Chief Logan Recreational Center. Premier Nissan Not one but the TWO TIME CHAMPS! Congratulations to the amazing Premier Nissan team for earning the title of #1 Frontier Dealer in the Midwest for 2023! Wharton Auto Group Congratulations, Mr. Bolden, on your 25-year work anniversary. Your hard work is appreciated. Moses Nissan of Huntington In February, Moses Nissan of Huntington celebrated perennial top sales consultant Jason Bailey on his anniversary. Jason has been with Moses AutoMall for eight years. Happy anniversary, Jason! Premier Nissan The team at Premier Nissan was awarded the J.D. Power 2023 Dealer of Excellence! Only a small number of new car dealers in the U.S. have received this honor. WVADA News 26
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