ZERO PERCENT FINANCING MAY BE GREAT FOR vehicle sales, but it's creating a potential tax problem for many dealers. They're worried about year-end inventory reductions causing substantial losses to their LIFO (last in, first out) tax benefits.
“This is a very serious issue financially,” says Skip McCracken, vice president of Preston Automotive Group in Maryland and Delaware.
Adds Preston Group President Dave Wilson, “In the end, it will affect a lot of dealers come tax time. Not only will it affect us for 2001, it will affect our planning for 2002 and years to come.”
I asked dealership CPA expert Don Ray about it. It's a real problem, he says.
Deep reductions in inventory can cause a portion of LIFO reserves to become taxable income, he says. Even a temporary reduction in inventory at year-end can cause substantial loss of LIFO benefits.
“Such additional taxable income can be an unpleasant surprise at tax time,” he says. “It's a serious problem with few solutions.”
But dealers can take steps to mitigate the damage.
Ray says dealers should estimate year-end inventory levels and determine what effect lower inventory levels will have on LIFO. That can properly be done by a calculation using prior years layering history and indexes. You might need an accountant for that.
“This should be done as soon as possible to allow time for any corrective action,” says Ray. “Any prior estimates may not have taken lower inventories into account.”
Zero percent financing was a creative way to sustain vehicle sales after the shock of Sept. 11. But it's unfair if dealers must bear the tax brunt.
“What the hell is wrong with ‘very satisfied’”?
In the October issue of Ward's Dealer Business, columnist Dave Skrobot, writing about dealership customer satisfaction surveys, asked:
“What the hell is wrong with a ‘very good’? I don't know if it's just me, but I think a ‘very good’ or ‘very satisfied’ is damn good.”
So do a lot of people. Unfortunately, the people who oversee those dealership customer satisfaction surveys think otherwise.
That perplexes a dealer who is relatively new but has nonetheless seen his sales multiply and has maintained strong profitability.
Asking that his name not be used, he tells me, “Our customers seem very happy and I get so few complaints that it is not even a fraction of 1%. My problem is that my Top Box CSI score is only 30% compared to 60% in the region. Most of my customers give us a “very satisfied” score. This is a failing grade because it is not Top Box.
“The tension is getting very strong between GM and myself. If I had poor customer satisfaction, I would be the first one to know and I would correct it immediately. Customer satisfaction is not the problem. It is the scoring.
“It seems to me that ‘very satisfied — I would recommend someone to your dealership’ should be a passing grade. Right now it is a failing grade.
“Has J.D. Power and Associates sold GM a ‘bill of goods’ in this program? Is this program designed for failure?
“I have talked with some of my customers and asked why they did not give us a ‘completely satisfied’ response on the survey. I have heard it all. The thing that keeps coming up from them is GM's stupidity that if they don't understand that ‘very satisfied’ is a good answer, then it's their problem, and they should correct their own flaws. That sounds good, but does not correct the problem between myself and GM.
“I need some help here.”
Anyone got any ideas?
How to make staff meetings bearable
I've rarely attended a staff meeting where the important stuff couldn't have been covered in 30 minutes. Yet those meetings often last hours, basically melting into digressions, soliloquies and free-flowing streams of consciousness.
It makes you want to avoid staff meetings, and wave them off as boring and irrelevant. Yet a planned, well-run meeting is an effective way to communicate with your colleagues. The key is in knowing how to hold a good meeting and making sure they stay focused.
Columnist Nat Shulman has some good ideas on that. See his column on the back page for hints on what to do — and what not to do — at staff meetings.
Steve Finlay is editor of Ward's Dealer Business. His e-mail address is: [email protected]