IRS has issued confusing guidelines on Captive Insurance; some taxpayers now in limbo

When members of Congress travel to Oklahoma this week, we hope they hear one message loud and clear: The IRS needs to stop targeting honest small-business owners and farmers who use the 831(b) tax code, also known as Captive Insurance.

Small businesses around the country successfully protect themselves through this tax code, helping them through events and financial losses that traditional insurance does not cover. But now, those small businesses are being forced to hire lawyers to defend themselves from the IRS, which has unfairly singled them out.

This issue directly affects the Modoc Nation, where some providers of 831(b) captives are domiciled. Fees paid to those plans help benefit the Modoc Nation’s wide range of social assistance for our members, such as child care assistance, scholarships for higher education, and improved housing. With our commitment to conservation, we’ve also reintroduced a herd of 200 bison to the Modoc range.

We’re proud to help facilitate 831(b) captives and know organizations need to mitigate unforeseen risks. This was no more apparent than during the COVID-19 pandemic when organizations faced unprecedented financial challenges.

Unfortunately for many, traditional insurance plans did not cover the wide range of business disruptions and expenses the pandemic brought.

This is where the 831(b) tax code comes in. Congress showed foresight nearly four decades ago when it created 831(b), a special section of the tax code that allows individuals and small businesses to set aside tax-deferred funds for unforeseen or catastrophic events.

This tax code can provide risk coverage not normally available in the traditional insurance market. For instance, an 831(b) captive can help when unpredictable events hit — such as the avian flu, which recently devastated the poultry and egg industries, or prolonged downturns in the oil and gas markets.

Similar to 401K individual retirement accounts, an 831(b) captive allows business owners to put aside pre-tax dollars that can be used to cover unforeseen business disruptions in the future.

This form of self-insurance enables small- to mid-sized businesses to sustain cash flow, generate investment income, and alleviate the burden from losses. During the COVID-19 pandemic, 831(b) captives helped small businesses navigate widespread business and supply chain interruptions.

Unfortunately, the IRS has recently taken a different view of 831(b) captives. This has been especially true since 2016 when the agency began a systematic campaign of audits relating to the 831(b) tax code.

Since then, the IRS issued confusing guidance on how 831(b) is treated for tax purposes, leaving some honest taxpayers in limbo or facing unreasonable audits and penalties. Alternatively, many small businesses are afraid to participate and use this great risk mitigation tool because of the IRS’s confusion on guidance.

Aside from its wide-ranging audit program, the IRS also imposed burdensome new reporting requirements.

The IRS has not been fair to small businesses with 831(b) captives and has made it impossible for us to follow the rules when they won’t even explain the rules they’re expected to follow.

We hope the committee will urge the IRS to end its un-American campaign against small businesses and farmers.

Original posting by The Oklahoman. https://www.oklahoman.com/story/opinion/columns/2023/03/06/guest-irss-guidelines-on-captive-insurance-leave-some-in-limbo/69971204007/

Why there may be no return to ‘normal’ for the U.S. used vehicle market

All new vehicles become used cars and trucks once they’re sold.

It’s an obvious statement, but one that needs to be laid out to explain the root cause for ongoing inventory and pricing issues in the U.S. used vehicle market, which has been a barometer for the country’s inflation levels.

During the onset of the coronavirus pandemic in early 2020, automakers shuttered factories for weeks to stop the spread of Covid-19. It was an unprecedented action that eventually led to additional supply chain problems, such as an ongoing semiconductor chip shortage, causing factories to cease production again for weeks, if not months, at a time in recent years.

The lack of production meant fewer new vehicles would become used models for consumers to purchase, leading to inventory constraints in both the new and used vehicle markets, as well as record prices due to resilient demand.

It’s been three years since those initial plant closures, but American consumers — as well as the Biden administration — hoping for the used vehicle market to return to “normal” pre-pandemic levels shouldn’t hold their breath.

A notable decline in used vehicle prices toward the end of last year has been roughly cut in half in 2023, as inventories remain significantly down following vehicle-production disruptions. There’s also been an uncharacteristically large number of consumers buying out leases to avoid sky-high car prices and increasing interest rates.

“It looks like it will persist for some time,” said Chris Frey, senior industry insights manager at Cox Automotive. “It’s really a function of this hole in new production, creating a dynamic where wholesale or general used values are higher because there are millions of fewer new vehicles that would eventually turn into used.”

Cox Automotive reports wholesale used vehicle prices are up by 8.8% this year through mid-March, according to the Manheim Used Vehicle Value Index, which tracks vehicles sold to dealers at auction. The prices are trending higher, and the index is heading back toward a record of 257.7 basis points set at the start of 2022. It was 238.6 as of mid-March.

Used vehicle inventory is down 21% from a year ago and off a whopping 26% from pre-pandemic levels of 2.8 million available vehicles in 2019. Cox Automotive doesn’t expect the total number of used sales to return to pre-pandemic levels of about 38.2 million units until at least 2026, Frey said.

Adding to the production hole is a change in leasing. Cox reports a 20% increase in consumers who leased their vehicles buying them out instead of trading them in from 2019 to 2022. The increase occurred as residual values of the vehicles in some cases were far above expectations, making it significantly cheaper to buy the vehicle than lease another amid inflated prices and rising interest rates.

“It’s still under a lot of pressure, just like it was last year,” said Benjamin Preston, an autos reporter for Consumer Reports. “Prices came down a little bit … but the bottom line is they’re just way higher than they were before the pandemic.”

Cox Automotive previously forecast wholesale prices on the Manheim Used Vehicle Value Index to end 2023 down 4.3% from December 2022. The company has not revised that forecast but may need to do so amid the increasing wholesale prices.

Cox reports the average listed price of a used vehicle was $26,068 in February, the most recent data available, down from records last year of more than $28,000 but significantly higher than the roughly $22,000 average it reported two years ago. Retail prices for consumers traditionally follow changes in wholesale prices.

So, what’s the solution? There’s no other course but an increase in new vehicles being produced in order to boost the number of future used models. Automakers are expected to lift production this year, but they’ve also pledged to not overbuild like they have in the past.

“We’re unlikely to go back to pre-pandemic levels. Vehicles cost way more now,” Frey said regarding used car pricing. “The landscape has changed. [Automakers] are not manufacturing as many as they have because they got the taste of gold — huge profits from not having so many vehicles in manufacturing.”

Originally on CNBC. https://www.cnbc.com/2023/03/25/why-there-may-be-no-return-to-normal-for-the-used-vehicle-market.html?__source=iosappshare%7Ccom.glip.mobile.shareExtension

Number of US Dealerships Rises in 2022

Automotive News’ annual dealership census shows the number of U.S. dealerships increased 0.4% last year, though new-vehicle sales per franchise fell 8.8% because of new-vehicle inventory challenges and other factors.

The census ranks 42 brands for throughput, a measure of dealership network health. The new census is the first to include Polestar, which had 29 franchises as of Jan. 1.

The research shows Ford Motor Co. shed 35 dealerships last year—a 1% decline. The brand had 2,967 franchises as of Jan. 1. It gained 19 exclusive stores last year but shed 31 franchises. Its Lincoln brand lost 54 franchises and four exclusives to land at 637 franchises on Jan. 1.

Overall, the number of exclusive dealerships across the industry rose 1.6% to 12,151. Import-badged exclusive dealerships also grew by 2%.

Hyundai added 80 stores, Mazda 21, and Kia and Mitsubishi each more than 10. Jeep more than doubled its exclusive store count, and Cadillac’s dealer network grew by two to 564 franchises, according to Automotive News.

Throughput was a mixed bag, falling for 30 franchised brands and increasing for 11.

Toyota ranked No. 1 for throughput, with 1,494 vehicles sold per franchise. However, inventory constraints tempered its throughput by 8.8%.  

Lexus captured the No. 2 spot with throughput of 1,060 vehicles. That represents a 15% decline as dealers struggled with record low inventories for most of the year.  

Though BMW’s throughput declined 1.6% to 947 vehicles, it still climbed one spot to third place. The third place finisher in 2021, Honda, dropped five spots to No. 8, with throughput falling 33% to 826 vehicles. Acura throughput fell 35% to 378 vehicles.

Automotive News reported Mercedes-Benz was the only brand in the top 10 whose throughput rose. The brand jumped four spots to No. 4 as its throughput jumped 6.4% to 916 vehicles. Kia moved from the sixth spot in 2021 to the fifth spot, despite a 2.2% decline in throughput to 892 vehicles.

The research found Cadillac dealers sold 240 new vehicles per franchise, up 45% for the industry’s largest percentage gain.

Article originally written by ADT. https://www.autodealertodaymagazine.com/370399/number-of-u-s-dealerships-rises-in-2022#:~:text=Overall%2C%20the%20number%20of%20exclusive,1.6%25%20to%2012%2C151%20in%202022

Advanced Dealer Solutions joins Zurich North America’s network of select F&I Agencies

Advanced Dealer Solutions (ADS), has announced it has signed on to represent the Zurich suite of protection products to its current and future auto and powersports dealers. 

Zurich North America is a leading provider of Finance and Insurance (F&I) solutions for auto dealers offering a full suite of vehicle protection products for gas-combustion, hybrid, and electric vehicles.

“We are excited to add Zurich products and programs to our current offering”, says Bob Mancuso, President of ADS. Mancuso went on to say, “Zurich’s size, strength, and stability will add to our overall value proposition, and it furthers our goal of being an independent voice when it comes to a dealer’s F&I products and programs.”

“We are pleased to welcome Bob, Ryan, and the entire ADS team to the Zurich network of F&I agencies; and expand our reach to their auto and powersports dealers,” said Todd Kaminski, Head of Business Development for Direct Markets, Zurich North America. “Their sound business processes, solid dealership relationships, and tremendous client satisfaction are key characteristics we look for to help bring Zurich F&I products, training, and participation program to new markets.”

“Advanced Dealer Solutions prides itself on its unbiased approach of offering dealers a true choice in the products and programs that best fit their needs. We feel Zurich’s market presence and customer awareness will add value to the products and programs we currently provide our dealers.” says Ryan Nelson, EVP of Advanced Dealer Solutions.

Advanced Dealer Solutions is a premier dealer development agency based in Richfield, Ohio with specialties in F&I training and development, product structure, and reinsurance management for auto, RV and powersports dealers across the country.

Zurich can trace its roots in the automotive industry to 1922. Over the last 101 years, Zurich has evolved alongside its auto dealer customers, listening to their needs and challenges, and developing solutions that help accelerate their growth and protect their legacy.

February Newsletter

A Message From The ADS Team

Just like the industries we serve; ADS has a lot going on and much to be excited about.

In the last month we have hosted the inaugural F&I training as well as a dealer group meeting in our new training facility. The space has exceeded our expectations, and more importantly it has exceeded our dealer’s expectations. Check out the pictures below to see the room in action.

Over the next few months, we will be making several exciting announcements. Stay tuned to hear about our growth and how we plan to provide even more solutions to dealers. Be sure to subscribe to our LinkedIn, YouTube and Facebook pages as well as our newsletter to get the latest updates on what our team is up to.

Here are few interesting items to consider:
• January Sales Report
• Monthly payments over $1,000 hits record high
• Inflation possibly turns to stagflation
• EV’s already dropping in price
• NADA 2023 Recap – See you Next Year In Las Vegas
Upcoming Events ADS will be attending:

AIMExpo Las Vegas, NV – https://aimexpousa.com/
AFIP Bootcamp Certification – https://afip.com/events-open-boot-camp/ads-onsite-boot-camp
Agent Summit – https://www.agentsummit.com/

We would love the opportunity to connect with you, please let us know if you will be attending.

Sincerely,
Bob and Ryan

Click to view our full Newsletter.

IOS 15 And Dealership Email Marketing

Data privacy and its impact on automotive marketing. It was positioned to be a headlining story of 2022 as dealers evaluated the impact on their advertising strategies. But, between the ongoing vehicle inventory shortages and Google’s announcement that they will delay deprecating 3rd party cookies until 2023, the story has largely faded from view. If your dealership has put data privacy and its impact on automotive on the back burner, it’s time to turn up the heat. Why? The next update from Apple – iOS 15 – will impact your email marketing.

Before we go any further, no need to panic. Email marketing remains one of the most effective ways to influence car shoppers. The evidence suggests Apple’s iOS 15 update will likely impact how you and your vendor partners measure effectiveness. And the first hint of that impact will come quickly.

So, what is it and what should you be thinking about?

iOS 15 will go public for iPhones, iPads, and desktops using OS Monterrey this month. The update includes two features that will impact email marketing and measurement, Mail Privacy Protection and Hide My Email. At a high level, Mail Privacy Protection gives the consumer the opportunity to protect their email and prevent the tracking that tells people like you and me if, when, and where the email was opened. There’s no need to get into the technical weeds, but this update means when a customer or prospect receives an email on their Apple device, and they have opted into Mail Privacy Protection, that email will automatically register as “opened” regardless of the person’s actual activity.

Now you might be asking, is this the reality for everyone using an Apple device, and will it be effective immediately? The short answer to the first question is no. However, when Apple Mail user downloads the new operating system to their device, they will be asked if they want to protect their email. What we learned when Apple introduced App Tracking Transparency with iOS 14 this spring, 96% of Apple users said “Yes! Don’t track me.” So, it is prudent to expect a majority of Apple users to do the same with Mail Privacy Protection.

The second answer is yes, but not fully. We know from experience that the adoption of new operating systems comes in waves. Some cutting-edge techies update as soon as new features are available and others follow suit in waves. Suffice it to say, expect at least 75% of users to be up and opted in on the new updates by the end of 2021.

Which leads us to why this matters. Google Chrome’s plans with 3rd party cookie tracking is front and center because they are the dominating web browser – accounting for 65% of internet activity. Similarly, Apple is the dominant player in email. For dealers using email marketing (which is practically everyone), this update has the potential to impact up to half of the customers and prospects you engage via email.

Again, no need to panic. This update does not render email marketing ineffective. But it should cause you to pause, evaluate and adjust a few things.

Let’s look at a few high-level actions you can take.

1. Look back at Opens: Establish a measurement standard

Because Mail Privacy Protection automatically triggers the “open” pixel, you can expect your open rates to grow. To track how much, take a look at your history. Open rates vary from send to send, but normalize within a given range over time. Start by taking a look back at the first six months of 2021 to set a measurement standard. This gives you a benchmark to see how open rates change month to month. When you see the normalized open rate start to increase, you will have a general idea of how many of your customers are Apple Mail users and inflating your measurement.

2. Look beyond Opens: Expand your portfolio of email metrics

Open rates are a key metric in marketing reports. Yet by itself, the open rate has long been a flimsy performance measurement. Open rates can be an indicator of awareness, but engagement is better measured by clicks and conversions. Open rates are typically higher and look better on a report, and iOS 15 will likely only inflate those numbers. Resist the urge to take credit for the higher open rates that everyone will see as more users download the new operating system.

Instead, pay MORE attention to click thru rates and conversion metrics. In order to understand email campaign effectiveness at a greater level, utilizing UTM tags and Google Analytics are another incredibly effective way to monitor email performance and conversion. At Client Command, we also measure effectiveness through match back reporting and give dealers visibility into the impressions, frequency and clicks that influence a sale. Your vendors are likely already measuring the effectiveness of email marketing with an equal or greater focus on clicks and conversions. It’s important that you make sure you extend this to internal email engagement efforts, such as email cadences from your CRM.

3. Assess your Automation “Triggers”: Disable cadences based on “Opens”

Marketing automation is built on trigger events. If X action happens, Y cadence is deployed. There is a high likelihood that at least one email cadence set up in your CRM are built around whether someone opens or does not open an email. Opens is far from the only trigger, but is common, especially within dealership operations.

Instead, tie triggers to a more reliable action; such as ownership milestones, service activities or important events. To go deeper, build trigger events inside those cadences, based on clicks — to the enclosed offer, digital retailing tool or form. At Client Command, our marketing automation is triggered by online shopping activity and clicks to lead forms.

4. Resist the urge to react: Entertain some level of the “wait and see” approach

Yes, we know enough to take some proactive action like the steps previously mentioned. But even the Email Service Providers (ESPs) who think only about email delivery all day every day, are taking some level of the “wait and see” approach versus an all-encompassing game plan. They are making necessary adjustments now (including but not limited to the ones mentioned prior), preparing to measure the full impact over a period of time and make optimizations and recommendations accordingly. We experienced this earlier this year when Apple released iOS 14 – partners positioned themselves for the change and continue to optimize as we learn more about the nuances of the impact. Adjustments from ESPs could further impact OR improve email marketing measurements. So, if the ESPs are waiting, there is wisdom in following their lead.

Net-net. Email marketing remains a highly effective way to stay in front of car shoppers and a critical component of your omni-channel marketing strategy. As iOS 15 rolls out and users begin to sign on, start adjusting what you can control – how you measure effectiveness and how you trigger your email cadences – and be ready to adjust to residual impacts. The key is working with partners you trust — committed to staying up to speed, working to keep you ahead of the curve and ready to navigate these and future changes with you.

Article originally published here https://clientcommand.com/ios-15-and-dealership-email-marketing/.

January 2023 Newsletter

And just like that 2022 has come to an end. This past year will prove to be memorable for the rapid changes in the market, the ongoing uncertainty we find ourselves living in and our continued search for a ‘new norm’.

Let’s now shift our focus to 2023 and how we can make it the best year ever. Despite the predicted retractions and continued headwinds we face, accomplishing even the loftiest of goals is possible if you take the time to go through proper goal-setting actions. There are countless articles and videos on how to set goals and methods to track them. Here are a couple of articles to help you define your goals and establish methods to crush them! Whatever your goals are, we wish you luck in accomplishing them this year.

Here are few interesting items to consider as we head into the new year.  

Upcoming Events ADS will be attending:

RV Supershow Cleveland, OH – https://www.ohiorvshow.com/
NADA Show Dallas, TX. – https://www.nada.org/nada-show
AIMExpo Las Vegas, NV – https://aimexpousa.com/

We would love the opportunity to connect with you, please let us know if you will be attending.

ADS is excited for what 2023 has in store and we know when we keep our dealer’s goals first and foremost, there is no limit to what we can accomplish.

Here is to 2023 being your Best Year Ever!

Happy New Year,

Bob and Ryan

View the full newsletter https://mailchi.mp/advdealer.com/january-newsletter.

Who Will Blink First in 2023?

Brian Finkelmeyer is the senior director of new-vehicle solutions at Cox Automotive.

My daughter and I love staring contests. Our rules are the same as everyone’s—whoever blinks first loses.

Lately, I’ve sensed a similar staring contest emerging in the new car business between consumers, dealers, and automakers. The question is who will blink first?

Before 2020, when dealership lots were overflowing with new-vehicle inventory, manufacturers were always quick to blink—offering bigger and better incentives to entice shoppers. Total industry incentive spend was estimated to be between $50-$60 billion per year. When holiday bonus cash and $179 lease offers didn’t move enough metal, the OEMs would blink again. They had Enterprise and Hertz on speed dial to unload excess inventory.

Back then, the automakers incentivized their dealers to blink with stair-step, volume-based sales programs. Consumers learned the best way to win a good deal on a new car was to keep staring until the last day of the month. Dealers would always blink when there was a $50,000 bonus check riding on the next unit sold.

But the microchip crisis changed all that. With demand far exceeding supply, average transaction prices have increased roughly $10,000 since COVID, hitting $48,681 last month. With incentives at rock bottom, it appears many consumers have just closed their eyes entirely as they signed contracts for new-vehicle purchases, with an average payment of $762 a month. The days of waiting until the last day of the month have turned into waiting 60 days to receive your pre-ordered new car.

After a two-year drought, dealer lots are starting to fill back up. Inventory levels are now up 77% compared to November 2021. Days’ supply has also climbed from 29 to 53. So, with inventory beginning to build and talk of an economic recession looming, the car companies must be ready to blink, right?

Nope: The car companies are staring straight ahead with no expression on their face.    

The average incentive spend in November 2021 was $1,896 versus this November at $1,066. That’s a 43% DECREASE in incentives year over year. Many dealers have begun sounding the alarm of softening demand and the necessity for automakers to bring back better incentives. One dealer recently commented, “The sell ‘til the lot is empty party is over!”

But these same anxious dealers continue to post record new-car grosses in the $5,000-$6,000 range, including F&I. With grosses that strong, the OEMs are in no rush to bring back incentives—they’re waiting for dealers to blink first.

Why are the manufacturers feeling so confident? My sense is that their confidence comes from consumers, the very ones who continue to buy new vehicles absent any significant incentives. New-vehicle sales in November were up 10.8% versus the prior year; luxury sales as a percentage of the total industry continue to grow, hitting 18.2% of the market in November. With continued strong grosses and growing retail sales, the OEMs are in no mood to blink.

But here’s the hard truth. It’s highly unlikely that the industry can get back to the glory days of annual sales in the 16-to-17 million range when the average retail price is north of $48,000. For sales volume to grow, the average selling price will need to come down to expand the pool of potential buyers. Automakers and dealers should take note that Walmart recently outperformed analysts’ expectations in their grocery business, as more affluent shoppers steered away from traditional grocery stores to hedge against higher prices and inflation.

Not surprisingly, there are clear signs of softening demand for more expensive segments with rising days of supply, while affordable inventory segments remain tight. A quick look at the chart below shows that supplies are most constrained for $35,000 and below vehicles in compact SUVs, midsize and compact car segments.

NOVEMBER NEW-VEHICLE INVENTORY ESTIMATES

Given all this, I’m curious to see who will blink first in 2023. Will the automakers blink and begin doling out richer incentives or a more affordable mix? Or will dealers blink, facing rising floorplan costs and decide it’s in their best interest to step back from selling almost every new vehicle at MSRP or above?

I’m not sure how this will all play out in the year ahead, but one thing is true: Until the consumer shows a willingness to blink, the automakers and dealers will be more formidable than my daughter at the staring contest.

The article was written by Brian Finkelmeyer the senior director of new-vehicle solutions at Cox Automotive and was originally published by Cox Automotive.

Ford CEO says 65% of U.S. dealers agree to sell EVs under company’s investment programs

  • About 65% of Ford dealers have agreed to sell electric vehicles as the company invests billions to expand production and sales of the battery-powered cars and trucks, CEO Jim Farley said Monday.
  • Ford offered its dealers the option to become “EV-certified” under one of two programs — with investments of $500,000 or $1.2 million.
  • Ford, unlike crosstown rival General Motors, is allowing dealers to opt out of selling EVs and continue to sell the company’s cars.

DETROIT – About 65% of Ford Motor’s dealers have agreed to sell electric vehicles as the company invests billions to expand production and sales of the battery-powered cars and trucks, CEO Jim Farley said Monday.

About 1,920 of Ford’s nearly 3,000 dealers in the U.S. agreed to sell EVs, according to Farley. He said roughly 80% of those dealers opted for the higher level of investment for EVs.

Ford offered its dealers the option to become “EV-certified” under one of two programs — with expected investments of $500,000 or $1.2 million. Dealers in the higher tier, which carries upfront costs of $900,000, receive “elite” certification and be allocated more EVs.

Ford, unlike crosstown rival General Motors, is allowing dealers to opt out of selling EVs and continue to sell the company’s cars. GM has offered buyouts to Buick and Cadillac dealers that don’t want to invest to sell EVs.

Dealers who decided not to invest in EVs may do so when Ford reopens the certification process in 2027.

“We think that the EV adoption in the U.S. will take time, so we wanted to give dealers a chance to come back,” Farley said during an Automotive News conference.

Ford’s plans to sell EVs have been a point of contention since the company split off its all-electric vehicle business earlier this year into a separate division known as Model e. Farley said the automaker and its dealers needed to lower costs, increase profits and deliver better, more consistent customer sales experiences.

Farley on Monday also reiterated that a direct-sales model is estimated to be thousands of dollars cheaper for the automaker than the auto industry’s traditional franchised system.

Wall Street analysts have largely viewed direct-to-consumer sales as a benefit to optimize profit. However, there have been growing pains for Tesla, which uses the sales model, when it comes to servicing its vehicles.

Ford’s current lineup of all-electric vehicles includes the Ford F-150 Lightning pickup, Mustang Mach-E crossover and e-Transit van. The automaker is expected to release a litany of other EVs globally under a plan to invest tens of billion of dollars in the technologies by 2026.

Originally posted by CNBC.