Bulletin | June 2023

BULLETIN

COLORADO AUTOMOBILE DEALERS ASSOCIATION

IN THIS ISSUE

Where the War on Cars Loses the People

Less Regional, More Meaningful

Evolve F&I Practices

Employee Retention Credit

About Our Association

Representing the franchised new car dealers of Colorado

The Colorado Automobile Dealers Association (CADA) is the voice of the automotive retail industry throughout the state. As the automobile dealer trade association, CADA advocates issues of importance to the auto industry, Colorado auto dealers and Colorado’s driving public.

The Denver Automobile Dealers Association started in 1914 to operate the annual Denver Auto Show which dates to back 1902. Colorado Automobile Dealers Association soon followed and both associations operated together with shared staff and a headquarters building. In 2010, after almost eight decades together, the two associations became one. The history now dates over 108 years of high level automotive and mobility impact.

Today, our dealers range from small family-owned dealerships, to nationally operated, multiple franchise corporations. CADA represents a united front for over 300 new car, truck, motorcycle and RV dealers. From local, state and federal policymakers, to the public and the media, CADA is the voice for Colorado’s auto industry.

Matthew Groves Interim CEO

Where the War on Cars Loses the People

Americans are increasingly torn over whether the era of personal transportation is over. The anti-car drumbeat continues and is getting louder. But stepping back and looking at the issue objectively is instructive, because as automobile dealers, we have an important message to share. And it’s up to us to make sure that it’s heard.

The School of Hard Knocks – it’s a phrase that appears in the press going back to 1918. Wikipedia describes it as “An idiomatic phrase meaning the (sometimes painful) education one gets from life’s usually negative experiences.” It aptly describes what most of us know: you can’t learn everything you need in life from formal education and even though some ideas go against conventional wisdom, they still manage to thrive.

Education – from Hard Knocks or Harvard – offers freedom. Combined with working knowledge of the world around you it is advertised as the means to be able to live the life you want to live. Freedom that stems primarily from a book-based education, on the other hand, tends to be short-sighted, enables hazardous assumptions and even erects new thought barriers.

Americans have a tendency to believe their perspectives on poverty, privilege, and freedom are universal and that we will always be able to turn on our lights, always have food to eat, and always hop in our car and get out of town. Those living in developing countries - or California during a wildfire - know this to be a squarely false assumption.

When people get outside of their geographic or cultural comfort zones it often leads to some dramatic revelations.

I’m a good example. I thought I knew what poverty was. Growing up in a rural area of North Carolina decimated by the plight of tobacco growers, I saw farmers who once sold to R.J. Reynolds selling overseas for a fraction of the price. After college I moved to the east side of Washington D.C., which had been ravaged by race riots in the 1960s and then neglected. I saw people kill and rob to put food on the table for their children when their government benefits were turned off. I thought I knew what poverty was. But when I joined a government delegation to a United Nations refugee camp just outside the Syrian border in 2016, I realized I’d been wrong about poverty my entire life.

When someone challenges our basic assumptions, we tend to dismiss them as fantastic or detached from reality. But they’re still out there, spreading their ideas. It often begins with paid advocates spreading demonstrably one-sided messages. Nevertheless, those messages seep into the public consciousness. And when it comes to getting rid of cars, major publishers are starting to take notice and are starting to disseminate the idea under their credible reputations.

This week, Condé Nast and McKinsey Consulting joined the chorus, positing a future without personally owned vehicles. Quoting classically educated “researchers,” they are waxing poetic on the opportunities a car-free society might hold without really examining the practical reality that it could also result in some significant challenges to our way of life.

If you live in a city – especially one with robust and inexpensive public transit – as these A-list researchers inevitably do, this may be a manageable challenge. But for those without the operating funds, physical ability, or proximity to transit, getting rid of cars could have the practical impact of making the world significantly smaller. If expanding the world leads to revelations, shrinking it would restrict people’s understanding and deprive them of empathy for others who see the world differently.

In fact, we’ve tried this before. Major urban planners created a “town within a town” concept in the mid-1900s. It’s how New York got Little Italy, Miami got Little Havana, and Chicago got Polish downtown. But the planners didn’t reckon on how it would lead to an appreciation of these different cultures and venturing out to explore the town and the world in larger numbers than ever. People discovered freedom. And we liked it.

Discovery and breaking down barriers brought development and broke up the monolithic nature of formerly insular neighborhoods. This was a good thing because we were getting to know people who saw the world differently. Why would we seek to reverse that now through the eradication of cars and making our worlds smaller? Climate change notwithstanding, there’s a better way than limiting people’s freedom.

It’s easy for us to say Americans will never give up their cars. I have said it a dozen times before the legislature. But we must be careful of conventional wisdom. I’ve also caught myself saying things that made perfect sense at the time like, “The Russians will wipe Ukraine off the map,” or “There’s NO way the Avalanche lose to the Kraken.” Conventional wisdom is often proved wrong.

Climate change is a concern, certainly, but automotive technology is advancing at such a rapid pace that such a regression doesn’t make sense. Nevertheless, as dealers, we certainly hope the American people will hold the line and demand the freedom to travel around town and around the country on their terms.

Dealers must internalize and start communicating our own message. Getting outside of our communities’ auto rows, educating ourselves and globalizing just a little about climate could help us develop enough of an understanding to effectively combat the anti-car movement through science, automotive technology and successful messaging. We do not want to see the day where we become the ideological minority struggling to be taken seriously. That would be a serious lesson from the School of Hard Knocks.

Matthew Groves Interim CEO

Less Regional, More Meaningful

Six weeks. That’s how long we used to prepare for our annual regional meetings. A dozen emails, ads in every written publication, phone calls and automated texts asking you to come meet us for a meal and discuss the year that CADA was having. On the most grueling days, we’d spend the morning in Steamboat then drive 6 hours across Wyoming to get to Burlington/Yuma/Wray for dinner.

There were plusses and minuses. We are eager for every opportunity to spend face time with dealers. But, 90 minutes per city is hardly enough for a dialogue. Many of you felt preached to instead of listened to. We often rushed substance to hold a tight travel schedule. And consecutive days of this type of travel could be, at times, dangerous.

This year, we are seeking alternatives that allow us more time with dealers – and their staff.

For the plains and the Western slope, this means CADA coming to you – under your rooftop. We’ll replay the classics - financials, the Auto Show, and legislature. But we’ll spend less time predicting the future or introspecting on where enviros may strike next. I believe that our time should be as much about your obstacles as our accomplishments. This meeting should guide the work of the next 12 months, not celebrate the work of the prior.

For the densely populated areas like Denver and Colorado Springs, there will still be central meetings. The dealer visits will come, but with only 182 days left in the year (including Sundays) and 269 dealerships, putting off the regional until we can touch every store would put you

behind the knowledge curve and stunt your ability to guide us with your feedback. Rest assured; we will follow up with a request for an individual visit. But we don’t mind playing for big crowds.

Equally important, we want to use this time to meet your staff. Quick hellos with Titles, Finance, Service, and Office Managers help to quickly identify dealership pain points that may not rise to the attention of a general manager. For instance, this week’s Open Road discussed Colorado [finally] accepting California’s form Reg 262 to transfer a car with a California title. This has been a leading cause of title rejections for the last three months. But that knowledge is often isolated to titles.

Your staff can help us sort through these niche problems. Knowing them, and having them know us, can reduce the lifecycle of policy problems. With the cadence of staff turnover and dealerships changing hands, we think this is the perfect time to get reacquainted with our front lines. Colin Powell said, “the day soldiers stop bringing you their problems is the day you’ve stopped leading them.” CADA wants to continue to lead the way on issues of statewide concern.

So please pardon the presumptuousness of our inviting ourselves over. But we want to get to know you – again. We think it will benefit the both of us. Email requests for convenient times will hit GM’s inboxes later this month. We hope to see you this summer/fall.

Evolve F&I Practices and Exceed Customer Expectations

To help evolve F&I practices and make sure dealers are in step with changing customer expectations, it’s important to present product offerings early in the sale and deliver a speedy transaction. Customers today are going to come in with extensive research on the type of vehicle they’re getting and how much they are looking to spend on their monthly payment. But F&I products are not likely something that they have done an extensive deep dive on. Utilizing space on a dealership website to highlight F&I can help get customers engaged in the discussion, provide them with specific information and expedite the sales process before they step foot into the dealership.

Another strategy is to encourage sales personnel to start planting seeds early. Whether it’s during an initial sales call, test drive or giving a tour of the service department, consistent conversations about F&I products can help address a customer’s specific needs. Avoid making the sales process feel like an overwhelming presentation of every available option in a suite of F&I products. Ultimately, the customer should be making the decision if what they are purchasing is of value to them.

In addition to a timely and efficient experience at the dealership, customers are looking for affordable payment options in an ever-changing car market landscape. As financing rates rise and supply chain challenges continue, average vehicle payments are very expensive. It’s helpful for lenders and dealers to work together, develop a strong relationship, and optimize payment structures for customers.

Affordability and F&I are very much linked too, in that they focus on protecting a large financial investment. The F&I presentation could be an opportunity to lay out a scenario where a customer could incur a large repair cost that they may have to pay in full, if their purchase isn’t covered with a vehicle service contract.

The same principle could apply to vehicle maintenance, where the customer has the opportunity to lock in today’s labor rates and today’s costs instead of battling outside factors like inflation.

EVs are becoming more affordable, and with that, there is going to be an increase in the adoption rate. Dealers can serve as the trusted advisor during an EV discussion and training is key. From an F&I and service department perspective, dealers should ensure that all certifications are up-to-date and personnel are prepared to service EVs that come in for repairs and maintenance. If you’re offering these types of services, it can be valuable to sell EV service contracts during the original sale. VSCs designed specifically for EVs can help cover expensive technology repairs and additional wear and tear that may not occur on an ICE (Internal Combustion Engine) vehicle. These types of products and sales strategies provide additional value for customers and can help drive a profitable F&I department as the EV market continues to evolve.

The annual member golf event is now under the Clear the Air Foundation umbrella. It will be held at Blackstone Country Club on Monday, October 9th and will be free to dealer members. There will be an option to donate when you register in case you would like to further support the mission. There are many sponsorship packages available, and I welcome any referrals. Please reach out to me for a list of available packages. We plan on filling the field with 144 golfers yet again, and proceeds will support the foundation. Last year we raised $55,000, and I hope to exceed that this year. Golfer registration will open in July. I’m looking forward to another fun day!

The foundation has partnered with the Colorado Energy Office and Community Access Enterprise in support of the soon-to-be rolled out Vehicle Exchange Colorado (VXC) program. This program creates a pathway for an income-qualified individual to trade in an old or high-emitting internal combustion engine vehicle in exchange for a point-of-sale rebate of the purchase or lease of a new or used EV or PHEV vehicle.

You can learn more about the program here. I encourage all new car dealers to sign up here so you are ready to participate when the program launches in August. This program will drive sales and leases of new and used EV and PHEV vehicles as well as help us get more older vehicles off the road.

Finally, I was honored to receive the EPA Clean Air Access Award for Community at the EPA headquarters in DC. It’s the only award in this category in the country, and it provides the foundation with some well-deserved national recognition. Your continued support made this happen and I want to thank all my donors. It really does make a difference!

Mark Ziegler Director, Clear the Air Foundation

Clear the Air Foundation 2023 Year-To-Date Vehicle Donations

Employee Retention Credit – IRS Audit Updates CADA

The dealership community has been targeted by Employee Retention Credit (ERC) “shops” for the last couple of years with promises of sums of money on top of PPP funds (rounds 1 and 2). While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continue to be promoters who aggressively mislead people and businesses into thinking they can claim these credits. ERC eligibility has been a hot topic of discussion amongst dealers, tax professionals and more recently the IRS.

The IRS has also taken notice of the number of claims and those going the route of claims involving chip shortages in reference to supply chain issues. They have issued several press releases in the last six months. As of March 20th, the IRS has published 5 documents expressing that the ERC is rife with fraud, adding it to their list of “dirty dozen” areas of audit. This is never a good sign. It is estimated they have assigned 300 auditors to this effort. In nature these investigations are for fraud and are both civil and criminal. Letters have also been issued to tax professionals to exercise due care in filing tax returns including these claims. In short, many tax professionals may be required to either avoid filing or disclose the claims to the IRS. This will leave many with exposure for audit or left in the dust regarding filing requirements. Monetary exposure for improper claims can also exceed penalties and interest.

For Colorado dealers, if the gross receipts test is not met in any of the periods eligible, it is important to distinguish your tie to a government shutdown that led to a full or partial suspension of business operations. In addition, for those claiming the supply chain exception, tread carefully. Audits underway have IRS agents claiming that vague and generalized claims are not enough to substantiate the claims. They will need to be tied to a specific government order.

To date, our firm has represented clients in front of the IRS in relation to these matters and it is important you seek the help of a qualified tax professional immediately. If you have not filed for an ERC and are unsure if you qualify, please reach out to us for a review. If you have claimed ERC funds and are unsure if your claim is valid, we can help you identify your exposure.