EXECUTIVE DIRECTOR’S MESSAGE: UNDERSTANDING THE BASICS IS CRITICAL

Understanding the Basics is Critical

BY BRIAN DANSEL, EXECUTIVE DIRECTOR

In my previous articles, I have talked about formulating legislative agenda items and having ongoing communications with you during the legislative session. With that in mind, I thought I would go over how the bill process works in Olympia.

Understanding the basics of the legislature is incredibly important and will help us regain standing in this state.

The first thing to know is that in Washington State there are 49 legislative districts. For each legislative district there are two State Representatives (98 total) and one State Senator (49 total) with each district representing approximately 140,000 people. The House and Senate are considered the different “Chambers” of the Legislature. While both the House of Representatives and the Senate are very much alike, there are also distinct differences. First, State Representatives run in elections every two years, whereas State Senators run every four years. When the legislature convenes every January, the State Representatives and the State Senators will gather in Olympia (preCOVID; today, it’s a hybrid of in person meetings and zoom style meetings). From there, members of both chambers are allowed to begin the process of dropping bills at the Code Reviser’s Office. State Representatives and State Senators are the ONLY people who can drop bills. Government Agencies can recommend a bill to a lawmaker, just as a paid lobbyist can, but the ultimate responsibility lies with the member of the legislature themselves. Once a bill is “dropped” at the Code Reviser’s Office, it gets filed and is then sent to the appropriate chamber to be taken up in the legislative session. However, this is the part of the process that is understood the least. The bill now goes to the appropriate committee of origin for a hearing and the opportunity for the public to comment in support or opposition of the underlying bill. The committees themselves are always controlled by who has the majority in the legislature. In Washington State, that has meant one-party control for nearly 35 years.

After the bill gets a hearing in its committee of origin, it then goes one of two places. If the bill costs money it goes to the Ways & Means Committee, whereas if the bill is only a policy bill and doesn’t carry any financial burden, it goes to the Rules Committee to be considered for a vote. Whichever party is in power determines which bills will get a full vote on the Floor and which won’t see the light of day. Now, the bill is ready to be debated and ultimately voted on. However, this is only half of the journey, because once you have gone through all of that----you start the process completely over in the opposing chamber! In other words, if you dropped a bill as a Senator, you would go through this entire lengthy process, and then it would go to the House of Representatives and to another committee, and then to their Rules Committee or Ways & Means Committee and then finally to the Floor for a vote.

Once a bill gets to this point, there is still no guarantee you will pass your bill because the final thing needed for a bill to become a law is the Governor’s signature. The governor has the ability to veto any bill, which is frankly rare these days because by the time a bill has gotten through both chambers of the legislature, it shows that it is probably not too controversial, and so typically there are few vetoes.

I hope this helps you understand the legislative process just a little bit better. It also gives us multiple opportunities to weigh in on any bills we need to. Be on the lookout for more information about this topic as we get closer to the legislature convening in January.

On behalf of everyone at WSIADA, from the Board of Directors and staff, we wish you and yours a very Happy New Year!

Floorplan Financing: What You Need to Know

Joe Keadle, Senior VP of Corporate Operations with Kinetic Advantage

So, you’re interested in a floorplan? What’s next?

In today’s marketplace, your dealership’s profit centers are being squeezed from multiple angles. Vehicle values are up, retail loan advances guidelines are trailing behind the market values, and customers are savvier about market values than ever before. Many dealerships must turn to a floorplan provider to have enough liquidity to acquire the right inventory and stock their lots at the right level. Floorplan providers should be viewed as a tool for success and must be managed and understood for their impact to benefit your dealership’s bottom line.

If you choose to utilize a floorplan, it quickly becomes a key tool in your inventory management and acquisition strategies. It is vitally important to consistently evaluate your floorplan options to ensure you are maximizing their value to drive your dealership forward. To fully grasp your dealership’s floorplan costs, you must begin by analyzing both indirect and direct costs, including the level of service, cashflow flexibility, inventory acquisition options, the interest and fee structure along with re-occurring ancillary fees. You may be thinking that this is starting to sound like work, but, next to your employee costs, floorplan expense is typically the second highest expense item for an independent dealership.

A thorough and careful review of the indirect and direct costs will yield significant understanding of the relationship your floorplan provider has on your dealership’s bottom-line. But it is important to understand that evaluating a floorplan provider on a straight cost basis alone along is unwise. The ability to source the inventory that best fits your dealership’s needs at the lowest cost and with the least difficulty is not just a straightforward effective interest rate question, it is also a question of service.

Level of Service It is worth noting that cost alone does not determine which floorplan provider is the best fit for your dealership. You should review your dealership’s business model and identify the specific characteristics that will impact your dealership. Ask yourself questions such as: • Can I floor the type of inventory I typically stock or does the floorplan provider place restrictions on the age, mileage and floorplan advance (amount they are willing to floor per unit) of your inventory? • What are the costs and/or advance restrictions based on where you source the vehicle? Auction, trade-in, wholesale, etc. • What is the policy for floorplanning a trade-in, can they assist in funding the customer’s payoff to preserve your cashflow? • Is the floorplan easy to use and transparent on its billing statements? • What are their audit guidelines and what is the audit experience like?

Floorplan providers’ service characteristics vary greatly, so you must determine which best suits your dealership’s business needs. Now that you have reviewed and identified which provider you would like to work with, the next step is to develop a partnership with that provider. In today’s marketplace, floorplan capital is limited, and providers are conservative in their lending approaches as many of you might have experienced at the onset of the COVID pandemic. As the dealer, you should develop a strong relationship with your floorplan provider. Keep in touch and develop relationships up and down the organization, not just with a single person. Protect your floorplan relationships by: • Proactively managing your floorplan, communicating promptly and frequently; • Being timely with your payoffs; • Having clean audits and becoming a low maintenance client; and • Helping your provider realize that by partnering with you and helping you grow more profitable and stable, they are decreasing their risk.

By taking these basic steps, you are stabilizing one of the most important capital funding sources your dealership relies upon. Once you have assessed the service level and potential fit for your dealership’s needs, you should evaluate the cost involved with receiving that service level.

Direct Cost We all know that operating a dealership is a cash intensive business. Review the effects of your floorplans on your dealership’s cashflow: Continued on next page

Continued from previous page • When is your first principal reduction (curtailment) due? • How much are the curtailments per unit: 5%, 10%, or more of the principal balance? • When does that aged unit become due for full pay off? • What time frame does the floorplan provider allow for you to pay off a sold unit? • Are there timeframe allowances for a unit that you have not received the loan funding? • Can you source inventory beyond the floorplan affiliated auctions? • Can you floorplan a trade-in and other vehicles acquired outside of traditional auto auctions. If so, are there advance restrictions that could tie up some of your cashflow?

The simplest way to analyze multiple floorplans is to review the direct costs to determine the total cost for each floorplan provider. Often, the base terms of a floorplan are easily understood but the other related fees are not readily apparent when comparing the true costs of a floorplan: • Review your entire billing statement. • Request the floorplanner’s standard fee list to ensure that all initial floor fees, monthly audit fees, curtailments fees (paid in addition to the actual curtailment), payoff fees and additional floor fees for outside auction purchases are included in your calculations.

Indirect Costs The amount of time that must be dedicated to managing a floorplan should be translated into an actual dollar amount. Simply review the time involved and allocate the average hourly cost of the employee(s) involved. This expense is directly related to your ease of doing business with the floorplanner. Does your floorplan provider equip you with the ability to source inventory without unnecessary hurdles and roadblocks? Does your floorplan provider have restrictions that impede your ability to make inventory acquisition decisions that can improve your dealership’s profitability? You may find that having multiple floorplan providers works best for you because the different providers fulfill different inventory needs for your dealership. However, check with your provider to see if multiple floorplan lines are allowed or if a particular floorplan provider requires that their line holds the first UCC-1 position.

By applying these simple assessment methods, you can now determine the best value for your specific needs based on service and cost. Just as many of us have said while selling a customer a vehicle, the lowest cost does not necessarily mean the best value. View your floorplan providers as a tool for your success, a partner in your growth and profitability. Now more than ever, every dollar you spend must return the greatest possible value. Your floorplan providers should be a welcomed partner to help you build a successful dealership and will allow you to not only survive but thrive in this rapidly changing market. n

SALES TAXES IN WASHINGTON

How does a dealership know if they are charging sales tax correctly in Washington State?

The Department of Revenue has a document (.pdf) that is available for any dealership to download called the “Car Dealers and Leasing Companies Local Sales & Use Tax Rates and Changes” to ensure Washington state dealerships are charging the correct sales tax in addition to the 0.03% Use Tax a dealership should be collecting on the selling price of every retail sale.

This list is available each quarter, generally a month before the new quarter begins, for dealerships to adjust their systems. If it is highlighted in Blue, its an increase from the previous quarter.

Please utilize this link for your dealership: https://dor.wa.gov/get-form-or-publication/forms-subject/local-salesuse-tax-rates-and-changes-motor-vehicle-sales-and-leases

Remember, if a dealership does not collect the appropriate sales taxes for each retail sale, the Department of Revenue will require the

amount difference to be paid off from the dealership. n