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November 27, 2017 FacebookTwitterFlickrRSSSEND TO A FRIENDPRINT
Inside this issue
Automotive News Commentary: Why Congress Should Be Concerned about Floorplan Interest
Thune Predicts Tax-Cut Bill Will Change on the Senate Floor, but Pass
View from NADA's Side: Carmakers Must Adapt
Consumer Bureau's Top Lawyer Sides with Trump in Leadership Clash
Here's the List of Workshops and Education Sessions Offered at NADA Show 2018
Top Stories
Automotive News Commentary: Why Congress Should Be Concerned about Floorplan Interest
By NADA President/CEO Peter Welch

Congress is deep into the process of rewriting the tax code for a first time in a generation, and the stakes for our industry and the economy couldn’t be higher.

One issue still under debate is whether to change the tax code to reduce the deductibility of interest on floorplan financing. Such a change could put automobile and truck dealers at serious risk of paying higher taxes even when the dealership does not show a profit.

When this issue first arose in the House of Representatives, members of Congress recognized the important distinction between general business interest and specialized floorplan interest. They passed a bill that preserves full deductibility of floorplan interest for retailers who rely on floorplan financing to make inventory available on Main Streets across the country.

This is a very positive step because, as those of us in the automotive industry know, floorplan financing is the lifeblood of auto retail. It’s what allows big and small dealerships across the country to finance the purchase of expensive showroom inventory from the OEMs. With the average selling price of a new vehicle almost $35,000, even relatively small dealerships have inventory financing borrowings of more than several million dollars. As a result, interest expense historically has been one of the top three expenses at a typical dealership.

What’s more, inventory in showrooms across the country stimulates retail demand for vehicles in thousands of markets nationwide. In this regard, floorplan financing is the foundation of the entire U.S. auto industry -- both in terms of the sales it helps facilitate and the jobs it helps provide.

However, the Senate Finance Committee bill would limit the deductibility of business interest, which would create an entirely new tax burden on dealerships by limiting their ability to deduct as a necessary business expense the interest paid on floorplan loans. That would be bad for floorplan financing in good times -- including at today’s low interest rates -- and terrible in a downturn.

In addition to freezing working capital that dealers need to run their stores, hire additional workers and expand their operations, if franchised dealers cannot continue to fully deduct floorplan interest, there is a risk they could be forced to order and stock fewer cars and trucks, which could put a drag on factory orders. The ripple effects that fewer orders would have up the OEM supply chain, on the assembly line and across the economy could be severe.

While NADA certainly supports the goals of tax reform, we will not support a bill that does not distinguish between floorplan interest and general business interest.

The Senate bill aims to limit interest deductibility for companies that choose debt over equity for tax purposes. But almost all auto, RV, farm-equipment and other dealers are closely held family businesses with no access to public equity markets. For these businesses, floorplan financing isn’t a tax-driven decision; it’s the only practical way they can acquire and maintain high-cost inventory.

The Senate should follow the House approach and ensure that interest on floorplan financing remains 100 percent deductible for small business automobile dealers. Not only is it good tax policy, it’s pro-growth economic policy because franchised new-car dealers are the source of 1.1 million American jobs and 18 percent of retail sales in America.

Every member of both the House and Senate needs to understand that the stakes for everyone aligned with the auto industry are simply too high for Congress to get this wrong, and we will continue working with leaders in Congress to make sure they get it right.
Source: Automotive News

Editor's note: NADA urges dealers to contact their Republican Senators today to urge them to preserve the full deductibility of interest on floor plan loans. The Senate Finance Committee approved the “Tax Cuts and Jobs Act” which includes a provision that would reduce the current 100% deduction of business interest, including floor plan interest, to 30% of adjusted taxable income. The House tax reform bill, H.R. 1, recognizes the importance of preserving interest deductibility for floor plan financing, because limiting this type of business interest would disproportionately hurt small business auto, boat, RV and motorcycle retailers, particularly during an economic downturn. The Senate is urged to include the House provision to ensure that full floor plan interest deductibility is retained during consideration of the bill this week. Click here for the one-pager. Click here for the list of Senate Republican phone numbers.


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Thune Predicts Tax-Cut Bill Will Change on the Senate Floor, but Pass

The Senate's No. 3 Republican said Sunday there'll be "plenty of opportunities" to change the tax-cut bill once it moves to the Senate floor, likely as early as this week. "We're going to have an open process on the floor of the United States Senate, where people can offer amendments," Sen. John Thune of South Dakota said on "Fox News Sunday." "Those amendments can get debated and voted upon. So, there [will] be plenty of opportunities to change the bill in the direction that some of our senators want to see."
Source: POLITICO

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View from NADA's Side: Carmakers Must Adapt

Automakers -- not auto retailers -- will bear the brunt of the changes brought on by such disruptors as autonomous vehicles, electrification and changes in car-ownership patterns, says National Automobile Dealers Association President Peter Welch. Dealers are already positioned to adapt to the changes through their service expertise and understanding of fleet management, Welch told Automotive News last week.

"The question is: What does the manufacturer of tomorrow look like?" Welch said. "Apple does not manufacture its telephones, for example, so I think there'll be more disruption on the auto manufacturer's side than to the dealers."

Welch cites the trucking industry as part of the basis for his belief. NADA represents the truck industry through its American Truck Dealers division. There, about 98 percent of the truck dealers already operate a business-to-business model putting expensive trucks into large fleets, he said. Such a model would easily translate to auto retailers if autonomous vehicles lead to a drop in personal car ownership, Welch said. "I see that model already there on the truck side," said Welch. "It can be picked up and put into the autonomous car side."

Dealers also can capture business in the "huge network of maintenance facilities" needed in the next 20 years to keep autonomous vehicle fleets running, Welch said. "The tires will wear out. They're going to need brakes. They'll still need service from hailstorms and flooding," said Welch. "Our members would like nothing more than to see the 266 million vehicles replaced with electrification and autonomous cars. They see it as a tremendous marketing opportunity."
Source: Automotive News

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Consumer Bureau's Top Lawyer Sides with Trump in Leadership Clash

The Consumer Financial Protection Bureau's top lawyer sided with the Justice Department over President Donald Trump's appointment of Mick Mulvaney to lead the CFPB as a leadership battle over the controversial watchdog agency escalated.

In a memorandum obtained by POLITICO, CFPB general counsel Mary McLeod said Trump had the legal authority to name an acting director to the bureau under the Federal Vacancies Reform Act…

[E]ven as McLeod's memo was circulating, Leandra English, former CFPB Director Richard Cordray's choice to serve as acting director of the watchdog agency, sued the Trump administration in U.S District Court in Washington.

In her lawsuit filed late Sunday, English named Trump and Mulvaney as defendants and asked the court to establish her authority as acting director.
Source: POLITICO

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Here's the List of Workshops and Education Sessions Offered at NADA Show 2018

At NADA Show’s workshops and idea sharing sessions, attendees get to the heart of current issues and trends in the areas of employee recruiting and retention, fixed operations (parts and service), variable operations (sales), digital and traditional marketing, legal and regulatory issues and more. Hundreds of years of combined experience from dealers, managers, consultants and other experts come together to work towards actionable solutions to the problems dealers face each day.

We’ve published the full schedule of workshops and education sessions that will take place at NADA Show 2018 this March on the NADA Show website. With more than 100 education sessions taking place over the weekend, you’ll want to take time to look over the schedule and plan your selections according to the topics that are most important to your dealership today. You may search the workshops by workshop track or by date, or search for your favorite topic or speaker in our advanced search.
Source: NADA Blog

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Quotable
"The Senate should follow the House approach and ensure that interest on floorplan financing remains 100 percent deductible for small business automobile dealers. Not only is it good tax policy, it’s pro-growth economic policy because franchised new-car dealers are the source of 1.1 million American jobs and 18 percent of retail sales in America."

    -- NADA President/CEO Peter Welch, Automotive News, Nov. 27

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