MUCH ADO ABOUT NADA
Written by Bradley Nicklin

The NADA conference is over and we're well into Summer. Now that a few months have passed since the information overload in Vegas, I want to take a step back to see what transpired. I always return home charged-up and full of new ideas and information, but day-to-day business can have a dampening effect on my follow-through. For Beers + Cutler, the months following NADA are the traditional "Accounting Busy Season," and with some of the warmer late winter/early spring weather we had, your spring selling season probably started earlier than usual as well. However, all this busy-ness is not an excuse to forget about what you learned - you can revisit your convention notes and materials at any point. I thought it would be interesting to wait a few months and evaluate my Return on Investment for the NADA trip.

To have a nice acronym-filled sentence, I evaluated my NADA ROI on the three primary reasons I attend. I did not factor in the astounding amount of t-shirts, golf balls and other promotional trinkets that seem to have made their way home with me. At this age, I buy the cereal for the cereal, not the free prize inside. You can do a similar evaluation for your trip. My reasons and related assessments are:

Contacts - New and old, this one was a clear winner. From reconnecting with old friends, clients and colleagues, to learning what our associates in Auto Team America have observed in the market, to making new contacts, I'm pleased with what has come out of the convention. I have had several meetings with people who might be valuable resources for our clients. I also enjoyed an impromptu conversation with Mark LaNeve (VP Vehicle Sales, Service and Marketing for GM North America) in the hotel lobby.

Knowledge - This can be approached from a few different angles, but I'm considering this educational knowledge and industry information, not product and vendor knowledge. I attended several seminars that were well worth my time. While I gained some new knowledge, there was also a lot of good refresher and reminder information, which I think is just as important. When you've been in and around the car business for a long time, there can be a tendency to drift from the fundamentals, such as thinking about service department scheduling by number of cars, instead of technician hours, or forgetting about the intricacies of the interrelationship between parts and service and not considering the effect on both when making decisions.

Vendors / Resources - There is no better hilltop from which to view the auto dealer service provider landscape than NADA. While there are a lot of the same vendors there year after year, I was amazed at the changes in the used car inventory optimization software in well under a year. From name changes to complete product overhauls, it was a completely revised product arena.

I was also able to get demonstrations on a few products and services I've been curious about, and discovered some new ones that hadn't yet crossed my radar screen. I have spoken with some of these vendors since the show regarding specific situations and applicability and have been able to expand my tool kit of possible solutions. From software that optimizes paying dealership expenses by credit card, to niche operational consultants, knowing the resources available is essential to being a good advisor. While there is not an official dollar value I can attach to the above criteria, my personal assessment puts the ROI squarely in the black. If one idea or resource you brought back increases your average gross, reduces your operating costs, increases your customer satisfaction or gets you excited to go to work again, your ROI is positive as well.

AUTO TEAM AMERICA CEO/CFO FORUM
Written by Bradley Nicklin

Kicking-off NADA, this year's Auto Team America CEO/CFO Forum offered an interesting and diverse mix of speakers. Mike Schwartz, owner of Mike's Famous Harley Davidson, the world's largest Harley dealer for the last several years, recounted how he grew his store from almost nothing to the powerhouse it is today. He has studied the car dealer's business model and applied much of it to his motorcycle dealership. I couldn't have agreed more with his advice to look around at other, unrelated businesses and industries for ways to improve your dealership.

The second speaker, Michael Bruynesteyn, a Managing Director with Lehman Brothers, spoke at the forum last year and returned again with unflinching analytic industry opinions. While there is no shortage of auto industry news and opinions these days, there is definite value in hearing the financial perspective on the health of the auto manufacturers from a source without an outside agenda or journalistic bias. Brokerage houses don't care what the brand name is, only that their investments are going to make money.

Our final speaker was John Reed, Microsoft Director of Automotive Retail Solutions and one of Automotive News' 10 People to Watch. While his presentation on the future of Microsoft automotive technology was quite interesting, he followed recent Microsoft behavior and provided limited concrete details for the audience. Other than assuring us that it would be "priced competitively" and released in 2008, the nuts and bolts of the Microsoft solution remain to be seen. This situation will be an interesting one to watch unfold.

If you didn't make it to the forum this year, join us in San Francisco next year for what's sure to be an informative event.

REDUCE YOUR EXPOSURE TO MANUFACTURER BANKRUPTCY
Written by Bradley Nicklin

While we hope all franchises will return to prosperity, there are no guarantees in the currently turbulent domestic market. We advise all dealers with domestic franchises to carefully consider the amount held in their Dealer Cash Management Account (DCMA), which is normally used to offset floor plan liability. As of now, there is no clear precedent as to what would happen to funds in these accounts in the case of bankruptcy, and there is the potential for loss should a manufacturer bankruptcy occur. Consider discussing this matter with your company's general counsel.

IRS TO PUBLISH LIFO GUIDELINES ON CROSSOVERS IN THE NEAR FUTURE
Written by Bradley Nicklin

One of the requirements of utilizing the LIFO inventory method is the use of separate pools for cars and trucks. With the increased popularity of crossover vehicles, guidance on whether they should be included in the car or truck pool has not been provided. This issue is now being reviewed by the IRS Industry Issue Resolution Program, and will be available once a decision has been made. The IRS is also considering the allowance of one pool for cars and trucks.

USED VEHICLE WRITE-DOWNS
Written by Scott Barnard

Dealers must value inventory at cost for LIFO purposes. An alternative to used vehicle LIFO is the IRS-approved method of lower of cost or market. This could offer additional deductions if utilized to value your pre-owned inventory. If lower of cost or market is adopted, inventory must be identified using FIFO or specific identification.

When a dealer writes down inventory to the lower of cost or market, market is considered replacement cost. Alternatively, inventory may be valued at lower than replacement cost based on an actual offering price up to 30 days after the end of the tax year.

To determine the proper write-down, a dealer should use valuations shown in an official used car guide. To ensure consistency of method, the same value guide (for example, Black Book) should be used each year. Cost, on the other hand, is considered the initial purchase price or accurate trade allowance, plus any subsequent increase in basis (reconditioning or other activities and expenses that add to the amount of capital tied-up in the unit).

As with all write-down methods, proper documentation is crucial and must be kept on a per-vehicle basis. Items to break out include: total vehicle cost, official guide book value, write-down taken and justification for any unusual write-down.

Bear in mind that any vehicles purchased toward the end of the year may not need to be written-down or must have sufficient justification as to the reason for the write-down. All write-downs should be documented in any event.

For those not currently utilizing the lower of cost or market method, we recommend that you review your current inventory methods and determine if this method would be advantageous. For those dealers who are currently using this method, we urge you to make sure you are following the guidelines we mention above.

NEW INDUSTRY GUIDELINES AVAILABLE NOW
Written by Bradley Nicklin

In conjunction with the NADA conference, Auto Team America has released their 2006 Industry Guidelines. The guidelines come from the Auto Team America client base, 12 accounting firms representing approximately 2,000 dealers, with each firm submitting information from one of their highest-performing dealers of each type (domestic, highline and import). That data is then averaged to become the guidelines. Thus, these numbers represent high-performing dealerships.