NADA Storms Washington

Withum was excited to join the National Automobile Dealers Association (“NADA”) members from across the United States at a Washington, D.C. conference on September 12 and 13^. While various concerns surrounding tax legislation and regulations were discussed, four areas of concern were highlighted when visiting Congressional leaders.

The FTC released the proposed Vehicle Shopping Rule on June 23, 2022. The proposed rule includes:

While the NADA did not oppose the need for fair practices, they had strong concerns over the process when issuing the proposal and the administrative requirements that would burden consumers and auto dealers searching for a few bad apples.

Members of Congress were urged to cosponsor the “FTC REDO Act” to direct the FTC to follow the basic regulatory process before introducing proposed legislation, including:

 A study by the Center for Automotive Research found that the FTC’s untested mandates on consumers would increase the time spent shopping for a car by 2 hours and would cost $38 billion. The FTC has claimed that the new rule would save consumers three hours per transaction and, in turn, save consumers $29.7 billion. However, the FTC struggles to provide analysis or support regarding their estimates. 

The EPA recently proposed new emission standards that would effectively require 67.5% of U.S. vehicle sales to be electric by 2032. And while many of the auto dealerships are excited to partner on clean energy initiatives, and sell clean energy vehicles, there is a growing concern that the mandate might go too far, too fast.

The EPA proposal exceeds the Biden Administration’s timeline provided in the 2021 executive order, calling for 50% of electric vehicle sales by 2030. However, the EPA increased the percentage in May 2022, essentially calling for 60% of light and medium new vehicles sold in 2030 and 67.5% of light and medium new vehicles sold in 2032 to be electric. Auto dealerships are concerned about the high percentages noted, as only 5.8% of electric vehicles sold in 2022 were of new light-duty sales.

The highlighted concerns included not only the charging station infrastructure needed across the US to make electric vehicles successful, but also the tools, equipment, and training needed for dealers to service electric vehicles properly. Additional concerns over the EPA’s rapid push for electric vehicles include increasing dependence on Chinese supplies, instead of allowing the U.S. market and manufacturers to create independent supply chains.

Almost every hand was raised at the NADA conference when asked if they have been impacted by catalytic converter theft. The National Insurance Crime Bureau reported that the number of catalytic convert thefts reported in claims to insurance companies increased by 1,215% between 2019 and 2022. Because there is no traceable VIN or number, and the converters have valuable precious metals, the converters are easy to steal and difficult to trace. 

NADA supports Congress enacting the Preventing Auto Recycling Theft (“PART”) Act, which would provide a federal framework in helping to prevent theft by marking catalytic converters with a number (not necessarily a VIN). The PART Act requires new vehicles to have unique, traceable identifying numbers stamped on the catalytic converter at assembly. The PART Act would also include a $7 million grant program allowing certain entities to voluntarily stamp an identifier on the catalytic converter already on the road at no cost to the vehicle owner.

NADA members also urged Congressional leaders to cosponsor the “Supply Chain Disruption Relief Act” that would extend the replacement period for taxpayers to restore inventory levels depleted during the pandemic. Last-in-first-out (“LIFO”) accounting generally allows businesses to manage their year-to-year inflationary risks of replacing inventory. However, due to the pandemic, the ability for auto dealerships to restore their inventory became much more challenging and forced many dealerships to increase their taxable income related to their LIFO reserve and deplete much-needed cash for operations. 

Auto dealership owners continue to understand the importance of explaining their business operations to Congressional leaders. The unique challenges faced by the dealership group, coupled with a constantly changing business environment, require auto dealers to continually express how potential changes in tax and regulatory oversight impact small businesses and their communities.

With significant tax legislation sunsetting in the next few years, including the top individual income tax bracket rising from 37% to 39.6% and the 199A pass-through deduction being eliminated, auto dealers could see an effective federal income tax rate increase of approximately 10%. With many auto dealerships already struggling with cash flow, such a significant federal income tax rate increase could cause auto dealerships to shrink or potentially close the business altogether. The need for Congressional leaders to realize the impact of excessive regulations and increased federal income tax bills will only continue to grow in importance. As many Congressional leaders who passed the Tax Cuts and Jobs Act are no longer in Congress, the need to educate and explain the reasoning behind various tax legislation is imperative. Small and privately owned businesses must continue to receive an attempt at tax parity when competing with large multinational corporations.

We strongly encourage you to start or continue discussions with your Congressional leaders regarding the various tax and regulatory issues auto dealerships are facing today and in the near future. Withum is here to help support you in the various discussions needed to ensure that the solutions to business challenges auto dealerships face remain a priority for Congressional leaders.