The New Normal
Independent dealers have always anxiously awaited the rush of customers from mid-January to late March. And in the past, they came, like clockwork, just when dealers expected them, bearing large refunds.
Unfortunately, though, new IRS rules and restrictions, along with various state regulation changes, have challenged the traditional ways of handling the tax refund season, which has slowed the buying frenzy considerably.
“We used to see a 50 percent increase in sales,” said Gus Camacho, owner of Camacho Auto Sales in Palmdale, Calif. “Now we are only getting a 10 to 20 percent increase.”
For one thing, NIADA Dealer 20 Groups BHPH moderator Mark Dubois said, IRS policies designed to protect consumers have caused significant delays in processing tax returns.
“Tax refund season has changed pretty dramatically in the past three to five years,” Dubois explained. “The IRS passed an initiative in 2015 to better safeguard against identity theft. Since then, consumers have received their refunds later than in years past.”
As a result, Dubois said, rather than beginning in mid-January when consumers began receiving their refunds and running until late March, the start of the tax season for auto dealers has been pushed back as far as mid- to late February.
“There is not as much fraud now and identities are safer, but consumers definitely receive their refunds later,” said Darla Booher, owner of Deal Depot in Greer, S.C. “And now that dealers understand that, we can better prepare.”
But there’s another factor at play, too. Changes in federal tax laws also are reducing the amount many people receive in their tax refunds, which in turn has led to many dealers experiencing a decrease in tax-season sales.
To mitigate the effects of lower refund amounts and later check delivery, some dealers have begun to employ the services of financial/tax service companies to help their customers prepare their return and allow them to purchase a vehicle before they receive their refund.
One such program, offered by TRS Tax Max, is designed to assist both consumers and dealers in that regard.
Customers work with a dealer through the program to find the right car, then work with Tax Max to get their estimated tax return prepared.
The estimated amount is then sent directly to the dealer, who uses some or all of it to pay the down payment on the vehicle, an amount agreed on in advance by the dealer and customer.
Any remaining portion of the refund is given back to the customer.
“We route the refund directly to the dealer instead of the consumer,” TRS Tax Max president and owner Bill Neylan said. “If good underwriting criteria are used – and we offer dealers an underwriting checklist – the program is beneficial to both dealers and consumers.” Dubois said he considers the Tax Max program “a very good option, especially for Buy Here-Pay Here dealers.”
That program is Tax Max’s replacement for the refund anticipation loan (RAL) programs of past years, in which consumers could get immediate cash through a loan on their refund, often months in advance.
RALs disappeared in recent years because of actions by the Consumer Financial Protection Bureau and other federal regulators that took issue with the significant APRs and charges involved.
Many tax preparers, including H&R Block and Jackson Hewitt, now offer non-recourse “refund advance” programs with no APRs that allow consumers to bring their W-2 forms and leave with cash on the spot, up to $3,200 against their refund amount. The good news, Osburn said, is while the game plan might have to change, independent dealers can still capitalize on tax season – and do so even better than in the past. “You just have to double down on your planning,” he explained. “Many dealers are not taking full advantage of tax season because they’re failing to look back at results and plan ahead.
“My number one suggestion is to have an action plan. Look at the past few years when many of the tax changes began and determine what worked and what didn’t. That information is absolutely invaluable.” Booher, NIADA’s 2015 National Quality Dealer, agreed that having a clear plan for tax season is an absolute must.
“Dealers are crazy if they don’t prepare ahead for this time of year,” she said. “Customers are just waiting for their money so they can buy better transportation.”
Developing that plan should begin with bringing in key members of the staff to get their input. Osburn suggested forming a tax planning committee among the staff to discuss how each part of the dealership can affect the business’ overall success during tax season.
“Their input is important,” he said. “A mistake a lot of dealers make is that they don’t do any advance planning with their staff. This is the time to get everyone together in the process and get a handle on this sales opportunity.” Osburn said a good tax season plan should focus on three major areas – inventory, marketing and personnel.
The first focus, Osburn said, is inventory and all the decisions to be made around it.
“Those decisions,” he said, “should be based on previous tax-season sales. How much extra inventory is needed and when it should arrive ready to be put on the lot? How much money is the dealership willing to spend to increase available stock? Where can the extra inventory be stored?”
The answers to those questions will vary from dealer to dealer, based on location and customer base, which means the basis for your plan must come from your own business – not someone else’s.
“You need to compare your own results year to year and not base your decisions on what other dealers have done,” Osburn said. “Planning ahead allows dealers to know what types of cars to buy for their lot, and how to prepare finances accordingly.
“Buying extra inventory 60 days out gives you the time to get the cars delivered and ready for your lot on time.”
One thing to be careful of, hesaid, is buying too many cars for tax refund season.
“If a car sits for 30 to 45 days, the dealer will have to mark it down or take it back to auction,” Osburn said. “If you have too many, you didn’t order correctly and that means you didn’t plan well.”
Jones of MCMC Auto said dealers should take into consideration where any extra vehicles will be stored.
“If you don’t have extra land or space for more cars, you should consider leasing land or a large garage,” he said. “The only issue with those options is you often have to sign a six-month lease.
“Dealers also need to consider ways those cars could be damaged if they are stored long-term, including dead batteries, other mechanical issues and even rats chewing on the wiring.”
Yes, people are receiving tax refunds, albeit later and probably less than before, and you have cars available. But do they know you are there with a great inventory?
“Again, with marketing efforts, pre-planning can tell dealers what has worked and what didn’t,” Osburn said. “Send emails to
current customers reminding them it is tax season and a great time to consider another car purchase. Use social media opportunities to blast your message.
“Review the dealership’s website – that’s a priority. You should update your main page to announce great deals for tax refund season and why customers should come to you to buy during tax season. Consider creating a special landing page dedicated specifically to tax refund season with all the special details about your dealership and why now is the time to buy – from you.”
Managing the results of your promotions can help you organize your marketing plan and budget for this year, and future years.
“With web marketing, you can use the analytics to review how many clicks a message received to see what is working,” Osburn said. “Again, review your past efforts and evaluate other ways you might be able to pull customers in.”
While tax season sales are often associated with BHPH dealers and the most credit-challenged customers, Osburn noted that retail dealers can and should compete for business during tax season, with an emphasis on customers using refund checks to make higher down payments.
“That’s good for dealers and for customers,” he said. “For dealers, it correlates with higher gross profits. It’s good for the customers because their monthly payment and total
of payments – principal and total interest on the loan – will be reduced by the higher down payment.”
In past years, the sudden influx of more customers during tax season sometimes led dealers to examine adding temporary or part-time employees in various positions.
But, Osburn said, don’t count on inexperienced temps do to too much.
“If you do consider short-term employees such as salespeople,” he said, “keep it to the basics. You cannot completely train someone during this short season.
“If you find a very social and friendly person, train him or her in three or four of your dealership’s training process – not all of them. Temporary employees should greet customers, do the basics and then turn them over to the sales manager. Or have them work with your top salesperson. This is not the time to train them all about your culture.”
These days, with decreased volume as a result of the new tax rules, dealers who previously added more personnel might decide they no longer need to.
MCMC’s Jones, for example, said his dealerships have determined they “can handle the traffic with our existing employees. It’s not nearly as crazy as it used to be.” While it might not be quite the rush it used to be, customers will still come in with their refund checks and dealers can still expect sales to rise during tax season.
The key to handling that rise is a strong plan. Keep good records and constantly review what has worked and hasn’t worked for you in the past – in all areas of your operation – concerning the tax refund season.
“Know and understand the state and national changes that have occurred,” Dubois said, “and plan ahead and be ready for your customers.
If you work hard ahead of the refund season, you will be ready to make the most of it.”