No matter where you fall on the charged political spectrum these days, one thing is for certain – the new tax law signed by President Trump last month will have lasting effects on both the personal and business landscape for years to come. How it effects auto dealers and more specifically, F&I departments, is even less clear.
Let’s take a closer look at the elements of the tax bill that affect dealerships and consumer behavior that could result in a good, bad or neutral impact on the F&I department. It’s not as clear as you may think….
- It’s estimated that the average taxpayer could see a potential increase in take home pay of up to $1000 over the course of the year. An extra $40 average bump in each paycheck may not be enough to push a potential car buyer into the dealership but at a higher income level, it may. More money every month could translate into more sales and more room for product in the payment. We’ll say NEUTRAL on this point.
- Corporate tax rates have been reduced from 35% to 20% but it remains to be seen if this savings will spur dealerships to reinvest that savings into their payroll, fixed ops, or in the case of the F&I department, more sales training and staff development. Assuming they do, it could be a big win from an internal perspective. GOOD.
- The new tax law eliminated a popular deduction for HELOC/Home Equity loans. Many car shoppers will draw from these second mortgages to buy a car in ‘cash’ knowing that they will pay back that amount at a substantially lower (and tax deductible) interest rate than they may have gotten at the bank or the dealer. Without that, many buyers could take themselves out of the market altogether rather than risk a higher payment at the dealership. BAD.
- Many large companies have already announced increases in their internal minimum wage and are giving bonuses of $1000 or more to employees as a result of the tax rate decreasing and the favorability of repatriating cash held overseas. A large chunk of money can make a nice down payment on a car and could help the F&I managers sell more product when the car buyer has more upfront money to keep the payment lower. GOOD.
- Sole proprietors/freelancers got a break as well with their taxable rates being lowered as well for ‘pass through’ income. This break could make it easier for solopreneurs to have more money available for car purchase (and F&I product) and could make it easier to buy vehicles for their business.
But will it be enough to show a measurable increase in dealer/F&I profit and are their enough of those buyers in the market that would see this as an opportunity to go buy a car in the first place? There is no way to predict that…again, it’s not clear so soon after the bill’s passage. Time will tell. NEUTRAL.
Dealership owners were actually one of the winners with this new tax bill, not F&I. At the last minute, the Senate kept intact the deduction dealers take for their floorplan interest. The hope is that with that left in place and adding the lower corporate tax rate, the two will combine to encourage dealers to reinvest in their business.
The new tax law may not directly or even immediately impact the F&I department of a dealership but there seems to be enough speculation that it should benefit in more indirect ways over time. Fingers crossed, right?