Author: Rose Lambert, Director, Audit and Accounting Services at Gorfine, Schiller & Gardyn

After experiencing a decrease in sales volume in 2019 due to enduring strikes and numerous recalls, U.S. auto dealerships were dealt another blow with a sharp downward spiral in the economic climate resulting from the coronavirus pandemic.

Even though car dealers are considered essential businesses, most physical showrooms are now ghost towns. To deal with these challenging times, the auto industry has been forced to become more creative in its marketing and delivery. Customers simply do not want to leave the safety of their homes to shop for a vehicle. To make the buying process more comfortable for customers, auto dealers have started offering showroom sales by appointment only.

But the primary choice for customers these days is online shopping, which even before the pandemic, has been increasing in recent years. Smaller dealerships who weren’t heavily immersed in online sales have been working to enhance their online presence, which is a silver lining for many during this pandemic.

Dealers are also providing home delivery, as well as offering to service those vehicles at a consumer’s home. The general reaction by the automotive industry mirrors the reaction of most other retail businesses – where restaurants and other retail stores are offering online orders and curbside delivery. The auto industry, even if social distancing becomes the new norm, is adapting to this new environment.

The State of Maryland also agrees with the new buying process reality for dealers. In fact, the Maryland Automobile Dealers Association has asked its members to move the sales of vehicles online or through appointment only. For example, The Criswell CDJR of Thurmont, Maryland recently announced that it is offering private sales appointments for individuals shopping for a new or pre-owned vehicle. It’s expected that more auto dealers in Maryland will be making similar press announcements in the coming weeks.

To also help encourage more sales, some manufacturers are offering floor-plan interest ‘holidays’ to their dealerships – thereby extending the period of time the dealer has to pay their monthly floor-plan interest. Ideally, dealerships then could offer low-interest or no-interest financing for customers. However, with the pandemic going on as long as it has, many dealers don’t anticipate an uptick in sales later in 2020 to cover the loss of business during the pandemic. As a result, dealers have to monitor their discretionary spending even more than ever.

Also, to capture the essential workers’ market, dealerships have started ad campaigns directed at first-responders and health care workers. But in households where one or more people have lost their job, they are understandably more likely to put off buying a car, and in some cases postponing even servicing their car – especially since they aren’t making long trips, commuting to work, etc. And even when most people are able to go back to their full employment status, many are worried about their futures during these uncertain economic times, which holds people back from making major purchases.

Recently though, auto dealerships have been steadily increasing their online marketing since some consumers have begun to receive their stimulus checks and/or unemployment benefits, in the hopes that this will help jump-start the economy.

In addition, many auto dealers are working on managing cash flow to maximize their use of the Paycheck Protection Program (PPP) funds for qualified expenses. The National Automobile Dealers Association recently offered guidance on what these loans can be used for and to what extent they can be forgiven.

The right partner can offer sound advice when it comes to managing cash flow to maximize the use and tracking of the PPP funds for qualified expenses. A tax advisor can also identify the right employer tax credits under the Families First Coronavirus Relief Act, and delineate the difference between these credits and the PPP funds.

It is also important to leverage the right online resources for projecting loan forgiveness available under the PPP. Furthermore, auto dealers can also contact their tax advisors to see if they can benefit from the IRS Net Operating Loss rules, and see if their banks offer any other types of alternative financing.

As Maryland auto dealers make their way through this new economic landscape, the reality is that “this too shall pass,” but it will be a new normal. The key is being able to shift operational strategies, take advantage of various funding and tax credit options, and prepare their businesses to effectively weather this storm and beyond.

About the Author:

Rose Lambert is a Director, Audit and Accounting Services at Gorfine, Schiller & Gardyn, a Maryland-based full-service certified public accounting firm offering a wide range of accounting and consulting services to clients of all sizes. For more information: http://www.gsg-cpa.com/