Auto Dealer Monthly Magazine is the daily operations publication serving the retail automotive industry. This automotive publication serves dealer principals, officers and general managers with the latest best practices.
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According to a GM press release from February 2012, "The facilities image program is part of a larger General Motors initiative called Essential Brand Elements – a cooperative program that rewards dealers who voluntarily meet customer experience standards. The standards consist of a completed facilities upgrade, extensive sales and service training and other customer experience standards."
Sedano chose to participate in the program, and said generally speaking it's not "cumbersome," adding, "I think that the only part that is [cumbersome] is the fact that you have to remodel if you want to participate." As a part of the Essentials Brand Element (EBE) program, he said GM provides assistance to dealers who participate. "You get money back for every car you order, so as you order cars, you earn that money, and that money can go to offset the cost of remodeling." While he's not sure what the cost of the entire remodel will be, he estimated it to land in the $700,000 to $1 million range. He said, "There's a lot of money going into it, but there's a lot of money coming out of it too. It's a great investment."
Another recent investment of Sedano's was a new service department at his independ- ent dealership, Sedano Auto Group in Bakersfield, Calif., about 40 miles away from the GM store. The independ- ent dealership and its service department used to be on separate lots a few blocks apart, but when he moved the sales department to a former Suzuki store in July 2011, he decided to build a new service department on the same lot.
The new service department was built in about six weeks and has been in operation since October 2011. "We built it from scratch. The place is not huge; it's 1,900 square feet. It's got five working spaces now, three big doors, and you can go one-car deep into it, but it's all modern, stucco-exterior block walls and some aluminum."
At the new independent dealership, the service advisor office is housed in the main building along with other management offices, and the service department itself is in a detached building behind the sales building. One aspect of the new department he's not wild about is the flooring, which has an epoxy non-slip coat- ing. "We did a non-slip floor,
which is a mess when the techs need to clean up the area. It's not a good idea to put in. … The water, oil and everything just stays there, so if you try to mop it up, you're just smearing it all over the floor," said Sedano.
When it came to choosing which vendors to work with for the new service depart- ment at Sedano Auto Group,
Reduce Taxes with Faster Depreciation The Benefits of a Cost Segregation Study
As a business owner, all of your property is depreciating, and the IRS allows you to deduct your depreciation on your tax return. According to the IRS, "Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property."
There are several different depreciation schedules – ranging from three to 39 years – and the annual tax deduction allowed for a piece of property varies greatly depending the property classification. Many dealers may have property misclassified, resulting in longer-than-necessary depreciation schedules. Why does this matter? Longer- than-necessary depreciation schedules can cost business owners more in taxes.
Dealers can identify pieces of misclassified property on a longer-than-necessary depreciation schedule through cost segregation studies. According to the American Society of Cost Segregation Professionals, "The primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated over a shorter tax life (typically 5, 7 and 15 years) than the building (39 years for non-residential real property)."
Annual straight-line deduction is deter- mined by dividing the cost of the property by the number of years in the depreciation schedule. For example, if a $150,000 piece of property is on a 15-year depreciation schedule, the annual depreciation deduction that property may be eligible for is $10,000. If that $150,000 piece of property is
erroneously on a 39-year depreciation sched- ule, the potential deduction shrinks to $3,846.
Barbara Ambrosia Knutson, a consultant for Cost Segregation Services, Inc. (CSSI), explained, "By identifying assets that fall into 5-, 7-, and 15-year [depreciation schedules], dealers get to depreciate those assets faster than having to wait 39 years... Ultimately, [cost segregation] reduces the income that a business owner is taxed on." Cost segregation studies can be done on both existing and new structures, but she said many dealers do these studies when renovating or rebuilding.
During a renovation or rebuild, items that are demolished and disposed of should be written off immediately. Values are estab- lished for these demolished items, and whatever's remaining on the depreciation schedule can be written off in the current tax year. Knutson said if business owners don't do this, the asset stays on the books until it depreciates out per the original depreciation schedule. One thing to keep in mind is that while a cost segregation study can be done at any time, a demolition study must be completed before the construction/demolition begins.
Cost segregation studies aren't appropriate for every dealer. If your business is strug- gling and as a result you don't owe taxes, the increase in deduction won't have an effect. Also, if you've owned the business for many years and most of your property is near the end of the depreciation schedule, the study could be ineffective. To determine if a cost segregation study is right for your business, you should be able to get a no-cost, no-obligation analysis.
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