RubinBrown Dealership Stats 2018

EXECUTIVE SUMMARY

Industry Update Throughout 2017, many manufacturers witnessed continued growth or maintained the increased sales volume experienced since 2014. With vehicle sales hitting record highs in 2016, any increase continued to break records in 2017. Unfortunately for some, these record volumes were not sustainable and some manufacturers experienced a decrease in volume overall during 2017. As has been the case over the past 5 years, truck sales continued to increase, growing 4.5% in 2017 over the previous year. The increase capped an over 40.0% increase in truck sales from 2013 to 2017. The increase was caused mainly by the continued expansion in crossover vehicles. Another contributing factor was the increased demand for larger trucks and SUVs thanks in part to gas prices leveling off to more reasonable rates. Although truck sales have continued to increase, car sales have done the opposite, decreasing over 20.0% from 2013 to 2017. Car sales hit an all-time low in 2017, barely crossing over the 6 million units sold mark. The top automotive groups, General Motors, Ford Motor Company, Toyota Motor Sales, Fiat Chrysler and Honda continue to be the top 5 manufacturers. Combined these groups hold nearly 68.0% of the overall market sales with minimal change over recent years. General Motors continues to control the market share holding over 17.0% of total vehicle sales for 2017. This is primarily due to the Chevrolet brand representing nearly 12.0% of the market share for sales in 2017. General Motors additional brands (GMC, Buick and Cadillac) also contributed to the strong market share. In contrast, Ford’s name brand represented over 14.0% of market share in 2017. Tax Reform Many dealer principles are excited about the recently passed tax bill and its impact on their dealership. For those dealerships that are pass-through entities (i.e. S-Corporations and Partnerships) many owners will likely qualify for a deduction of up to 20% of taxable income as a result of the new tax bill.

One potential downside of the tax bill is the limitation on interest expense that companies have to determine. NADA and other lobbyist for the automotive industry fought hard to exclude dealerships floorplan interest from this new change, however it does come at a cost that will need to be evaluated. If a Dealerships elects to exclude its floorplan interest from the interest limitation calculation, they are not allowed to take bonus deprecation on any assets placed into service that year. Bonus depreciation was a signification change in the bill going from 50% in year 1 to 100% in year 1 for both new and used assets placed into service. The new tax bill is forcing all companies, particularly dealerships, to evaluate all segments of their business to determine the best course of action under the new laws. Other dealership specific items to review is the current treatment of commissions for warranty and third part agreements, treatment of floorplan credits, offshore reinsurance companies as well as consideration of switching to a C-Corporation. Outlook As we look towards 2018, it is expected that new vehicle sales will slip as predicted by the National Automotive Dealers Association’s (NADA) 2018 U.S. sales forecast. The forecast predicts the number of new and light trucks sales to be 16.7 million, nearly a 3.0% decrease from the sales recorded by Automotive News for 2017. While it is not expected the record breaking sales volume from the past 3 years to continue, the prediction of units sold in 2018 from NADA is just shy of the 17 million mark seen in 2015 to 2017.

1

Executive Summary