The Future of Automotive Retail: Insights From the 2024 AICPA Dealership Conference

For automotive accountants and CFOs, the AICPA Dealership Conference is the ultimate destination to connect with industry contacts, clients, and fellow accounting firms to discuss the latest hot topics and trends for the current and upcoming year. We at Withum look forward to attending year after year and highly recommend this event to our clients, banking partners, and other accounting firms. The conference consistently delivers valuable insights, and this year was no exception.

The conference began with a presentation on the future of automotive retail, highlighting the current state of dealership profitability. Despite a 30% decline in profits during the first half of 2024, dealership profits remain significantly higher than pre-COVID levels, up 98% compared to 2019. This has created a mix of excitement and anxiety within the industry. Historically, dealership profit margins have been steady at 2% since 1984.

The presentation also addressed the increasing complexity and diversity of the car business, with a notable shift from new car sales to used car sales, fixed operations, F&I products, and reinsurance. The evolving EV market was another key topic, with the supply of EVs exceeding that of other vehicles by nearly 45 days by mid-2024. While EVs accounted for 10% of all US vehicle sales in 2023, hybrid vehicles began to gain ground in 2024, leading many OEMs to adjust their strategies. Interestingly, 50% of EV owners chose an ICE vehicle for their next purchase, indicating a waning enthusiasm for EVs. Concerns about the depreciation of used EVs and the impact of new technologies were also discussed.

The accounting landscape continues to evolve with the introduction of new standards and updates to existing ones. Among the current standards, ASU 2023-01, effective in 2023, allows private companies to use written terms or related party leases when accounting under ASC 842, even for month-to-month leases. Additionally, leasehold improvements for these leases can now be amortized over their useful lives. Another significant update is ASU 2023-08, which will be effective for year-end 12/31/2024. This standard requires cryptocurrency to be valued at fair value each reporting period, with gains and losses stated separately.

Looking ahead, several upcoming accounting standards are set to impact financial reporting. ASU 2024-01, effective for year-end 12/31/2025, addresses the granting of certain classes of equity and profit rewards, providing detailed examples for use. ASU 2023-05, effective after 1/1/2025, mandates that newly formed joint ventures be treated as new reporting entities, with assets and liabilities measured on the formation date. Additionally, ASU 2023-09, effective after 12/15/2024, expands requirements for rate reconciliations for taxable entities and includes disclosures for taxes paid at federal, state, and local levels.

At the beginning of each calendar year, there are several best practices and strategies to consider. Reviewing prior years, adjusting journal entries (AJEs) and management comments, reconciling key accounts such as fixed assets and accounts receivable/payable, and conducting budget analysis by comparing actual to budgeted figures are essential steps. Goodwill impairment is another critical area, especially if a group has recently paid a significant amount for a store that is underperforming. This is particularly relevant if there are separately stated franchise rights that must be assessed at the store level. To enhance efficiency, automating and outsourcing routine tasks and developing financial dashboards are recommended strategies.

The NADA Update session focused on the FTC Vehicle Shopping Rule, which NADA is contesting due to its significant costs and lack of additional consumer protections. The session also highlighted the cost-effectiveness of the franchised dealer model compared to direct-to-consumer channels at a mass market scale.

The economic and auto market update provided a comprehensive overview of the current state of the market. Profits were noted to be inversely related to vehicle inventory levels. A “soft landing” for the US economy is predicted, with inflation expected to reach the Fed’s target in 2025. Despite a rise in subprime defaults, auto loans show promising statistics, with average payments down and credit access increased. EV lease penetration and sales continue to grow, supported by strong incentives.

The M&A landscape session provided an update on dealership performance and profitability. While new car gross profits are down 26% from Q3 2023, they remain higher than pre-COVID levels. Used car gross profits have normalized, and F&I profits have leveled off at higher than pre-COVID levels. Fixed operations remain strong with a 3.5% profitability.

The tax update session discussed the TCJA’s expiring provisions, the political landscape, and EV credits. Key points included the reduction of bonus depreciation to 60% for 2024 and the expiration of the Section 199A deduction and estate tax exemption in 2025. Various EV credits under the Inflation Reduction Act were also covered.

As always, your partners at Withum are here to discuss any services and advisory matters impacting your dealership. We’re committed to helping you achieve your short-term and long-term financial goals. Please feel free to reach out with any questions or concerns.

Authors: Vin Banek | [email protected]; Jen Moylan | [email protected]; Michele D’Antonio | [email protected] and Amy Robinson, CPA | [email protected]