2013

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Mar 13, 2013 ... Norm Reeves Honda Huntington Beach. ViCe President ... up and I always loved spending time there. .... Honda. Accord coupe, black on black as well. .... Quirk ( 23), Catherine Quirk (22), Patrick Quirk (20) and Jack Ryan.
1st Quarter 2013, Volume 54, Issue 1

THE OFFICIAL PUBLICATION OF THE ORANGE COUNTY AUTOMOBILE DEALERS ASSOCIATION

California Prop 30

Effects on

Dealers President’s Message:

New Commission

20th Annual OCADA

INTERVIEW with President

Agreements Law Requires

Automotive Technology

Paul Conant

Review of Pay Plans

Competition

Contents

6 9 10 13 14 20 22 24 28

President’s Message: INTERVIEW with President Paul Conant SO THE FACTORY WANTS TO EXERCISE A RIGHT OF FIRST REFUSAL AS TO YOUR PENDING BUY-SELL – NOW WHAT? THANK YOU TO OUR ANNUAL MEETING SPONSORS

Get to Know Your Legislator

California Prop 30 Effects on Dealers OC Dealer is a publication of Media Communications Group and is the of ficial publica t ion of Or ange Coun t y Au tomobile Dealers Association. OC Dealer is published 4 times per year by Media Communications Group. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of OC Dealer, or its publisher Media Communications Group. Any legal advice should be regarded as general information. It is strongly recommended that one contact an attorney for counsel regarding specific circumstances. Likewise, the appearance of th advertisers does not constitute an endorsement of the products or services featured by Media Communications Group.

New Commission Agreements Law Requires Review of Pay Plans 20 Annual OCADA Automotive Technology Competition

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TECHNOLOGY COMPETITION

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OCADA ANNUAL MEETING

CONGRESSMAN JOHN CAMPBELL Moral imperative Common Social Media Mistakes and How to Avoid Them

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AN INTERVIEW WITH BRUCE HAMLIN

4 Calendar of Events 6 President’s Message 11 OCADA Welcomes Our New Dealer and

OC DEALER is a Publication of the Orange Associate Members County Automobile Dealers Association Protect Your Franchise – Support the 3737 Birch St., Suite 220 OCADA-PAC! Newport Beach, CA 92660 19th Annual OCADA Automotive Technology www.ocada.org Competition Phone: 949-428-5050 Fax: 949-428-5054 OCADA Annual Meeting

Visit us Online!

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14 18 Get to Know Your Legislator: Senator Bob Huff

www.OCADA.org OCADA

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BOARD OF DIRECTORS PRESIDENT Paul Conant Norm Reeves Honda Huntington Beach

VICE PRESIDENT Cliff Allen Allen Cadillac GMC and Hyundai

IMMEDIATE PAST PRESIDENT Bruce Hamlin Guaranty Chevrolet

EXECUTIVE DIRECTOR/SECRETARY John Sackrison Orange County Automobile Dealers Association

DIRECTORS K.C. Heidler Kia Depot

Calendar of Events March 13, 2013 CNCDA Dealer Day Hyatt Regency Sacramento April 2-3, 2013 OCADA Super Sessions Jeff Cowan – Increase Service Revenue National University Costa Mesa, Ca. May 21-22, 2013 AIADA International Auto Industry Summit Washington, DC June 10, 2013 49th Annual OCADA Golf Tournament Mesa Verde Country Club

Tom’s Truck Center

Allen Moznett Newport Lexus

John Oh Lexus of Westminster

John Patterson Huntington Beach Mazda OC Hyundai Tustin Mazda

David Simpson Simpson Buick GMC Simpson Chevrolet of Garden Grove

Mike Westbrook © 2013 Orange County Automobile Dealers Association | The newsLINK Group, LLC. All rights reserved. OCDealer is published four times each year by Media Communications Group, Inc. in collaboration with The newsLINK Group, LLC for the OCADA and is the official publication for this association. The information contained in this publication is intended to provide general information for review and consideration. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your specific circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the OCADA, its board of directors, or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. OCDealer is a collective work and as such some articles are submitted by authors that are independent of the OCADA. While OCDealer encour¬ages a first print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission from OCADA or The newsLINK Group, LLC. For further information, please contact The newsLINK Group, LLC at: 855-747-4003.

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Welcome To Our

New Associate Member Time Warner Cable Media Time Warner Cable Media produces and airs TV advertisements on 45 stations and offers online advertising. Contact: Gary Tackett at (949) 297-9142

Interesting OC Auto Fact:: The average OC dealer spends $602,000 on advertising annually

Reach OC car buyers at every turn. From print to online to mobile media, our advertising vehicles fire on all cylinders. Our network of websites and newspapers provide the most in-depth coverage relevant to Orange County communities. Create a customized package targeting consumers you want to reach: • Innovative ad units • Mobile • Event activation • Custom publications

Special Sections Certified Pre-Owned - Publishes March 13, 2013 Print network Los Angeles Times (East Zone – OC) Daily Pilot (Newport Beach & Costa Mesa, expanded to Irvine on Sundays) Huntington Beach Independent Laguna Beach Coastline Pilot

To advertise in this section, contact Kevin Davis at 714.966.7503 or [email protected]

OCADA

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PRESIDENT’S MESSAGE

INTERVIEW with President Paul Conant

A lot of dealers get into the business by chance or by default. Did you always aspire to be part of the automotive industry? Are there any specific individuals that had a major impact on your career? My uncle had a car and motorcycle dealership in Wisconsin where I grew up and I always loved spending time there. When I attended the University of Wisconsin business school, however, I was really just looking for a business opportunity. I interviewed with a couple of public companies and quickly realized it wasn’t for me. Fortunately, my cousin Dave liked the idea of getting some people with a little more formal education into the business. So while my friends from school were being hired with $30,000 salaries, I started in shipping and receiving at the back door of the parts department in Cerritos making $8.50 an hour. I’m proud to say that’s the only position I’ve ever been overpaid for.

What’s the most rewarding part of your career? I feel good about a lot of things I get to experience but I think I most enjoy seeing our young employees develop over the years and getting to promote them into better paying and more rewarding positions.

What do you see as the dominant trends for the industry in the next 5-10 years? That’s a tough one without my crystal ball! With the fuel economy regulations that are coming, I think we’ll see the manufacturers having to develop

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alternative energy drive trains at a much increased pace. I’m afraid we will continue to see more and more restrictive, expensive and time-consuming legislation as well.

After experiencing and surviving the industry’s most challenging economic period in its history a few years ago, what lessons did you learn? Are you doing anything different now than you did before the economic crisis to prepare your dealership for future market fluctuations? We re-learned the importance of expense control and the difference between “I want” and “I need.” We are now much more thoughtful about adding support staff. Especially with the dramatic increases in healthcare and insurance costs, keeping the body count down is critical. It’s tough to run so lean, especially when you have a lot of longterm employees with a great deal of vacation, but our employees have come to understand that it’s how you avoid having to make painful cuts later.

time increments in warranty repairs, warranty and incentive audit procedures and timelines, easing of strict liability “export” rules, requiring manufacturers to establish reasonable metrics for performance standards and allowing dealers to use local vendors for substantially similar products needed in facility upgrades. While the franchise bill will be the main legislation we will be trying to pass this year, we are always confronted with legislation that we must amend or defeat to protect the dealers’ interests.

What’s in store for OCADA this year?

What inspired you to serve as a leader in the Association?

I’m not expecting any major direction changes. Having been on the board for several years, I’m happy with the role we’re playing watching for bad legislation and helping to protect our dealers from it. I would like to encourage all of our dealers to get to know your state assembly person and Senator. When an issue arises, it really makes a difference if you can call a friendly face for help instead of cold calling someone who doesn’t know you and doesn’t understand your business. We also will be spending a great deal of time working to grow and improve the OC International Auto Show.

My cousin, partner and mentor, Dave Conant, taught me early on and by example that it’s critical to help protect the industry that gives us such a good life.

What do you think makes the OC automotive market different than other markets around the country?

Is there any pertinent legislation on the table that’s on your mind?

In Southern California, we’re fortunate that we have a lot of people to market to and that we have a “car culture” instead of a mass-transit mindset. Having said that, we also face a lot of legislation and a lot

This year a franchise bill has been introduced with provisions addressing

of competition that many dealers in other markets don’t have to. There may be some other markets out there that are similar but I think our combination of these items makes it a very interesting place to do business.

Are you involved in any civic or charitable organizations? After spending three years on the board of the Huntington Beach Chamber of Commerce, most of my focus the past couple of years has been on our dealership and dealer-related organizations including AIADA and serving on the boards of the Huntington Beach Auto Dealers Association and OCADA. As far as charities go, we have a program at our dealership where our employees give a certain amount from each paycheck into a fund that is matched by the dealership. At the end of the year, the employees vote on 3 to 4 local charities from a list of 10 or more. Representatives from those charities then attend our employee recognition luncheon to receive their check and share with the employees how their giving is making a difference in the community.

What do you think makes membership in OCADA beneficial? OCADA offers many great services to our members including employee training, labor law posters and assistance in getting to know your state assembly member and senator. We even offer financial assistance for legal representation in case of a unionization attempt on a dealership. That alone is worth far more than the annual dues! OCADA allows you to get to know great people who

become friends as well as good resources. It’s just like any organization, though. The more you put into it, the more you get out of it.

Describe your all-time favorite vehicle. Oh, and what are you driving today? My favorite vehicle is my 2001 Acura NSX Targa, six-speed black on black with 18,000 miles! Today, I’m driving a 2013 Honda Accord coupe, black on black as well. What a great vehicle!

Tell us about your family. I’m recently married to a wonderful woman, Ayumi. We have two five year-olds; an Australian Shepherd named Sydney and an American Staffordshire Terrier named Chloe.

What’s your favorite way to spend your free time?

I don’t really have any unusual hobbies. I enjoy skiing in the winter and golfing in the summer but I don’t make enough time to get good at either. I’m happy driving the NSX or watching football or F-1 racing with the dogs!

OCADA

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Jonathan A. Michaels Michaels Law Group, APLC 2801 W. Coast Highway, Suite 370 Newport Beach, CA 92663 Web: MichaelsLawGroup.com Phone: 949.581.6900

said, the Vehicle Code does require the factory to reimburse the frustrated buyer for certain expenses he has incurred for such things as investigating, evaluating and negotiating the transaction such as attorney and accountant’s fees, environmental inspections, surveys and the like.

SO THE FACTORY WANTS TO EXERCISE A RIGHT OF FIRST REFUSAL AS TO YOUR PENDING BUY-SELL,

NOW WHAT? By Jim Barone, Of Counsel Ferruzzo & Ferruzzo

V

irtually every dealership sales and service agreement (the DSSA) contains a provision allowing the factory to substitute itself (or a third party) as the buyer of a dealership when the current owner elects to sell. This provision is called a Right of First Refusal (RFR) and is found in what is usually referred to as the “Standard Provisions” attachment to the DSSA. The Standard Provisions is generally lengthy and preprinted. Many dealers do not pay enough (or any) attention to the Standard Provisions. Instead, they tend to focus on the five to eight page cover agreement which specifically addresses their particular store. Regardless of what is contained in the DSSA Standard Provisions, the California Vehicle Code sets out the legal obligations of a factory in exercising a RFR. In a typical situation, a buyer and seller enter into a buy-sell agreement which is

then given to the factory and the factory then gives the buyer an application to become its franchised dealer. The factory has 45 days from receipt of all of the information required by the application within which to exercise its RFR. Assuming it does, what happens next and how does the factory’s decision affect the seller and the (now) frustrated buyer? As for the seller, the Vehicle Code requires that the factory pay all the sums that the seller was to receive from the original buyer and that the factory comply with all of the other terms and conditions of the buy-sell agreement as originally written. On the other hand, the frustrated buyer has little recourse against the factory. Again, the RFR is in the seller’s DSSA and that right trumps a later-signed buy-sell agreement. Baring some extraordinary facts, the frustrated buyer has no right to sue the factory for its “interference” in his deal. That being

Seems pretty clear and straight-forward doesn’t it? What happens, however, if the sale contemplates more than one franchise (for example, let’s assume there are three) and only ONE factory exercises its RFR. Obviously, the original buyer contemplated a package deal consisting of three franchises – is the original buyer still obligated to go ahead and buy the remaining two franchises? What if the frustrated buyer walks because he now can’t buy the original three franchises; is the seller still obligated to sell the one to the factory by virtue of its exercising a RFR and thus end up keeping the other two? What if the seller wanted to sell but only to the original buyer; for instance, the original buyer was a longtime employee or close friend? Does the seller still have to sell to the factory and not the employee/friend? Clearly, the parties need to address the possibility that a factory may exercise a RFR and develop a strategy (a “poison pill”) to address the issue. (If you think that it is rare for a factory to exercise a RFR, think again; I was personally involved in two buy-sells in 2012 that were the result of a factory electing to exercise a RFR – and it is getting more common.) There are a number of options to consider and it is of critical importance that they be negotiated during the initial drafting of the buy-sell. Once submitted to the factory, the parties will not be able to amend the buy-sell in a manner which frustrates the factory’s RFR. It is important to have an experienced team guide you through the process. Truly, it is much more than simply how much for the blue-sky, used cars, equipment and the new rent factor.

Jim Barone, of counsel acts as general counsel to automobile dealerships who do not have the luxury of in-house counsel. With almost 30 years of legal experience, Jim is well-versed in commercial and corporate transactions, commercial real estate, and corporate business operations of automobile dealerships. His detailed expertise allows him to walk clients through the complex M&A process, assisting with every aspect of the transaction. He has successfully closed transactons involving an aggregate value in excess of $3 billion.

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Thank you to our Annual Meeting Sponsors for Making it a

Huge Success! THANK YOU TO OUR

ANNUAL MEETING SPONSORS

ATTORNEYS AT LAW | Our Practice Is Rooted In Strong Relationships

Gold Sponsors Gold Sponsors: Comerica Bank Comerica Bank CU Direct Corporation CU Direct Corporation Fisher LLP Fisher&& Phillips, Phillips, LLP Freeway FreewayDealer Dealer Services Services MotorTrend TrendAuto AutoShows Shows Motor SauersLopez Lopez Construction Construction Sauers 10

OCADA

Silver Sponsors

Silver Sponsors: Burkhalter Kessler Clement & George, LLP

Burkhalter Kessler Clement & George, LLP CAR Research Car Research CARFAX CARFAX MOC Products Co. Inc. MOC Products Co. Inc. SC Fuels SC Fuels Wells Fargo Dealer Services Wells Fargo Dealer Services

O

ver 300 Dealer and Associate members gathered at the OCADA’s Annual Meeting on January 17th. Outgoing President, Bruce Hamlin addressed the membership highlighting the Association’s accomplishments in 2012. Bruce recognized Auto Show Chairman Jon Gray, for his leadership and outstanding job with the Auto Show and introduced 2013 incoming President, Paul Conant. Paul discussed his goals as President and emphasized the importance of building strong relationships with our elected officials. Featured speaker, Bob Lutz shared his perspective on the future of the Automotive Industry and ended his presentation with an engaging Q & A with the audience. OCADA would like to thank the Dealers, Associate Members and Sponsors who helped make the Annual Meeting a success. .





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Get to Know Your

Legislator: Sharon Quirk-Silva

65th Assembly District:

Orange County Cities: Buena Park, Cypress, Fullerton, Hawaiian Gardens, La Palma, Stanton and West Anaheim

Committee Membership: Transportation Higher Education Accountability and Administrative Review

Personal:

Sharon is married to Jesus Silva. She has four children, Molly Quirk (23), Catherine Quirk (22), Patrick Quirk (20) and Jack Ryan Quirk (16).

Quote:

“I alone cannot change the world, but I can cast a stone across the waters to create many ripples.” – Mother Theresa

Biography:

Sharon Quirk-Silva is a school teacher who was elected to the California State Assembly in 2012 to represent California’s 65th Assembly District. Prior to her election to the Legislature, Assemblywoman QuirkSilva was elected to the Fullerton City Council in November 2004, where she was selected by her peers in 2007 to serve as mayor for two terms. As a school teacher in Fullerton for 27 years, and a product of the district’s public school system herself, Sharon Quirk-Silva

brings a passion for education and public service with her to the Assembly. Not only did she attend public schools in the district, but she also went on to earn an A.A. degree from Fullerton College and a Teaching Credential from Cal State Fullerton after receiving her B.A. from UCLA. Assemblywoman Quirk-Silva is a strong advocate for transparency, innovative thinking and collaboration. Her willingness to work across the aisle in order to do what is best for her community is something she has successfully utilized throughout her career. In her tenure as mayor, Sharon QuirkSilva was able to ensure Fullerton had a balanced budget and a 10% reserve. She attributes her ability to achieve this accomplishment during the state’s difficult economic time to her parents who taught her to never squander opportunities or resources. Sharon Quirk-Silva has four children and is married to Jesus Silva, also a teacher. She resides in the City of Fullerton.

District Office Contact Information: 1400 North Harbor Blvd., Suite 601 Fullerton, CA 92835 Tel: (714) 526-7272 Fax: (714) 526-7278 Email [email protected] Website: http://asmdc.org/members/a65/

Thank you to the Dealers that joined us at the Legislative Luncheon with Assemblywoman Quirk-Silva. Cliff Allen; Allen Cadillac GMC & Hyundai

Leonard Renick; Renick Cadillac Subaru

Mike Westbrook; Commonwealth Volkswagen & Audi

Damon Shelly; Shelly BMW

Bruce Hamlin; Guaranty Chevrolet

Steve Rudkin; Shelly BMW

Paul Conant; Norm Reeves Honda Huntington Beach

David Simpson; Simpson Buick GMC of Buena Park

Zareh Chiranian; Premier Chevrolet of Buena Park

Frank Romano; Wilson Automotive Group

James Renick; Renick Cadillac Subaru

OCADA

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California

Prop 30 Effects on

Dealers

7 Strategies to Consider revised upward to account for improvement in the housing sector.

By Jonathan Forgy, CPA Parke Guptill & Co., LLP

P

roposition 30 increases sales taxes by ¼ cent for four years beginning January 1, 2013. Additionally, for seven years beginning January 1, 2012, Prop 30 progressively increases the California income tax 1, 2, or 3 percent for highincome earners. For single taxpayers with taxable income over $250,000 and joint filers with taxable income over $500,000, the tax increase is 1 percent. The tax increase is 2 percent for single taxpayers with taxable income over $300,000 and joint filers over $600,000. The tax increase is 3 percent for single taxpayers with taxable income over $500,000 and joint filers over $1,000,000. In addition to the Prop 30 increases, the 1 percent Mental Health tax continues to apply to taxable income in excess of $1,000,000, which brings the California top individual tax rate to 13.3 percent—the highest state income tax rate in the United States. Approximately 79 percent of the Prop 30 tax increases will

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be paid by taxpayers with taxable income in excess of $533,000 (the top 1%). Overall, the California budget analysts expect Prop 30 to increase tax revenues by $6 billion per year. However, opponents of Prop 30 point out that the expected revenue does not fully account for the number of businesses that move to business friendly states like Texas. The California Taxpayers Association survey says that 254 companies left California in 2011, which is an increase of 26% over 2010. So, are all the millionaires leaving California? Undoubtedly, there will be some uber-rich leaving California, but you cannot ignore the fact that California remains a significant economic power. The UCLA Anderson Forecast states that Prop 30 will have a slight drag on their economic forecast. However, despite the passage of Prop 30, their economic forecast for 2014 has been

Improvement in the housing sector is great news for auto dealers. Just read Morgan Stanley’s report “Autos & Auto-Related,” dated January 24, 2013, which points out that the correlation between housing starts and sub-prime loan approval is 96% and improved credit availability will unlock 40% of the US population that has been shut out of the new car market for the past four years. NADA Chief Economist, Paul Taylor, expects 2013 auto sales to jump to 15.4 million units, an increase of 1 million vehicles over 2012. Taylor highlights the following factors that will support stronger sales: (1) pentup demand—continued replacement of aged vehicles, (2) available credit— low interest auto loans, (3) new vehicle choices—resulting in greater consumer appeal and fuel efficiency, (4) declining unemployment— improves consumer confidence, (5) used vehicle shortage, (6) fiscal cliff avoided, and (7) improving housing sector—which improves consumer and lender confidence.

Many of you reading this article have right-sized your dealership and run a much more efficient operation compared to five years ago. You left no stone unturned. That same discipline is needed now to explore the tax saving ideas above and many more that may fit your situation.

In summary, the automobile industry will outperform the growth of the general economy. So it appears that the economic drag caused by Prop 30 will have little impact on auto sales. On the other hand, most dealerships are pass-through entities, wherein the profits from the dealership pass through to the owners’ individual tax returns. This is where the real pain of Prop 30 will be felt. With the federal top income tax rate rising from 35% to 39.6%, plus the top California rate of 13.3%, an owner can quickly reach a combined income tax rate over 50%. Here are a few ideas to lower your tax burden.

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Dealers should review the possibility of starting a reinsurance company or review their current reinsurance company and consider making an election under Internal Revenue Code Section 831 to annually defer up to $1.2 million in revenue derived from the sale of insurance products. Further, in the future when you take money out of the reinsurance company, it will be taxed at the lower capital gains rate.

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Section 831 also offers unique benefits by allowing you to set up reinsurance companies that are owned by your children. This ultimately shifts future income and estate taxes away from Mom and

Dad. There are other issues here that need to be addressed, but they are not remarkably difficult to deal with.

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Likewise, there are estate planning methods to shift ownership of the dealership for estate purposes while Mom and Dad can still control the dealership. This will ultimately help shift income in the future.

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Higher tax rates make deductions more valuable and may lead to more consideration of increasing employee benefits, such as a 401K employer match. There is little doubt in our mind that a meaningful employer match reduces employee turnover.

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Depreciation—The new tax act extends two provisions that favor taxpayers. First, the 50% bonus depreciation was extended through 2013. Generally this allows a 50% up-front federal deduction for items with a class life less than 20 years; for example, equipment, computers, furniture, and some company vehicles. Second, (for dealers that lease real estate) factory-required imaging projects normally result in significant costs, having a depreciable life of 39 years. The new tax law extends the classification of Qualified Leasehold or Qualified Retail (e.g., dealerships), which changes the federal 39-year life to 15 years.

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Cost segregation studies— Anytime you pay for any project over $300,000, you should consider a cost segregation study whose purpose is to document the project, allocate the cost of the project into components, and apply the appropriate depreciable lives accordingly. Therefore, you document the costs that can be depreciated over 5, 7, or 15 years instead of the entire project ending up at 39-year depreciation. These studies have even greater value this year because of the previously mentioned bonus depreciation.

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We have to discuss the “L” word— LIFO. We know that dealers not on LIFO cringe at the very thought of adopting LIFO. But with individual tax rates above 50%, you may need to rethink your position. Many of you reading this article have right-sized your dealership and run a much more efficient operation compared to five years ago. You left no stone unturned. That same discipline is needed now to explore the tax saving ideas above and many more that may fit your situation. J onathan Forgy, CPA, is a tax partner with Parke Guptill & Co., LLP, which has specialized in providing tax and accounting services to dealers and dealerships since 1964.

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“Running a successful dealership means understanding every customer’s needs. So does insuring one.” Alan Starling, President & CEO Starling Automotive Group

With 90 years of automotive industry experience, Zurich is one of the only carriers that underwrites both Property and Casualty coverage and Finance and Insurance (F&I) products. Zurich’s total solution lets Starling Automotive Group avoid gaps and overlaps in insurance coverage, which helps save both time and money. It also provides them access to Zurich’s extensive F&I sales and training support. The result? Starling continues to grow its revenue and protect its legacy while focusing on its top priority – the customer. It’s another example of how Zurich delivers the help businesses need when it matters most. Watch the video at zurichna.com/stories9 Call Darin Haag, Regional Sales Manager at 801-376-3338. For more information visit www.zurichna.com/dealer.

This is intended as a general description of certain types of insurance or non insurance products and services available to qualified customers through the companies of Zurich in North America, provided solely for informational purposes. Nothing herein should be construed as a solicitation, offer, advice, recommendation, or any other service with regard to any type of insurance product underwritten by an individual member company of Zurich in North America, Universal Underwriters Insurance Company. Finance and insurance (F&I) products in Florida are provided or administered by Vehicle Dealer Solutions, Inc. (FL License #60132). Your policy or your F&I product contracts are the contracts that specifically and fully describes your coverage, terms and conditions of the applicable product. The description of the policy or F&I product contracts’ provisions give a broad overview of coverages and does not revise or amend the policy or the F&I product contracts. Coverages and rates are subject to individual insured meeting our underwriting qualifications and product availability in applicable states.

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OCADA

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New Commission

Agreements Law Requires Review of Pay Plans

paid “a fixed percentage of sales or profits as compensation for work to be performed.” A.B. 1396 requires that a pay plan describe how a commission is to be computed and paid. While the courts have yet to interpret this law, it will likely be read to require the following: (1) Where an employee is paid a percentage of profit on a deal, a clear and complete explanation should be provided of how that profit, or commissionable gross, is to be calculated. First, all sources of revenue to be taken into account must be specified. Will dealer holdback be included in the gross? Second, all “packs” and internal costs assessed on a deal must be disclosed. (2) If chargebacks will be assessed against future commissions this must be disclosed as well. (3) The pay plan must be clear regarding when the commission is deemed earned, so that the employee’s entitlement to commissions upon termination of employment may be determined. Is the sale complete when the vehicle is delivered, or at some other point in the transaction? Dealers have some flexibility regarding how much of a commission will be paid for sales not yet completed when the employee terminates, but the terms must be clearly explained.

By James J. McDonald, Jr. Fisher & Phillips LLP

A

California law enacted in 2011 requires that by January 1 of this year, whenever an employer enters into a contract of employment with an employee who is paid on a commission, the contract must be in writing and must set forth the method by which the commission shall be computed and paid. This new law, A.B. 1396, further requires that the employer give a signed copy of the commission agreement to the employee and obtain a signed receipt for it as well.

(4) If a draw is paid, the pay plan should state when the draws will be reconciled against commission. If the draw will carry forward if not exceeded by commissions, this should be stated as well. (5) The pay plan must disclose the day of the month when commissions will be paid.

While not required by law, pay plans should additionally contain employment-at-will language. Finally, the signed receipt for the pay plan which this law requires should be kept in This law applies to dealership pay plans for commission-paid employees and its impact the employee’s personnel file. is likely to be greater than merely requiring that dealers obtain signed receipts for pay plans. Plaintiffs’ attorneys may soon focus on dealerships as potential targets for class Compliance With action or Private Attorney General Act (PAGA) lawsuits for failing to have pay plans that Wage and Hour Laws comply with this law. Such scrutiny will not end at whether pay plans are compliant All employees must be paid at least minimum with A.B. 1396, however. Pay plans will additionally be reviewed for non-compliance wage (plus overtime if applicable) for all hours with overtime and other wage and hour laws. worked. Therefore, all salespersons must record their hours and a calculation must be done Compliance With A.B. 1396 each pay period to ensure that the employee’s Pay plans for commissioned employees hired after January 1 and pay plans for existing draw or commissions are sufficient to meet employees that are changed this year must comply with this new law. A “commission” minimum wage. covered by this law is defined as a payment for services rendered in the sale of the employer’s goods or services that is based “proportionately” on the amount or value of To be exempt from overtime, a commissioned the sale.. Clearly, employees who are paid a commission on sales they personally make employee in a dealership may fall under are covered by this law. The law suggests that employees who are paid a percentage the inside commission sales exemption. To of store or department profits are covered too, as it applies where an employee is qualify, (1) an employee must earn more

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Pay plans will additionally be reviewed for non-compliance with overtime and other wage and hour laws.

than 1-1/2 times minimum wage (i.e., at least $12.01) for all hours worked, and (2) more than half of the employee’s compensation must be in the form of commissions. The first test must be met for each pay period. This means that if a salary or draw is paid on one of two paydays per month, it must exceed 1-1/2 times minimum wage for all hours worked during the half of the month that it covers. Likewise, commissions paid on the other payday must also exceed 1-1/2 times minimum wage for all hours worked during the other half of the month. The second test (i.e., more than half of pay being commissions) may be met on a monthly basis, but for the purposes of this test, a narrow definition of “commission” applies: (1) payment for services rendered in the sale of the employer’s property or services, and (2) based proportionately upon the amount or value thereof. The executive exemption may cover managers who supervise two or more employees and who spend more than half their working time performing management duties. To qualify for this exemption, however, a manager must be paid a salary or guarantee amounting to at least twice the minimum wage ($16.00) for a 40 hour week, which is at least $640.00 per week or $2,773.33 per month. If a commissioned employee does not qualify for one of these exemptions in a pay period, overtime must be paid. It is calculated by dividing all compensation earned (commissions plus salary if applicable) by the number of hours worked. This produces the “regular rate” of pay for that period. One-half of the regular rate must then be paid in addition for all hours of overtime worked. Finally, even if inside salespersons are exempt from overtime they still must receive meal and rest breaks, and these should be documented.

All Pay Plans Should Be Reviewed

Dealers should review their pay plans for commissioned employees now to determine if they comply with A.B. 1396 and applicable wage and hour laws. If they do not, they should be changed promptly to avoid significant future liability.

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20th Annual OCADA Automotive

Technology Competition

O

n Saturday, Feb. 2, 2013 OCADA held its 20th Annual High School Automotive Technology Competition. The competition is designed to identify Orange County’s top young technicians and introduce them to careers at dealerships. Top students are paired with dealerships to work hands-on together to prepare for the competition. Many of these students go on to an automotive technology post-secondary education and continue to work with their mentoring dealerships as they begin their new careers.

This year’s teams and sponsoring dealerships included: Allen Hyundai Don-A-Vee Chrysler Jeep Garden Grove Kia Hardin Honda of Anaheim Toyota of Orange Simpson Buick GMC of Buena Park Additionally, all twelve competitors received one year scholarships from OCADA to pursue automotive studies at an Orange County Community College. The Orange County Championship team will be sponsored by OCADA to compete in the National Automotive Technology Competition in April in New York City. Many thanks to all the participating dealerships – your guidance and support made each team a winner and helps develop young technicians for our industry.

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OCADA

23

Moral Imperative By Congressman John Campbell

Instead of sacrificing to leave the next generation a brighter future, we are rewarding ourselves more than is our due and leaving the next generation with less opportunity, lower expectations and a lower living

M

oral Imperative: I speak often in these pages about things fiscal, financial and economic. Given that I am a CPA and sit on three committees in Congress that deal with money (Budget, Financial Services and Joint Economic), this is to be expected. But, I am not all about money. And, the nation’s problems are not all about money. As big a problem as our debts and deficits are, they are emblematic of deeper and actually more significant moral and cultural issues. For some time now, we have heard of those who Tom Brokaw dubbed “the greatest generation,” those who sacrificed through a world war to vanquish fascism and imperialism and leave a stronger America for their children. We can go back further to speak of the generation that took the risks to establish this country in the late 18th century or of the generation that fought the Civil War. In each case, said generation sacrificed in order to leave a better and more

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standard. It is selfish. It is just plain wrong. prosperous country of opportunity for their children. But, what are we doing now? What will be the legacy of my generation? Our debt and deficit crisis is largely caused by giving ourselves health care and retirement benefits without paying for them. But, we “deserve” them. We are “entitled.” We paid for them. The problem is that none of that is true. I have paid Medicare taxes my entire working life, and I started earning a paycheck when I was 16. I am 57 years old and, therefore, am 8 years away from Medicare benefits. In spite of that, I have only paid in 1/3 of the cost of the benefits I will likely receive. The rest, fully two-thirds of every doctor visit or medical procedure, will be borrowed. That means my kids will have to figure out how to pay for it. I use myself as an example, but I am not unique here. No one receiving Medicare now or about to receive it has paid anywhere near the full cost. The same

is true of Social Security, although those numbers are not as lopsided. And, we all want to care for the indigent, but we do not pay enough taxes to cover Medicaid expenses either. So, as a society, we have decided that we want a bunch of stuff right now so that our standard of living will be higher... so that we can buy more things and live more comfortably. And, we don’t want to pay for it. Instead, we demand that people in the future pay for it through less opportunity and lower expectations and a lower living standard. Instead of sacrificing to leave the next generation a brighter future, we are rewarding ourselves more than is our due and leaving the next generation with less opportunity, lower expectations and a lower living standard. It is selfish. It is just plain wrong.

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continued from page 24

The financial markets are also a part of the problem right now. Markets today are dominated by traders rather than investors. Those traders have a very short-term outlook. They are interested in the next week or maybe, at most, the next quarter. So, they want any accommodation that preserves their outlook for a few months and the heck with the longterm future. “I’ll gladly pay you Tuesday for a hamburger today,” as the cartoon character J. Wellington Wimpy proclaimed in 1932, seems to have become Wall Street’s motto. These shortterm markets will hate what we might have to do to fix the problem. But, we must start becoming less concerned about the next 3 weeks in order to build a brighter future for the next 3 decades.

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to nothing that you don’t earn or show yourself to be deserving of? What about the idea that no matter how good or how modest my station in life is, I want my kids to have it better? Our debt and this president’s perpetual trillion dollar deficits are not just bad economic policy - they are morally reprehensible. We have to make a stand. Barack Obama will be president for 4 more years, to my great disappointment. We are better to make that stand now, even if it

Our debt and this president’s perpetual trillion dollar deficits are not just bad economic policy - they are morally

In the final analysis, reprehensible. We have that’s really what this debt limit fight is to make a stand. Barack about. The president Obama will be president for and his minions want to give you something 4 more years, to my great for nothing. That’s the source of their political disappointment. We are strength. You get health better to make care and retirement and education all for that stand now. free because you are “entitled” to it and means we all somebody else will pay for have to suffer it. Problem is that those the trauma of going past “somebody else’s,” like the “rich” and the “corporations,” the debt limit, than to don’t have even have 10% of condemn our children to the consequences of future the money necessary to pay collapse that will impact for it. So, the people paying them for decades. will be your children. And, they will pay dearly. I understand that the world moves on. I understand that things change. But, some principles are enduring. Whatever happened to the idea that you are entitled

In Memoriam James B. Slemons January 27, 1933 – February 4, 2013

J

ames B. Slemons passed away February 4th, 2013, at the age of 80. Jim was born in Pasadena, California and graduated from the University of California at Davis. Upon graduation, his passion for automobiles directed his career path and he became the owner of Jim Slemons Imports, Mercedes Benz Newport Beach, Jim Slemons Volvo Hawaii, Jim Slemons Chrysler Plymouth Hawaii, Jim Slemons Acura Hawaii, Jim Slemons Jeep Orange County, and Jim Slemons Toyota Santa Ana, among many more. He was also CEO of PanAm Commuter. Jim served on the Orange County Automobile Dealers Association Board of Directors and as President from 1969-1970. He also held many reputable positions within the community such as Chairman of Orange County International Auto Show, California Chairman of Mercedes Benz Dealer Council, Founder and Chairman of Southern California Dealers Association, Vice President of Toyota Dealers Association, Founder and Chairman of Mercedes Benz Dealers Advertising Association, Vice President of Acura of Southern California Advertising Association, Area Director of California and International Board of Directors 20-30 Club, Honorary Governor of the Balboa Bay Club, and Director of Irvine National Bank. In addition to being a successful businessman, Jim also dedicated his time to serve his country by being the Captain of the U.S. Coast Guard Auxiliary and Lt. Commander of the U.S. Coast Guard Reserve. Jim was a friend to many members of the automotive industry and will be missed.

OCADA

27

Common Social Media Mistakes and How to Avoid Them

By Sophie B. Hanson, Principal The newsLINK Group, LLC

E

veryone is new to the rules about social media. However, if your dealership is like many, you have employees that are eager to hit cyberspace with offers and specials to engage the world via social media. SEO, proper website maintenance, display ads, reputation management, and mobile marketing may all have a larger application as being more important that social media when it comes to driving leads and foot traffic to a dealership – and probably should. The connection between selling cars and social media has not been concretely made to many dealers as of yet. Nevertheless, social media marketing efforts – when done correctly – can dramatically improve exposure, lead potential, foot traffic, and customer communication into a dealership’s online marketing strategy. Social media is not a shortcut, it isn’t easy and it certainly isn’t something that should be done haphazardly. However, social media, when done consistently and done well can be extremely rewarding from an ROI perspective. Here’s our shortlist for how to avoid common mistakes.

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Social media marketing efforts – when done correctly – can dramatically improve exposure, lead potential, foot traffic, and customer communication into a dealership’s online marketing strategy. Blogging

Personality

Competitors

If you want to put personal information out there on the Internet, make sure it is completely separate from your business and that the information fits within the brand. Although there may be times when you want to show a more personal side, be extremely cautious. Decide what’s

An important business basic is diversification. You want people to have multiple ways of following your dealership and contacting you. Although you can do a lot for your dealership through Facebook and Twitter, you shouldn’t rely on them alone. You need your own place on the Internet for people to visit, one that doesn’t belong to another company.

You know who your competitors are — right? Do you follow what they’re doing when it comes to social media? You should. Not only can you gain important insights into what customers are looking for from your industry, you can also see where you need to increase your own efforts.

An important part of branding is knowing exactly what your dealership is relative to the people you want to help. The best brands are the ones that don’t have a confused message because of too many people deciding which direction to go. What does this mean for you in a practical sense? Keep the business side separate from the personal side.

continue on page 30

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appropriate and what isn’t — and then follow your own guidelines.

Effectiveness

The effectiveness of new technologies can be hard to measure, but that doesn’t mean it’s impossible. If you are spending money or time on something, you ought to be doing whatever you can to find out whether it is effective.: • I f you have a Facebook page, check into PageLever. • For a blog, Facebook, or Twitter, consider using a company named Simply Measured. • I f you just want to know what people are saying about your organization online, check into SocialMention. This one, at least right now, is free.

Integration

Think about Amazon and Apple. These are two companies that know how to attract people across multiple platforms. Then consider Netflix and its recent stumble when it raised prices and (for a short time) attempted to spin off its DVD plan into a new company. You want to attract and engage your community so that no matter how people interact with your dealership, they feel as though your business has a consistent look and feel. Obviously, at least for right now, two companies to study and learn from are Amazon and Apple.

The effectiveness of new technologies can be hard to measure, but that doesn’t mean it’s impossible. If you are spending money or time on something, you ought to be doing whatever you can to find out whether it is effective. Good Manners

It’s basic good manners to give other people and organizations the spotlight on a frequent basis, to be modest about yourself, to be genuine about your interest in others, to keep your commitments at a reasonable level so you don’t promise more than you can deliver, and to do your best to start worthwhile conversations. In short, the focus isn’t on what you can get from other people. It’s on helping them. These are all good rules to follow when it comes to social media, too. Ignore the basics, and people will conclude that your organization is selfcentered and irresponsible.

Mistakes

Guess what? Sometimes you are going to make mistakes when it comes to social media. According to Harvard Business Review, the best way to recover isn’t to hide the problem. Admit what you did wrong, and do your best to fix it. The more people think you are honest with them, the more credibility you will be able to keep.

A final word of caution, a mediocre social media presence is worse than not having any social media presence. Once you let your employees take on social media, it is important that a plan is in place to keep your social media efforts current and relevant. The newsLINK Group, LLC is a marketing agency that specializes in communication strategies for nonprofits, trade associations and professional service firms. We believe that successful organizations don’t just find new clients and members, they grow them, from their relationships with — and referrals from — the clients and members they already serve. Marketing professional services is different. Keeping your clients and members loyal to you is what we do through consistent and quality communication. We have helped hundreds of clients tell their story, retain member and client bases and grow from internal awardwinning communication strategies in the form of newsletters (print and electronic), magazines, directories, annual reports and other marketing pieces. For more information, call 855.747.4003 or visit us online at www. thenewslinkgroup.com.

O U R S T R AT E G Y F O R S U C C E S S

BKCG offers outstanding representation to auto dealers and their owners. In fact, BKCG has the largest jury verdicts in California for dealers against manufacturers. Legal services include prosecution and defense of manufacturer disputes, strategic defense of consumer litigation, dealership real estate acquisition and sales, and employment law. Call Alton G. Burkhalter at BKCG today to discuss winning legal strategies for your business.

S TA R T S M A R T. F I N I S H S T R O N G .

2020 Main Street, Suite 600, Irvine, CA 92614 ■ 949.975.7500 ■ www.bkcglaw.com

prsrt std us postage paid salt lake city, ut permit no. 508

This magazine is designed by The newsLINK Group, LLC and published by Media Communications Group, Inc. | 1.801.746.4003

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READY TO ACCELERATE YOUR GROWTH? WE ARE HERE TO HELP. The Register knows how important the automotive industry is to Orange County and we want to help you connect with local car buyers. An up-close



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