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December 2017
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Horizon getting brighter

The AED held its annual executive forum a couple of weeks ago with an agenda that any equipment dealer would have found informative. A significant portion of the program was directed at risk assessment covering such topics as inadequate dealer profitability risk, new legal risks, the expanded risk related to labor law, legislative risk, personal threat management and Obamacare risk. No matter how you look at it there are a lot of balls in the air creating an overall higher risk platform for the typical dealer. After listening to the examples being discussed all I can say is “You have to be kidding!”  With all of this new regulation it is no wonder the economy is sluggish.

But there was good news as well, and significant good news it is. It may be somewhat in the future but a new business environment is building here in the USA with a positive impact on your business. There is a chance, however, that this positive improvement could be delayed or deferred because of shaky negative stories being circulated by the “green” folks.

On the legal side there are more lawsuits dealing with the chain of ownership of equipment, especially used equipment. The speaker suggested that sellers document “how” a unit is sold; “as is” or with any sort of warranty attached. There is also an increase of punitive damages being awarded in these situations which is a problem since many insurance policies in a number of states do NOT cover punitive damages. It is time to review your liability coverage and implied or express warranty language being used to sell used equipment.

On the HR front there are new initiatives by the Dept. of Labor to find new enforcement actions to implement against individual businesses along with ways to protect whistleblowers. Our speaker noted that in the past the DOL would investigate claims and work with the business towards a solution, but now are more of an advocate for the employee and thus making it much more difficult and expensive for a business to protect its position. It appears it is also time to review your internal HR manual and how you prevent exposure to employee complaints.

On the legislative side there are a number of business friendly budget line items that lack funding as of today and in the future that Congress has to deal with. For example, road funding is sorely lacking with not many ideas anybody wants to back because of feared backlash from voters. It is no secret that gas tax revenues have decreased because the population is buying more efficient cars that burn less gas. The obvious answer to this issue would be to raise the federal gas tax to make up for the shortfall, but that is too easy and  I do have to admit the car owners would not be happy to see an increase in gas prices because of the tax.

There is also tax reform being considered and what we hear is that every deduction or deferral item is on the table. Directly impacting lift truck dealers will accelerated depreciation deductions, Section 179 deduction, LIFO and LKE transactions. And as we have mentioned before there is the 3.8% tax on investment income, which believe it or not, includes income from rental activities. AED is circulating a letter to be sent by dealers to their Congressional members asking for this 3.8% tax to be eliminated for equipment dealers. If you want a copy of the letter let me know.

I think we have all figured out there is risk related to Obamacare, from both the employee and employer standpoint. Our speaker suggested dealers avoid the large annual premium increases he is predicting are forthcoming from insurance companies by setting up a self-insurance program where a dealer can better control the costs. And apparently the self-insurance status gets you out from under individual state mandates as well. If you have been avoiding this issue up to now it may be time to study your personal situation.

There is no doubt the business risk profile has changed for the worse and is causing hesitation in terms of business investment. In my opinion there is too much government regulation and interference in our business environment.

On the bright side the Tax Foundation prepared a study to measure the economic effect of changing or eliminating the deductions discussed earlier. Their conclusion will not make the IRS happy because when you consider the total impact on tax revenues for the “new” revenue potential it is offset by “lost” revenue created by the elimination of the tax deduction as it now stands. Eliminate the deduction and you decrease equipment sales, which decreases OEM and dealer revenues, which means less income at those levels to pay tax on, plus add in any lost wages as a result of lower equipment production and sales and you find that the changes being contemplated produce less tax revenue and not more.  Now that is good news if someone reads the report.

Other good news developments are:

Energy independence if we can get the government out of the way.

Low cost energy producer to attract new business to the region.

Energy exporter.

Widening of Panama Canal.

Shortening of supply chain.

These changes will encourage more US manufacturing, higher demand for warehousing and logistics, changes in ports of entry and in general more business for the US. We should see these changes start to materialize in the next 3-5 years.

In conclusion, you have some homework to do. In addition, it is time to examine your dealer structure and operation to see what changes have to be made to operate profitably in this new biz environment.

Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail to contact Garry.