Unsurprisingly perhaps, with a backdrop of record-breaking motor dealer profitability, consistent sales growth for over two years, robust residual values underpinning a strong used car market and a growing new-to-three-year car parc improving the outlook for aftersales – many dealers are facing increasing demands for investment in their operations.
One particular area that we’re starting to see – and anticipate seeing more of, notwithstanding the notes of caution now coming from some in the sector – is the requirement from the manufacturers for updated corporate identity (CI).
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Updating CI has always been a challenge for the dealers. The investment is key to the brand for the manufacturer, but with net margins so tight it’s vital for dealers to be able to fulfil the requirements while minimising the cost of delivering. We set out below some suggested practical steps to mitigate these costs.
1. Negotiate
Negotiate with the manufacturer. Some dealers just accept they have to do everything asked of them, whereas others negotiate and find a compromise that is acceptable for the new CI requirements but saves them money on the initial costings.
2. Alternative (cheaper) suppliers
While manufacturers often insist their chosen supplier is used, dealer clients have managed to persuade the manufacturer to use alternative suppliers who can be proven to be of the right standard – so making considerable savings from the initial costings.
3. Manufacturers pay/contribute?
Manufacturers will sometimes pay or bear some – or even all – of a dealer’s CI updating costs. If you don’t ask…
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By GlobalData4. Manufacturers finance support?
This may take the form of varied stocking finance terms to help improve short-term cash flow or low (or zero) cost finance direct from the manufacturer.
5. Tax savings
Expenditure on updating CI may benefit from capital allowances (CAs) – tax allowable depreciation which saves you money. Depending on the type of expenditure, CAs may be available at 100% of the cost of the CI, or 18% or 8% of the cost of the CI annually, on a reducing balance basis. Even better, expenditure on qualifying energy-saving plant and machinery, e.g. a high-efficiency lighting unit, will qualify for a 100% tax deduction in the period in which it is bought.
Expenditure on updating CI may also qualify for the annual investment allowance – of 100% on expenditure up to the upper limit – £500,000 in the period ending 31 December 2015 (although it is due to return to £25,000 from 1 January 2016).
Remember also, where CI changes are ‘repairs’, e.g. to a roof, then this amount will usually be deductible as a revenue expense against taxable profits.
To maximise the use of tax reliefs in updating CI, some tax advisors and surveyors have become involved with the dealer and its architects etc at a very early stage. This earlier involvement has been claimed to lead to a 30% increase in the amount successfully claimed. Conditions apply to the claiming of tax reliefs and specialist advice should be obtained.
Mark Henry is a partner and head of the automotive industry group at Birketts
