| EXECUTIVE SUMMARY | 
AN AUTO-DEALER NICHE IS recession-resistant. In a poor economy dealers might want to cut CPA services but will need help with expense and inventory control. There are essentially five revenue streams in any dealership, and owners can adapt profit lines to fluctuations in the economy, making for stable businesses.
TO GAIN FAMILIARITY WITH the structure of dealerships and the car industry, a CPA should read industry periodicals and skill-building books and take courses.
CAR INDUSTRY CPAs PREPARE INCOME TAXES and perform tax planning, employee benefits planning, business valuations, litigation support, succession planning, outsourced internal audits and internal control reviews.
SERVICES IN THE RETAIL AUTO ARENA include Lifo inventory valuations, factory relations and approval packages, financial analysis by division, fixed operations reviews and operational guides, and analysis of financing alternatives.
IN A DEALERSHIP REVENUE “PIE” is divided along these lines: 50% to 60% of gross from new-car sales, 30% to 35% from used-car sales, and the rest from parts, service and the business office. The profit margin on a new car is about 6%.
A CPA SHOULD ATTEND ASSOCIATION meetings to get to know dealers and build a comfort level with them as well as learn about industry issues. Two good places to network are the NADA and AICPA conferences. | | SARAH E. PHELAN, JD, is a New York-based attorney and author. Phelan was formerly a senior manager with Deloitte & Touche and a technical manager in personal financial planning at the AICPA. Her e-mail address is Phelanlaw@prodigy.net . | 
re you the “David Letterman” of your office? Not the office comedian, that is, but the person who takes a vacation the week of the Indianapolis 500 to go to the speedway. No? Then perhaps you detour past car lots just to see what’s new—or keep a well-thumbed copy of The Hemmings Motor News Book of Studebakers in your bottom desk drawer…. If your affinity is for wheels, why not cultivate a dealership clientele?
| Even if you’re not car-crazy and are just a levelheaded CPA cruising for business growth, there are opportunities in this specialty, say experienced practitioners. Here’s a look under the hood. A SPECIALTY WITH TRACTION
Dealerships offer CPAs corporate clients with healthy, steady revenues, and many have in-house accounting staff to ease data gathering, sources say. They’re big enough to support fair fees and generally are prompt payers. Most dealers have a sales background and are decisive, independent people with a “Just get it done” attitude. Once they know a practitioner understands their business, they freely recommend him or her to colleagues. | | It’s a Good Market There are 21,800 new-car dealers in the United States. The top 100 of them had $101.5 billion in sales in 2001. AutoNation held the no. 1 spot, with $20.4 billion from 290 dealerships. The dealer that ranked 100th brought in $241 million. Source: The National Automobile Dealers Association (NADA), www.nada.org . | | Diane Weinhold, CPA and partner at Diane Weinhold LLP, in Orange County, California, has worked in the retail auto industry for more than 40 years and has gained perspective from living through many up-and-down business cycles. The industry is recession-resistant, she says. In a poor economy dealers may want to cut the CPA services they buy, but “they need you more in a downturn” for expense and inventory control and keeping a close eye on cash flow, she says. “They’re affected by economic cycles, but very few go bankrupt,” Weinhold says. (See “ The Business Floor ,” below.) Deb Gammon, CPA and sole practitioner in Chicago, agrees that the niche is stable and says many small-town dealerships have been around seemingly “forever.” She adds that “a lot of dealers want their CPA to be involved” in helping them develop business ideas, which opens a door to a range of work opportunities. Jim Downey, CPA, CVA, of Downey & Associates in Braintree, Massachusetts, is an industry specialist who says retail auto dealerships have been spared the roll-ups that have affected office supply stores, hardware stores, pharmacies and other Main Street bread-and-butter businesses. The auto-industry consolidations that have occurred are not nationwide “category killers” that wrest accounting business away from local CPA firms, he says. Rebecca Dunsworth, CPA, a tax partner in the Dealer Services Group at Crowe, Chisek in Oakbrook, Illinois, says she likes the niche because “there’s always something new” in the way of product lines and promotions.
| The Business Floor About 110 of the 500 largest retail car dealerships are publicly owned, although no more than 120 are publicly held. A large owner may have more than 100 stores, says Alan Koltin, a Chicago-based CPA and consultant. It’s not enough just to have the money to buy in, says Jim Downey, CPA, CVA, of Downey & Associates in Braintree, Massachusetts—manufacturers vet potential owners’ business plans and solvency very carefully. As a consequence, dealerships are well-funded, well-run entities. The auto business includes new-car merchants—who also sell used cars acquired in trade-ins and at auctions—used-car, and new- and used-truck and RV dealers. There are approximately 36 auto manufacturers active in the U.S. market today, and a CPA’s work is comparable across all of them, says Bob Cumberworth, a Dallas-based CPA who is the only “auto dealer partner” in a firm of about 100 professionals. The business models vary: There are those who finance (“buy here, pay here”), those who don’t finance, and there are retail used-car dealers. Some may offer the cars of more than one domestic manufacturer as well as foreign cars. Other dealerships operate multiple locations, and some individuals own dealerships in locations hundreds of miles apart. The business of a new-car dealer is five-stream, or “a bunch of smaller businesses going at once,” says Downey. The streams are independent and divide into the “front end” (new-car sales, used-car sales and the business office) and the “back end” (the service department and the parts department—in some cases, there also may be a body shop). The business office makes money from commissions on financing, sales of extended warranties and insurance sold in conjunction with financing. Back-end revenue comes from parts department sales to the service department, to the public and to the body shop, if any. An owner can shift emphasis to adapt to fluctuations in the economy. When unemployment is high, dealers promote and sell more small cars, for example. The diverse profit sources help stabilize the car business. Fortunately, dealerships can withstand an economic downturn when only two or even one of the five streams makes money. In a healthy dealership the revenue “pie” is divided along these lines: 50% to 60% of gross from new-car sales, 30% to 35% from used-car sales, and the rest from parts, service and the business office. The profit margin on a new car is about 6%, says Weinhold, and every bit of revenue is important to staying in the black.
| THE SERVICES THEY NEED
Traditional tax, audit and valuation services can and do keep car-specialist CPAs busy. Firms prepare income taxes and perform tax planning, employee benefits planning, business valuations, litigation support, succession planning, outsourced internal audits and internal control reviews—all standard services. Although most car dealers do not want a full audit or review except when it’s time to get financing, dealerships need compilations and reviews. Other services in the retail auto arena are Lifo inventory valuations, factory relations and approval packages, financial analysis by division, fixed operations reviews and operational guides and analysis of financing alternatives. As franchises, dealerships must report specific financial information to manufacturers on a monthly basis, requiring ongoing CPA support. Bad cash management can quickly sink a car business, which makes cash management a critical function, says Weinhold. The services that car dealers need include Audits. Some CPAs get designated as “approved auditors” (a General Motors title; other car makers have corresponding programs) to conduct the annual and semiannual audits manufacturers require of dealers. Such programs provide recurring revenues for CPAs who qualify, but the work is part-time and the number of slots available is quite small (about 200 nationally). Contact a dealer to ask about procedures. CFO services. CPAs can offer CFO-level services such as inventory control or cash management to dealerships that don’t have a CFO. Many of the largest dealers have CPAs on staff, but at smaller ones the top accounting or business manager may not have the training to implement the financial controls that put a damper on stealing, for example. It’s easier for an outsider to be the watchdog. Financial documentation. Anyone approaching a manufacturer to buy a dealership will require an “approval package” of detailed financial information. Even if the potential buyer already owns a dealership, he or she must present new information and a business plan to acquire another. Evaluating financing alternatives calls for detailed analysis to determine whether a manufacturer or a bank is offering the buyer better terms. Reports. Designing reports—figuring out what owners have to know and devising a reporting format for staff to use—is a CFO-type function that Gammon provides to clients. Owners often need someone they can run ideas by, she says. She enjoys answering questions such as, “I’m wondering whether to buy an additional dealership, what do you think?” Answering this involves preparing a balance-sheet snapshot to see if the cash for the project is there. She also advises on commonsense issues such as a store location’s desirability and whether the dealer has enough management talent on hand to oversee a new business.
Succession plans. Most owners set up a separate entity to hold the land under their dealership. From the CPA standpoint, it means another corporate or partnership tax return to prepare as well as planning opportunities. Weinhold has clients who hold the real estate in family limited partnerships, which, properly implemented, can produce transfer tax savings. Some owners sell the dealership but keep the land, enjoying the regular income stream. Many owners don’t sell to outsiders but pass dealerships down within the family. This is commonly accomplished with gifts of stock spread over years. In this industry it’s not uncommon for a CPA to work with a third-generation owner. A transfer offers succession planning opportunities: valuation of the existing business, setting up a buy-sell arrangement, life insurance consulting and estate, particularly tax, planning. The CPA must stay alert to independence issues, says Weinhold. If it isn’t appropriate for your firm to provide services in a given situation, recommend someone from your network, she says. Weinhold is certified in valuation but in some cases has called in another valuation expert to avoid a conflict of interest. TO GET IT IN GEAR
There is no single gateway into this field. Some CPAs start out working within dealerships—a surefire way to learn the lingo and culture of the industry and to develop personal contacts. Other CPAs learn the ropes at a small firm that does some car-dealer work and then move to larger firms where they work on such engagements almost exclusively, which is what Dunsworth did. In contrast, Bob Cumberworth, a Dallas-based CPA, got his start at a national firm when dealership Lifo work landed on his desk, ultimately leading him to develop industry-specific expertise. Downey had a corporate tax practice and a few car clients and built his reputation from there; today 50% of his clients are dealerships. Cumberworth also used tax skills to build his practice; for example, he was called in to accompany a dealer—who faced a large bill for additional tax due—to an IRS audit. Neither the return preparer nor the IRS agent understood the specialized tax rules involved. Cumberworth did and got the bill down to just 5% of the original demand. Soon after, the dealer brought him all his tax business. The common thread in these scenarios is developing skills, contacts and a reputation. Build technical expertise. To gain familiarity with the structure of dealerships and the car industry, read industry periodicals and skill-building books, take courses and attend conferences—which offer networking as well as information. For more resources and information on associations, see “Getting Up to Speed,” page 32. Generate contacts. CPAs retire or move, regularly leaving clients “in play.” To learn about such opportunities, participate in CPA associations for this practice area. One of these is the CPA Auto Dealer Consultants Association (CADCA). Dealer associations—local, regional, state and national—usually welcome nondealers as associate members and are useful for developing contacts and expertise. To find them, type, for example, “Iowa automobile dealers” into any good Internet search engine. Attend meetings to get to know dealers and build their comfort level with you as well as your own knowledge of industry issues, Downey recommends. Two more great places to see and be seen are the National Automobile Dealers Association (NADA) and AICPA conferences. Establish a reputation. Offer to speak to dealer associations on technical subjects; for example, you might give an annual tax update. CADCA maintains a speakers bureau. You can also 
Teach. Dealer associations offer staff training, and becoming an instructor in one or more of these programs increases your visibility. Not only do you get to know influential insiders, you showcase your expertise. Several times a year, Cumberworth speaks to dealer associations on topics such as tax updates and internal controls. He also teaches the tax training the CPA Car Dealer Association offers to non-CPA dealership managers.
Send a newsletter to clients and potential clients. Cumberworth gets his name in front of existing and prospective clients by sending a packaged newsletter, The Auto Focus, to car dealers in his area. TENDING THE NICHE
Relationships are the key to developing business. Gammon recommends regularly telephoning and stopping by to see how clients are doing (at no charge, of course). Inquire about their families. Ask how business is. Share industry news. Say, “I heard this great idea at a conference, did you hear about it?” Keep clients aware of you as a resource for information and solutions, she says. Other points to consider about a dealership specialty are The range. The biggest clients have yearly revenues at the $200 million level or greater. Dealerships larger than that generally have in-house CPAs, and the largest publicly traded ones get their audits done by the biggest accounting firms. The smallest dealerships are not ideal prospects, some sources say. They may not have enough staff to maintain good records, need too much client education and have problems paying fees, Cumberworth adds. Dunsworth dismisses size as a criterion for selecting clients. She says: “There isn’t a dealership that can’t benefit from our firm’s services. Everybody needs something.” Cumberworth, who has grown his client list 33% in the past year and a half, sees “no natural limit on growth.” The seasonal workload. Most car manufacturers have a December 31 yearend, so most dealers—as franchisees—do, too. “Their monthly reports to manufacturers have to be in Detroit (or Kyoto, or Stuttgart or wherever) by the 10th of the next month,” Weinhold says. Auto dealership taxes must be filed by March 15, which makes for a concentrated tax season. “We start overtime on January 10,” says Weinhold. Downey offers his staff four-day workweeks in July and August as recompense for tax season overtime and to adjust staff levels to the needs of the business. He checks his voice mail on Fridays when the office is closed and can handle most of what crops up with a phone call from home. Staffing. Opinions differ on how important it is to hire CPAs with experience: Downey and Weinhold estimate an experienced tax preparer will need about two seasons to get familiar with dealer returns. Downey says in-house accountants may lack the “big picture” orientation so valuable in public practice. Gammon and Weinhold, who both worked in dealerships, feel they gained familiarity with the culture that has been invaluable. One spot to look for talent, Weinhold says, is where Dealer A has bought Dealer B and has taken over the accounting functions, leaving Dealer B’s in-house CPA looking for new opportunities. Referrals. Ask for referrals. Dealers who become dissatisfied with their current CPA ask other dealers for referrals. They are open about recommending CPAs they’re happy with, Downey says. They are more likely to feel comfortable with a person who projects a relaxed image. Consortia. In recent years some CPA firms have organized car industry consortia (alliances) which offer support and referrals. Among them are Auto Team America and Driving Force Auto Dealer Consulting Group. They maintain customer-oriented Web sites. CAUTION SIGNS
Experienced practitioners offer these guidelines: Never pretend. The worst thing you can do is pretend to understand the auto business if you don’t—car dealers are attuned to whether advisers are informed. A CPA specializing in this industry should know just as much as a key dealership manager or CFO does. For example, to address concerns about technician productivity, know the common factors that are likely to throw it off. | Dealer Lingo
A floored car? No, not an amazed automobile, but one that’s sitting there in the store (not dealership) costing the owner interest, which is payable to the factory (not manufacturer). That vehicle (better get used to calling it a unit ) is generating red ink in the front end of the business, but in a healthy operation the back end is covering a high percentage of the business’s fixed costs. The health of the front end is boosted, however, by good performance from F&I. Fenders and ignitions? Nope: finance and insurance. Someone looking to take over a store (it’s almost always someone who’s been a general manager for years) doesn’t buy the place; he or she (usually he) buys in. | | Never ignore the office manager. It’s a big mistake, Gammon says, to give short shrift to the office manager (also known as the business manager, accounting manager, controller or CFO, depending on the business). The dealer hires and pays the CPA, but the office manager is the one who’s going to tell you everything—or not. You want to feel sure that he or she will share information with you. Gammon recommends basics such as taking them to lunch (and picking their brains) and remembering them at the holidays. Stay alert about consolidations. Consolidations swept the industry in the ’90s and then stalled. Some sources worry that if dealership consolidations pick up again it will diminish the need for CPA services. Weinhold has coped by bringing in consolidator clients. Watch out for curves ahead. Some industry watchers are concerned the market will wither if direct Internet car sales take off, but manufacturers have experimented with direct sales without much success so far. Dunsworth isn’t worried and says, “Building cars is one business; selling them is another.” There would have to be major changes to state franchising laws before manufacturers could engage in direct selling in any big way. Deb Gammon would feel a serious loss if that were to happen. “I love working with cars; I can’t imagine doing anything else,” she says.
Getting Up To Speed
C PAs can learn about working with automotive industry retailers by talking to other CPAs who are active in the field. Also talk to auto dealership office managers; attend conferences for CPAs that serve this niche; join auto dealer associations (local, regional, state and national) and attend their conferences and meetings; join CPA associations that focus on this practice area; read industry periodicals. Some CPAs attend training designed for people who work in dealerships, such as warranty and inventory managers. Specific resources include 
ADP’s Dealer Services Group’s Advanced Consulting class. Three days on analysis of key standard reports, creation of custom reports and the downloading of data to PC files. Visit www.DealerSuite.com and select Business Services for more information.
AICPA Audit and Accounting Guides. This set contains guidance on audits in specific industries, including dealerships. Also available in a one-volume deskbook version. To order, visit www.cpa2biz.com .
AICPA’s Auto Dealerships—Audit Risk Alert 2001/ 2002. Helps auditors to identify the significant business risks that may result in the material misstatements of clients’ financial statements. Paperback.
AICPA Auto Dealership Conference. The next of these annual conferences is scheduled for October 2002, offering updates on industry trends, tax trends, other regulatory issues (FTC, OSHA, EPA, DOT, etc.), auditing issues and marketing. For details visit www.cpa2biz.com .
Automotive News magazine from Crains Communications Inc. For samples and subscription info, visit www.autonews.com . Crains also publishes the more breezy Auto Week; samples and further info are at www.autoweek.com .
CPA Auto Dealer Consultants Association (CADCA). A national association of CPA firms providing financial and consulting services to auto dealers. Visit www.autodealercpas.com for news, a hot line, speakers bureau and a searchable registry of members.
Dealer Magazine. Available online at www.theautochannel.com . Provides daily news updates.
National Automobile Dealers Association. Visit www.nada.org for extensive information about the industry and current issues affecting it. NADA’s site (pronounced “NAY-da”) includes a store that offers publications on dealer tax and accounting issues, such as tax treatment of demo and other business-use vehicles, and Lifo. NADA has an Automotive Education Center at Northwood University, Midland, Michigan, and publishes Dealer Executive magazine.
NADA Conference. An annual event usually held during tax season, which is not a great fit for CPAs. Experienced practitioners say attending it is well worth the effort. The conference offers 75-minute classes, many networking opportunities and opportunities to meet with vendors and see their products.
At www.eautolearning.com , Dixon Odom University’s School of Automotive Accounting offers online learning courses that count toward certain CPA continuing education requirements. Details: 1-888-366-6101. Dixon Odom PLLC, CPAs and consultants, has hundreds of dealership clients.
PPC’s Guide to Dealerships. Covers accounting, auditing, compilation and review, tax and valuation services for dealerships; includes a chapter on management consulting for dealerships. It’s available in two loose-leaf volumes, or on CD-ROM; for details visit www.PPCnet.com .
State, regional, and local automobile dealers associations. CPAs are commonly allowed to join as associate members. These associations offer conferences and meetings; in addition to attending classes and networking at meetings, CPAs can gain visibility by offering seminars themselves at these events. To locate appropriate state, regional and local associations, ask a dealer, do a Web search or consult a business librarian.
The Auto Focus. A newsletter that CPAs send to clients and prospective clients. Contact: Pencor LLC, Chicago; 1-800-869-0491.
Ward’s Auto World. Covers the entire auto industry. There’s also Ward’s Dealer Business, a leading journal that’s relied on by professionals throughout the industry. Visit www.WardsAuto.com .
For a great list of links to automotive Web sites, visit www.capitalautomotive.com . Includes links to directories of auto dealers. | |
