The new year is approaching, and with it the changeover to a new federal administration. Re-examination of the legal landscape and related tax implications is in order, including both fundamental automotive regulations as well as finance and insurance laws.

The year 2020 was unlike any in modern history. Disruptions to social, economic, and legal norms, caused by the COVID-19 pandemic, have shaken many institutions to the core. Within the automotive industry, challenges were met with resilience and an impressive rebound despite ongoing supply disruption, inventory shortages, and retail restrictions.

In an era of fluctuating interest rates, continued tariffs, trade war ramifications such as the unresolved dispute with China, and ever-changing statutory requirements, automotive dealers have a great deal to contend with in addition to keeping sales moving. Changes in the automotive space and related industries, combined with increased regulatory scrutiny and continued developments in trade and M&A, forced dealers to face several unique challenges this year, particularly as online retailing becomes dominant. As the new year approaches, a re-examination of the legal landscape and related tax implications is in order.

Review and analysis of not only fundamental automotive regulations but also finance and insurance laws are highly recommended. It is vital to keep these key points in mind:

  • While various overarching federal laws govern aspects of the sale of F&I products, most products are subject to the statutory framework in place in each state.
  • Regulators and policymakers seek to ensure a competitive and fair market that is first and foremost protective of consumers. As a result, disclosure and financial security requirements are ripe for action by the legislature and may be pitfalls for dealers who are unaware of changes.
  • Dealers should leverage the many resources available to them to ensure continued compliance. An F&I administrator with regulatory and tax counsel should be able to provide guidance; first-hand education is available through many dealer associations. 

As we enter 2021, conscientious risk and wealth management are also essential for the success of dealers. Familiarity with the broader tax changes affecting the industry, particularly with the incoming Biden administration that may enact policies quite different to those currently in place, will allow for informed decisions about participation in the F&I segment of the business.

In recent years, the Federal Tax Cuts and Jobs Act prompted many car dealers to consider the formation of a domestic c-corporation (a dealer-owned warranty company) to serve as the provider of their F&I products as a means of shifting away from the uncertain future tax implications of operating as a non-controlled foreign corporation and insulating themselves from newly mandated disclosures required from controlled foreign corporation owners. The tax structure and benefits afforded a dealer-owned warranty company effectively meet the wealth-building needs of dealers while satisfying regulatory compliance concerns. 

Dealers who have not explored or transitioned to this structure over the last 12 months will find it beneficial to do so prior to year-end to ensure enough time for discussion of tax benefits, formation, and registration of the entity, and to ensure all regulatory requirements are met. In fact, more than 30 tax breaks that Congress has permitted to regularly expire and then renew are currently set to expire at the end of 2020, including individual, business, and energy tax breaks. There is great profit potential and risk mitigation opportunity with a dealer-owned warranty company structure. 

That said, the dealer is the true owner and operator of the company and is responsible for compliance with all applicable laws as the provider of its F&I products. As a result, it is recommended that dealers work with a trusted DOWC administrator who has knowledgeable legal and tax departments to ensure the most prudent and effective administration as allowable by law, and protection of the benefits achieved through the structure.

 

Edvie Castro, General Counsel of Dealer Owned Warranty Company, is a dynamic leader in the automotive industry, operationalizing the DOWC® vision and driving the business forward daily. Her handling of regulatory and compliance matters earned her a nomination from NJ Biz for 2020 General Counsel of the Year. DOWC is among the fastest-growing service contract providers and administrators in the U.S., offering customizable F&I products and expertise in compliance as well as a full suite of technology designed to optimize productivity and expedite claims adjustments, processing, and reporting.

 

You’ve likely seen the term DOWC (a safe bet since you’ve landed on our website!), but you may not be entirely sure what irefers toHere’s an overview that you won’t want to miss because understanding what a DOWC is and how it functions may be a direct route to greater wealth for your dealership. 

 

Who is DOWC? 

We are DOWC®a leading provider and administrator of F&I products and servicesFounded by Michael LaMotta, DOWC is a family-owned company that combines more than 30 years of automotive industry experience with cutting-edge digital process automation. We deliver a full suite of F&I purchase and protection products and solutions to dealers and their customers.  

 

What is a DOWC? 

A dealer-owned warranty company (DOWC) is a unique structure that brings the tax advantages of the insurance industry to automotive F&I, creating a true wealth-building opportunity for dealers. 

 

At DOWC, we help dealers create their own DOWC (see what we did there?) to gain significant tax benefits and additional advantages that help optimize their F&I program. 

With a dealerowned warranty company, a dealer forms a separate C-corporation that controls the entire service contract transaction and all funds, including investments. This new entity becomes the provider of the contracts, providing an alternative to using a third-party to hold reservesand is treated as an insurance company for tax purposes. 

While it may seem a complicated endeavor, its benefits can be outlined in simple terms. And with the correct administration, a DOWC formation is actually very easy to manage and, most importantly, prosper from. Consider these key benefits: 

  • The tax-deferred nature of a DOWC allows the dealer to take advantage of the same tax laws that insurance companies have been operating under for decades.

     

  • Essentially, the company has no taxable income for an extended period of time as a result of numerous expenses: administration and acquisition costs in the current tax year; net operating losses are carried forward.

     

  • Dealers who switch to a DOWC structure are now filing the same tax returns as Property & Insurance companies, which account for the tax deferral created by the compounding net operating losses (NOLs). 

It’s easy to understand why making the switch can seem intimidating. Some dealers may not understand what a dealer-owned warranty company is or how it functions. Or they may find it scary to shift gears after many years in a more traditional reinsurance structure or limited participation with a guaranteed retro agreement. But the time is now to explore the advantages and opportunities for wealth-enhancement that are readily available to all. 

 

Why DOWC? 

Under a traditional service contract transaction model, a significant portion of the profit is held by a third party that controls the funds to its own benefit. (Why is that a good idea?!) 

The DOWC structure proves there’s a better way: 

  • When a DOWC serves as its provider, the dealer immediately has 100% control over their F&I program, including rates, coverages, and marketing materials, as well as the company name. In addition to increasing profit potential on F&I sales, the ability to customize their F&I offerings means a dealer can build a portfolio of products that caters to a variety of vehicles and consumer needs.

     

  • Underwriting profits and investment income are retained solely by the dealer’s DOWC. Compare this to other structures where premiums may be exempt from tax, but investment income returns are taxed at normal corporate rates. 

     

  • A DOWC is not the same as an NCFC or CFC — it is not a foreign company at all. The structure allows dealers to stay onshore and benefit from domestic formation, as opposed to having to maintain foreign companies and being forced to invest with money managers preferred by an administrator. This can provide significant cash flow and a dealer can also borrow for virtually any purpose. 

So, why a DOWC? The better question may be why not? 

And why choose DOWC® as a partner? Because we’re the only company in the market that combines the advantage of the DOWC structure with real access to cash. We bring the business of dealerowned warranty products customizable and compliant F&I products that can be used to your advantage – to dealers on a large scale, along with personalized service and real wealth-building power.  

 

When it comes to partnering with dealers, we provide assistance during the formation and implementation of their dealer-owned warranty company, as well as regular performance monitoring as a trusted administrator.  

DOWC: It’s our name. It’s what we do. Contact us today to learn more and take the first step on the path to greater control and greater wealth. 

Auto retailing is retailing, period. Once the pandemic hit, online shopping went through the roof for industries far beyond clothing and groceries. Auto sales made a dramatic shift while dealerships were shuttered during lockdowns across the country and shoppers turned to the internet in droves. According to a recent survey*, 60% of respondents indicated they were open to buying a car online while just 32% were willing to do so before the COVID-19 pandemic. 

Has this shift meant a magical transition to seamless digital sales across the industry? Certainly not. But the trend is moving in the right direction with more retailers shaping their strategies to move from simply using the internet as a tool to bring people into the dealership to truly offering a comprehensive virtual sales experience. In this moment of seismic change in the retail environment, it’s critical to understand that brick-and-mortar days aren’t necessarily over – but to stay relevant and competitive, physical dealerships require expansion to include a digital storefront as well. 

This expansion has to include evolution in online F&I presentation to ensure customers are being offered a full range of services and that the full scope of revenue opportunity is being captured. Unfortunately, it took COVID-19 to bring us to the inevitable, but here we are. Taking an entrepreneurial approach, and following the example of those who are leading the charge, is a great place to start. 

Now is the perfect time to: 

  • Evaluate your online capabilities. Do you have efficient and scalable e-commerce functionality? Do you have the staff or professional resources to build and manage your online offerings? 
  • Educate yourself on best practices. Make a careful study of your competitors or those in the industry that have successfully shifted to digital retailing. Carvana is one resounding example: They reported second-quarter revenues of $1.12 billion and nearly 56,000 units sold, an increase of 13% over 2019, with the number of cars sold up 25% year over year. What are they doing right and how can you translate some of their best practices to your structure? 
  • Partner wisely and train thoroughly. Invest in digital retail tools that are integrated with your CRM and website, and test for user experience improvements. Simplify and make the digital retail process consistent for all customers, providing sufficient training and documentation to your sales and BDC teams. 

While this evolution/revolution may be a dramatic change for your business, you don’t want to be left behind the pack that’s charging ahead in the digital race. You also don’t want to leave revenue on the table. Just as you wouldn’t finalize a sale without offering F&I options to a customer in person, you’ll want to integrate digitized menu selling seamlessly into your online offerings. Keeping in mind that in-house sales are not vanishing either, carrying this optimized customer experience into the back room is critical as well because these interactions will continue to be shaped by the need for a streamlined, efficient presentation to minimize time and contact. 

But in this area, it’s about much more than just automating the conversation around protection products, extensions, and add-ons. This is where harnessing the digital aspect of your platform can make an eye-popping difference.  

Look at some of the top digital retail solution providers in the industry for example. The F&I presentation software they offer have been adapted successfully by some of the largest and most prestigious automotive groups in the country because they go well beyond replicating the exact same presentation that a dealer may have been using for 20 years. These tools utilize big data and predictive analytics to create a tailored presentation based on the overall deal, vehicle, and financial situation for each customer. Pair power like that with a service contract provider and administrator committed to helping you build wealth through best-in-class F&I products and you’ll take your digital strategy way above the next level. 

Once you’ve hit all the marks in developing your online presence, amp up your marketing to make sure people know about it. Hit social media and make good use of customer data you already own to spread the word through email outreach or whatever works best for your brand.  

Online auto retailing is here, it’s vital, and it’s valuable. The best time to get started was yesterday. Don’t waste another minute. 

*https://dealers.cargurus.com/rs/611-AVR-738/images/June_Covid19-SurveyUS.pdf 

 

Michael LaMotta is CEO of Dealer Owned Warranty Company. He founded DOWC® with lessons learned from almost 30 years of automotive experience, many of which spent as a car dealer and almost a decade spent on F&I administration. DOWC is the fastest-growing service contract provider and administrator in the United States. DOWC offers customizable F&I products and expertise in compliance, as well as a full suite of technology designed to optimize productivity and expedite claims adjustments, processing, and reporting.   

 Story on AutoSuccess Online

In this webinar, you’ll learn more about the third-party industry currently taking advantage of your data and how you can take back control, directing sales right back to the products you sell. Leverage your own customer data to turn your F&I fails into F&I sales.

RINGWOOD, N.J. – 

For the second time this month, Dealer Owned Warranty Co. (DOWC) enhanced its menu of F&I products.

Coming on the heels of introducing NitroShield, a complete tire and wheel protection product, DOWC on Friday rolled out new 360Shield protection solutions enhanced with new antimicrobial products, providing improved vehicle protection.

The company highlighted the 360Shield antimicrobial protection treatment includes interior cleaning and protection processes for interior surfaces like the dashboard and seats, using an antimicrobial solution formulated to disinfect and prevent against mold, mildew, bacteria, and other microbes like the COVID-19 virus.

Additionally, DOWC emphasized that the 360Shield disinfecting air quality and odor treatment is designed to work in a vehicle’s hard-to-reach areas, like the climate control system, using a specialized thermal fogger. Suitable for use on both porous and non-porous surfaces, the 360Shield air treatment is available in mint-scented or fragrance-free solutions.

Both 360Shield treatments are formulated to kill surface germs, as well as inhibit the future growth of bacteria and microbes, according to DOWC.

“We are very excited about what our two new additions to 360Shield will provide to the auto industry, as restrictions are lifted and dealerships reopen,” DOWC founder Michael LaMotta said in a news release. “Improved safety at dealerships means improved safety for dealers, car shoppers, and ultimately, vehicle owners everywhere.”

DOWC emphasized 360Shield solutions have been enhanced to meet the highest industry standards for sterilization and provide long-lasting, quality protection. Providing antimicrobial protection, the company said both the 360Shield antimicrobial protection treatment and 360Shield disinfecting air quality and odor treatment can preserve the quality and safety of the vehicle’s interior for the warranty period.

The full suite of 360Shield protective products, which also includes PaintShield, WheelShield, GlassShield, InteriorShield, and BodyShield, is available to DOWC partner dealers and their customers.

All 360Shield treatments are backed by warranties that provide for the repair, repainting, or replacement of any covered parts.

For more information, visit www.dowc.com, call (201) 777-1000 or send a message to support@dowc.com.

Fast-growing F&I service provider and administrator well-positioned for increased presence

September 2, 2020 (RINGWOOD, NJ) — Dealer Owned Warranty Company (DOWC), a leading provider and administrator of F&I products and services, is proud to announce the appointment of industry veteran Gene Silas as Director of Sales.

Mr. Silas brings a wealth of experience and dealer relationships to his new role at DOWC. Following his service as a Marine, Silas entered the automotive space working his way through all positions in a dealership, eventually becoming the General Manager in several stores. Recognized for his talent, he was recruited as an F&I Specialist by one of the largest independent providers of F&I products in the industry. Over the next two decades, Silas excelled through the ranks from that initial role to District Manager and finally to Regional Manager. He was instrumental in establishing that organization’s Associate Development Program.

Following on that legacy of success, Silas was invited to join one of the largest automakers in the U.S. as an Area Manager, a role in which he successfully helped build the company’s service contract and ancillary business. Roles with a major parts, service, and customer care organization and as a dealership sales consultant followed. Joining DOWC in early 2020 was a natural progression for Silas. “I am blessed to have been first a Zone Manager and now Director of Sales with the most transparent dealer-centric F&I company in the industry,” Silas states with pride.

“We are excited to have such an experienced professional, and good friend, in this position,” stated Michael LaMotta, founder of DOWC. “Every interaction with Gene is a positive learning experience. He knows the industry inside and out, and his passion for the business is unmatched.”

As Director of Sales, Silas brings his deep knowledge of the industry and natural facility for mentorship to focus on development and training of the sales team. A well-timed appointment, Silas joins the organization as its exponential growth positions it for increased presence as a disruptor in the F&I industry.

Founded by LaMotta, DOWC is a family-owned company that combines more than 30 years of automotive industry experience with cutting-edge digital process automation. DOWC delivers a full suite of F&I purchase and protection products and solutions to dealers and their customers, with a dedicated mission to promote the sale of wealth-building products that increase the dealer’s revenue.

“With Gene at the helm of our Direct and Agent teams,” says LaMotta, “our dealers will receive the immediate benefit of service that is attentive, informed, and supercharged in their representation of the absolute best products and revolutionary wealth-building structures for automotive dealers of all sizes.”

About DOWC

DOWC® is among the fastest-growing service contract providers and administrators in the United States. DOWC offers customizable F&I products, expertise in compliance, and a full suite of technology designed to optimize productivity and expedite claims adjustments, processing, and reporting. For more information about DOWC, visit dowc.com, call 201-777-1000, or email support@dowc.com.