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CF revises its new 'Reserve Account' payment policy

November 15, 2010

By Ray Scarpelli Sr., Metro Chicago NADA Director

When Chrysler Financial (CF) exited the floor plan market, many Chrysler dealers had to find a new floor plan finance source. At the same time, CF sent Chrysler dealers (including those not floored with CF) demands for sizable payments to fund a "Reserve Account" to cover certain contingent chargeback obligations related to outstanding retail paper purchased by CF.

Unless dealers made these payments, CF refused to terminate the Uniform Commercial Code (UCC) financing statements. Chrysler dealers had numerous concerns about these payments, but in many cases, they felt constrained to pay them as they generally could not obtain alternate floor plan financing without the release of the UCC liens.

After receiving dealer complaints about the policy, NADA Regulatory Affairs carefully analyzed the relevant documents and identified several legal concerns relating to the payment demand and the basis for the payment calculation. NADA outlined these concerns in a detailed, strongly worded letter to CF and in communications to the Presidential Auto Task Force. 

While continuing to defend the legal sufficiency of its Reserve Account payment policy, CF responded by announcing a major policy change that took effect immediately. In short, Chrysler dealers now have two options: (1) they can still make a one-time (substantially lower) payment to settle all such contingent liabilities, or (2) they can continue to pay the chargeback liabilities on a monthly "pay-as-you-go" basis. 

Importantly, CF has confirmed that, under either option, CF will terminate the UCC filings upon payment of the dealer’s outstanding loans with CF. Dealers who already had paid under the original program will be able to make the same choice and obtain any refund in the difference of the amount due.

The NADA would like to acknowledge NADA Director and Chrysler Industry Relations Chairman Chuck Eddy, several other dealers, and ATAEs for their input and assistance with this issue.

The NADA has communicated the policy revision to Chrysler dealers.

Text with caution

With the use of texting soaring, the popularity of this communication tool may invite scrutiny from regulators. So, before texting, dealers need to consider the applicable federal regulations.

A text message can be deemed a phone call, an e-mail, or both under federal law. The Federal Communications Commission considers texts to be phone calls under the Telephone Consumer Protection Act. That means you can’t send a text "solicitation" to a phone number on your company-specific "do not call" (DNC) list or to one on the national DNC list (subject to the "established business relationship" and other exceptions).

Also, you can’t send any text to a cell phone number when using an "automated dialer system"—regardless of the nature or whether it’s on a DNC list—unless you have the person’s "prior express consent." That means any messages sent via computer—even if service reminders or communications with current customers—are prohibited unless dealers have the recipient’s consent.

Likewise, a text sent as e-mail—sent to an Internet domain with the "@" symbol—is subject to CAN-SPAM rules, which prohibit the sending of any commercial e-mail messages to wireless devices unless dealers have "express prior authorization."  In some cases, text messages fall into both categories and are subject to both sets of regulations. For more on how to comply, visit www.nada.org/regulations 

In other legislative and regulatory news . . .

Many dealers have asked how they should treat "clunkers" credits. The CARS act doesn’t specify the tax treatment of "clunkers," but the Internal Revenue Service now weighs in.

In a recent automotive alert, the IRS states that under CARS, the credit is not taxable as income to the car buyer. The law does not address the taxability of the credit to dealers or the deductibility of any expenses incurred by participating dealerships.

In general, credits are part of dealers’ gross receipts and counted as income in the year the vehicle is sold. Dealerships are allowed to offset gross income by the cost of goods sold. The IRS urges dealers to maintain proper records of CARS-related transactions, including any expenses incurred. For more info, visit www.nada.org/regulations 

The IRS is urging dealers to post flyers about the sales and excise tax deduction, pushed for by dealers and included in the American Recovery and Reinvestment Act (ARRA) earlier this year. The agency suggests posting flyers in high-customer-traffic areas of their stores.

The deduction applies to sales and excise taxes on the purchase of new vehicles bought through Dec. 31, 2009; buyers can deduct these on their 2009 returns. New-vehicle buyers in states that lack sales taxes have other means of obtaining the deduction.

For more information and to download a copy of the flyer, go to http://www.nada.org/legislativeaffairs/tax/auto-sales-tax-deduction/StimulusLaw.htm 

In NADA news . . .

Recent events in the automotive industry—the bankruptcies, CARS, credit crisis, challenges to state franchise law, and more—illustrate more than ever the importance of the NADA’s proactive engagement in forcefully communicating dealer views and concerns to all branches of the federal government, to manufacturers, and to the public.

This core mission of NADA is proven out minute-by-minute in today’s volatile industry. The NADA’s effectiveness in protecting and enhancing the franchise system starts with you—the dealer. To learn more about the value proposition you cannot afford to be without, contact the Membership Department at (703) 821-7113 or visit www.nada.org/membership.

 

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