Chicago Automobile Trade Association
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CATA Bulletin
July 6, 2015

 

Auto sales set for big second half

July 3, 2015

After much better than expected sales in the first half of 2015, U.S. dealerships are poised to enjoy a very strong second half of the year. So strong, in fact, that analysts are starting to raise their estimates for full-year sales. 
"A couple of months ago we thought sales would start to level off and maybe pull back, but now we’ve changed our forecast," said Jeff Schuster, senior vice president of forecasting for the consulting firm LMC Automotive.
Schuster has raised his forecast for total U.S. auto sales this year by 75,000 vehicles to a new target of 17.1 million vehicles.
What’s behind the higher forecast? The relatively strong economy, low unemployment rate and still lingering pent-up demand because the average vehicle in the U.S. is more than 11 years old.
Schuster doesn’t see those factors changing anytime soon. In fact, he expects a sales rate of at least 17 million vehicles for every month the rest of this year.
"This current run of strong sales has some legs to it," said Schuster.
The National Auto Dealers Association agrees. Its new forecast for 2015 auto sales is up 230,000 vehicles over its previous target, to 17.17 million units. The NADA also believes the strong second half of the year will continue in 2016. It’s targeting annual sales next year of 17.62 million vehicles. 
If the two years combine for more than 34 million new-vehicle sales, it would be the strongest two-year period of auto sales since 2000 and 2001.
 
 

Chicago's minimum wage raised to $10/hour

July 3, 2015

The new Chicago minimum wage ordinance that took effect July 1 raised the minimum wage for all non-exempt employees at dealerships located within the Chicago city limits to $10.00 an hour. 
The hike is the first in what will be five annual increases in the minimum wage, culminating at $13.00 an hour beginning July 1, 2019. 
It is worth emphasizing that this increase applies to all non-exempt employees, such as clericals and service employees. It also applies to sales representatives — salespeople are exempt from overtime pay requirements but not from minimum wage requirements. 
Application of the minimum wage requirements to union-represented employees has been previously communicated to all impacted dealers. 
Questions regarding the application of this new law can be directed to the CATA’s employee relations counsel, Dave Radelet and his team at Franczek Radelet P. C., at (312) 786-6190 and dpr@franczek.com.
 
 

Auto loans near record numbers

July 3, 2015

With new-vehicle prices climbing to all-time highs, a record number of Americans are turning to leases in a bid to keep monthly payments as low as possible.
 
"The difference between a monthly payment for those leasing a new vehicle versus those who buy new is almost $100," said Melinda Zabritski, senior director of Experian Automotive. 
Officially, the latest report on automotive lending by Experian found the average new-vehicle lease monthly payment in the first quarter was $405 while the average monthly payment for a new-vehicle loan was $488.
In addition, while the average monthly payment for those buying a new vehicle increased $14, the average monthly payment for those leasing actually fell $7 compared to the same time last year.
The numbers help explain why Experian found an all-time high of 31 percent of new vehicles financed in the first quarter were leased. Just five years ago, Experian said, the percentage of new vehicles leased was 24 percent. 
"Leasing has become more popular because the price of vehicles continues to go up," Zabritski said. "Consumers are looking for lower monthly payments, which is why more of them are extending the terms of their loans." 
In the first quarter, the average length of new-vehicle loans hit an all-time high of 67 months, according to the report. Furthermore, a record 29.5 percent of those taking out a new-vehicle loan stretched their loans out between six and seven years, according to Experian. The report also found an 18.6 percent increase in those new vehicle loans with terms between 73 and 84 months. 
The primary factor driving the move to longer auto loans and more leasing is the rising cost of new cars, trucks and SUVs. 
With the average vehicle transaction price (what’s paid at a dealership) climbing above $31,000, according to numerous auto industry analysts, the amount consumers are financing has hit an all-time high, Experian said. 
In fact, the report found the average amount financed for a new-vehicle loan in the first quarter jumped more than $1,000 to a record high of $28,711. 
Experian reports that the average amount financed for a used vehicle bought in the first quarter was $18,218, an increase of almost $300. 
Despite the increase in new- and used-vehicle prices, the percentage of loans in delinquency or ending in default with the vehicle being repossessed has actually dropped in the last year. 
 
 

CPA firm develops Illinois sales tax checklist for dealerships

July 3, 2015

Vehicle dealerships face a broad range of compliance-related concerns associated with sales tax, particularly in the areas of vehicle sales and service department transactions. As many recent Illinois sales tax audits have shown, the potential sales tax liability for errors caused by incorrect or insufficient dealer practice and procedures can be astronomical.  
Proper sales and use tax compliance requires periodic checks to make sure that the dealership staff is compliant with current requirements and proper application of taxability and exemptions.  Michael Silver & Co., a Skokie-based CPA firm and a CATA allied member, has created a comprehensive and complimentary Vehicle Dealer’s Sales Tax Checklist that identifies and outlines the broad variety of areas that should be addressed. 
Many of the issues in the checklist have been subject to audit assessment and areas of focus by Illinois Revenue Department auditors. The checklist has been built from those audit experiences. The following are examples from the seven-page checklist:
 
New Method (use for qualified leases and qualified vehicles on or after Jan. 1, 2015)
 
• Selling price includes the down payment, all acquisition and lease fees, and the total amount of lease payments payable over the term of the lease.  Additionally, the selling price must include pre-paid warranty policies, negative equity from previous leases, and even the lessee reimbursement of lessor sales tax included in the monthly lease payment or at lease inception.  
 
• Select A on Line 7 of Form ST-556-LSE.
 
• Applies to leases with both (1) Fixed term lease contract for a period of more than one year; and (2) Qualified vehicles as defined as first division motor and second division vehicles with a gross vehicle weight rating of 8,000 pounds or less, which includes most automobiles, pick-up trucks, and SUVs along with certain vans, motorcycles, and recreational vehicles.
 
• No Trade-in credits allowed — including advance trade credits and third-party trade-ins.
 
• When vehicle is resold, no credit for sales taxes previously paid.
 
Repair Orders
 
For a Sublet repair (use of outside provider to perform the repair:
 
• Same as in-house repairs — parts are taxable, labor is not. If there is no breakdown on the vendor invoice, assume the parts are 50 percent of the cost.
 
• Provide the vendor with a resale certificate.
 
• Not optional to just pay tax to the sublet service provider.
 
To obtain a copy of the complete checklist, contact Judy Mason, a tax partner at Michael Silver & Co., at (847) 213-2075 or judym@msco.net.
 
 

Car buyers stay loyal to brands

July 3, 2015

About 53 percent of U.S. car buyers replaced their old car with a new car of the same brand throughout the first quarter of 2015, according to a study by IHS Automotive. Researchers say the increase in loyalty boils down to two main reasons: more models and an increase in leasing.
 
"The increased number of different models within brands makes it easier for households that may need a different type of vehicle to maintain their loyalty," says Tom Libby, manager of automotive loyalty and industry analysis at IHS Automotive, in a statement. "In addition, the increased popularity of leasing since the downturn has helped significantly as lessees are consistently more brand loyal compared to retail owners."
 
The number of different car models sold in the U.S. market has increased by 12 percent over the last 10 years, meaning car buyers have more choices from the same company when looking for a new set of wheels. Luxury brands have seen the most increase in model variety.
 
Vehicle leasing has grown from 14 percent of the market in 2005 to 22.5 percent this year.
 
When the number of car brands shrank during the recession, buyers were forced to turn to new brands. After several auto brands were discontinued, including Pontiac, Mercury and Saturn, car owners were forced to swap brands when it was time to purchase a new car.
 
The study also shows better quality has played a contributing factor. High expectations by car buyers for impressive new cars has forced automakers to put more effort into the quality of the car. Better cars means more loyal customers in the eyes of the buyer.
 
 

Congratulations! (July 6, 2015)

July 3, 2015

Gerald Subaru North Aurora, Gary Lang Subaru (McHenry), and Muller Subaru (Highland Park) are recipients of the 2015 Stellar Care Award, Subaru’s highest honor for its retailers.
 
Winners of Nissan’s 2015 "Award of Excellence" include Continental Nissan (Countryside), Glendale Nissan (Glendale Heights) and Al Piemonte Nissan (Melrose Park).
 
 
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