Dealers Must Make Decisions to Protect Participation Program Tax Losses

Protective Asset Protection, a provider of F&I programs, services, and dealer-owned warranty programs, announced today results of a recent survey it commissioned to gauge the pulse of owners of today’s largest automotive dealers on issues ranging from F&I product performance in 2018 to their awareness of the changing tax law on participation programs.

When President Trump signed into law his Tax Cuts and Jobs Act for 2018, he also affected the profitability of dealer participation programs.  Under the new tax law, auto dealerships have just a few months before having to make initial decisions on passive foreign income in connection with non-controlled foreign corporations (NCFCs). According to the survey recently concluded by Protective, 43% of dealer executives are unaware of how the new tax laws are affecting accounting for NCFC business structures, and another 46% are unsure how it will be affected.

This is important since, according to the survey, approximately 53% of dealer executives said they utilize an NCFC as a participation program. Many dealer groups participate in NCFCs as a way to defer tax liability and participate in underwriting results.

“Having worked with NCFCs myself for many years, I fully understand why dealers often chose this structure,” said Matt Gibson, Vice President for Protective Asset Protection. “However, the new tax law certainly creates uncertainty about the future of NCFCs. With other options available to dealers, now appears to be the time to look at alternatives, whether that be a retro, CFC or the DOWC.  With a number of alternative dealer participation programs available, there is no need for dealers to gamble on uncertainty.”

There is also a lot at stake financially. According to the survey, 33% of dealer executives said the annual premiums of the F&I products they sell are valued between $500,000 - $1 million.

ABOUT PROTECTIVE ASSET PROTECTION

Protective Asset Protection provides vehicle protection plans, GAP, and credit insurance through vehicle dealerships. Protective Asset Protection has been serving dealers for more than 55 years and currently provides products and services to automobile, marine, RV and powersports dealers. Protective Asset Protection is part of the financial services holding company, Protective Life Corporation. For more information about Protective Asset Protection call 800-323-5771, or visit www.ProtectiveAssetProtection.com.

ABOUT PROTECTIVE LIFE CORPORATION

Protective Life Corporation provides financial services through the production, distribution and administration of insurance and investment products throughout the U.S. The flagship subsidiary, Protective Life Insurance Company, was founded in 1907. Protective’s home office is located in Birmingham, Alabama. As of December 31, 2017 the Company had assets of approximately $79.6 billion. Protective Life Corporation is a wholly owned subsidiary of Dai-ichi Life Holdings, Inc. (TSE:8750). For more information about Protective, please visit www.Protective.com.