Proposing tax on wholesale vehicle purchases

September 23, 2009

What would you think about proposed legislation whereby the government taxes dealers $500 on the wholesale purchase of all used vehicles whether they are at the point of appraisal or wholesale acquisition? Would you agree that such a measure would discourage dealers from trading and buying vehicles? Would you also agree that it would make such vehicles harder to sell as they would have to try to pass the additional $500 wholesale tax amount on to the customer or alternatively, absorb it in the deal? Would this reduce the number of used retail transactions? Suppose further that this tax was levied only on some used car dealers, but not on others. Would this create an undue burden for some, an unfair advantage for others?

Well, the good news is that no such government tax is being proposed, at least at this point. However, dealer packs are an equivalent to a tax and therefore, produce each of the undesirable results described above. Now, you may initially disagree to the extent that the amount of the pack tax goes into the dealerships treasury rather than the government’s coiffeurs. But you shouldn’t be so quick to conclude that the effect is any different on managers who are charged with the tasks of purchasing, appraising and selling these vehicles. Often these individuals don’t benefit from the tax-pack levy and consequently the effect on them is no different than the government tax.

As wholesale prices rise and competitive pressures mount, our industry is really beginning to feel the consequences of their tax packs. All too frequently I hear from buyers that they can not justify paying what cars are bringing at the auction. Implicit in their conclusion is the amount of the pack being imposed on the vehicle.

To this extent, I’m beginning to see dealers reduce and in some cases eliminate all packs. After all, packs served only one of two purposes. Either they reduce the amount of commission paid and/or they allow us to fool ourselves about our true cost of ownership so that we could in turn pass it on to the customer who likely doesn’t know better. The problem today is that customers aren’t fooled easily. Consequently, it is only the managers that are responsible for appraising and purchasing that are fooled with respect to their true cost of ownership. Does this make sense any longer?

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