Tax refunds are the reason for the season
While the BHPH Tax Season has changed in recent years by becoming more compressed in duration, IRS tax refunds still account for up to 50 percent of dealer business in this market segment. And even though tax refunds have more than doubled in size for many Americans, competition for those refunds from all businesses has understandably increased as well.
The U.S. economy is strong. GDP has increased at 2 percent or more for the past three years. Unemployment at just 3.5 percent is at a 50-year low, and the lowest for women, Blacks, and Hispanics in many decades. Wages are on the rise. There will, however, be a never ending supply of consumers with serious credit challenges, that require the products and financial services of the BHPH to acquire affordable transportation to get them to those jobs and school.
The Tax Cut and Jobs Act of 2017 paved the way for a more generous Child Tax Credit from $1,000 to $2,000 per child under the age of 17, that leads to refunds of up to $1,400. The Earned Income Tax Credit was increased by up to $6,431, and income tax brackets are revised with lower rates for larger incomes ranges.
All this bodes well for the BHPH dealer, however the period in which those refunds arrive has been compressed dramatically by the PATH Act (Protecting Americans from Tax Hikes Act). Designed to prevent tax fraud and identity theft, the law dictates when refunds are sent out. Instead of the checks being delivered over weeks and months from January through April, they are compressed to a couple of weeks beginning Feb. 15. This year there are more reasons tax refunds will be delayed — smaller IRS staffing levels and administrative changes. In fact, consumers can’t even e-file their tax returns until January 27, 2020.
So How Do Dealers Prepare for Tax Season?
Get word out early. Use signage at the dealership, use social media and your website to draw attention to tax refunds. More and more subprime consumers are researching used cars online now so think about tapping into Facebook Marketplace or Google Adwords. Match the consumer’s down payment based on their refund or use other marketing methods to get those dollars coming to your dealership. Consider Tax Refund pull ahead programs that allow dealers to put a consumer in a vehicle well before refunds arrive, using the future refund as a part of the down payment. Look around. Businesses begin marketing for the Tax Refund dollars right as the new year arrives.
One thing dealers should not do is abandon the policies and procedures they use throughout the year that have made them successful. Don’t accept lower down payments. Make sure you adhere to policies for things like partial payments, asset recovery, and definitely use GPS tracking to monitor and protect your valuable collateral.
Manage Your Risk Like a Pro
In the BHPH business, there’s an old adage that if you repo a customer, he or she will go down the street and get funded by a competitor. The concern here is some dealers are okay with absorbing the costs of repossessions, reconditioning, and marketing vehicles over and over, but that typically produces a negative image of the dealership and creates ill-will in the community. The better move is to manage your risk. Here’s a few tips to consider when