The Iowa legislature recently enacted the Business Property Tax Credit. The credit will allow commercial-property owners to cut down on the property taxes in 2013 that will be payable in the fall of 2014 or the spring of 2015. This credit will apply to certain commercial, industrial, and railroad properties. It will not apply to properties such as agricultural property, residential property, property that is rented or leased under low-income housing, mobile home parks, nursing homes, or manufactured home communities.
The credit is designed to help small businesses in Iowa, but large businesses can take advantage of the credit up to a certain amount as well. The Iowa Legislature saw high commercial property taxes as a factor that decreases business growth and new job creation. Their hope is that by giving businesses this credit, it will also give local economies a boost. The Legislature estimates that the credit will about $523.
You must apply for the Iowa Business Property Tax Credit by January 15, 2014. Check out www.iowa.gov/tax/locgov/13PTReform.html to apply for the credit. You can also find more information here: http://www.iowa.gov/tax/locgov/BPTCInstructions.pdf. If you have questions about how the credit will affect your business or how you should apply for this credit, contact Arenson Law Group, PC at 319-363-8199 today, and will be happy to discuss the new credit with you.
NADA recently completed its research project regarding factory facilities programs, and, using a case study approach, it reconfirmed many of the findings of Phase 1. However, Phase 2 also focused on “the dealership of the future.” It outlined the historical progression of the modern dealership and made several suggestions for OEMs and dealerships moving forward.
A Quick Overview of Phase 1
Phase 1 included 75 brief interviews with OEMs, dealers, and some industry experts. Perhaps the most significant finding that Phase 1 concluded was that there is no real way to link facility upgrades and customer shopping behavior. While one would assume that having a nice facility would increase sales, there is no hard data to support this assumption. Glenn A. Mercer, author of the NADA reports, explains, “We cannot say, with any conviction that a showroom that has gone 10 years since an upgrade will draw fewer customers and sales that one that was redone 5 years ago, and if we think it does draw more customers, we cannot say how many.”
Phase 1 explained the three types of investments. Expansion involves a physical expansion, including, for example, the entire store, show room, or repair bays. Modernization requires upgrading the dealership’s interior to comply with modern standards. The most contested, however, is standardization. Standardization involves changes, which can occasionally be major, to ensure that the dealership looks similar to all of the other dealerships of the same brand. Mercer sums up Phase 1 for us in one sentence: “Renovating a dilapidated store pays off, and while one should not expect much of a return from maintenance spending, service expansion can pay off well, whereas modernization investments tend to depend on how much assistance the OEM offers, and standardization spending is almost always a pure deadweight loss.”
Phase 2: Reinforcing Phase I
Phase 2 involved 35 in-depth interviews with dealers and experts, which is a much smaller sample size than Phase 1. Some dealers shared exactly how much the OEM required them to invest and explained what kind of return that investment generated, if any. While the information is helpful, the entire report urges the reader to refrain from generalizing from their case-study approach. For example, the report lists several dealerships that showed no change in sales from significant investments, but also lists a few that showed improvement in sales. The report groups them by type, including, rural domestic, urban domestic, urban Asian, and public chain, just to name a few. Results vary significantly even within these groups. What works for one type of dealership may not work for another. For example, one dealer points out, “In a rural area, the pace of lie if a bit slower, and so I see much less return on things like quick-service lanes, waiting-area Wi-Fi, etc. But perhaps that will change.”
One OEM shared some details about their image program, and the report outlines that data. This OEM, whose name was not disclosed, explained that customer satisfaction generally increased after the dealer completed the program. Since this OEM focused on expansion, not just modernization, growth goals were consistently obtained. This OEM explained that while absolute dollars went up following the program, the profitability percentages did not increase significantly. However, over time those percentages have had a tendency to increase. Overall, then, the results are positive for this brand, but increasing the return percentages takes some time.
The case studies in Phase 2 reinforce what Phase 1 had already told us: There are generally disappointing returns on investments for imaging programs. Phase 2 explains the two exceptions, however. The first is where the dealership was in serious disrepair before the imaging program: When the dilapidated dealership is modernized and expanded, then there are generally positive results. The second exception involves expanding the service areas. This exception is likely the result of the relatively low cost of adding an additional service bay and the higher profit margins on parts and labor.
Phase 2: Focusing on the Future
Phase 1 discussed the dealership of the future in general terms, but Phase 2 dives in to consider the changing environment of automotive dealerships. Phase 2 explains that dealers are concerned that the current imaging programs are developing dealerships of today instead of investing in the dealerships of the future. Phase 2 points out that dealerships of today are highly regulated, and involve “planning guides that go right down to the level of furniture design, floor tile and carpet specification, and even the look of stationery, landscaping, and bathroom fixtures.”
Any focus on growth, the report explains, is more on the online dealership of the future instead of the physical dealership. Generally, the plans for the physical dealership only extend five or ten years. After outlining the development of the auto-dealer industry as a whole, the NADA report makes modest recommendations, instead of dramatic industry overhauls. The NADA report suggests that dealerships should be on the lookout for the following trends:
1. Rising Customer Expectations: Dealership design needs to be flexible enough to adapt to constantly changing expectations. The ability to change the dealership quickly and at low cost will be extremely important.
2. Personalization of Shopping Experience: The process of buying a car, not just the vehicle itself, needs to be personalized. Some segments of the sales processes could be streamlined to fit a younger and more technologically savvy audience.
3. Customers Seeking an Easier Experience: Consider all of your options for making the buying process more convenient for your customer. The NADA report states that 100% home delivery is not out of the question.
4. Technology May Displace Physical Assets: As technology increases and becomes more required than optional, dealership inventory may sharply decrease. Always consider your expansion requirements with technology changes in mind.
5. The Internet Increases the Manufacturer’s Ability to Reach Customers: Dealers may need to get creative to compete with their own OEM’s online presence. This can take place online, but may also mean that dealers should physically get in front of their customers; think shopping malls and demonstrator outlets.
6. The Total Ownership Experience: As vehicles tend to have many of the same features, customers are looking at other things that may set the vehicle apart, such as the dealership itself and service packages. Creating a strong image and support mechanisms for your customer will be essential.
7. Change Is Fast: Overall, dealers should keep in mind that changes in our technology-driven society today are happening much faster than historical changes. Dealers need to be able to not only adapt, but also adapt much more quickly than previous decades.
The Phase 2 report also urges dealers to take lessons from Apple. First, the Apple stores are not very standardized on the outside, and only slightly more so on the inside. They have a low cost interior that is extremely flexible. Apple stores are, by design, always crowded; something that a large showroom may not be able to achieve. To the average consumer, a crowed store shows that the brand is popular and reassures them that they have made the right purchasing choice. Lastly, the Phase 2 report invites dealers to consider the Tesla stores, which are on high-traffic, high-cost urban real estate with service facilities located off-sight.
Overall, Phase 2 confirms Phase 1, and urges dealers and OEMs to be creative and forward-thinking in their requirements. To see both reports visit the NADA website here. If you have further questions on how this report and its predictions may impact the legal requirements for your dealership, contact Arenson Law Group, PC, at 319-363-8199, and we will be happy to discuss your legal needs.
Under Iowa law, a court can order the dissolution of a corporation if the minority shareholder can prove oppression. If the company dissolves, the minority shareholder will receive their appropriate share of the company’s assets. In addition, the Iowa Business Corporation Act (“IBCA”) provides a similar statutory remedy for oppression, but also allows the majority shareholders to purchase shares instead of dissolving the company in its entirety. However, Iowa law did not define “oppression” until Baur v. Baur Farms, which was decided on June 14.
The Court held, “majority shareholders act oppressively when, having the corporate financial resources to do so, they fail to satisfy the reasonable expectations of a minority shareholder by paying no return on shareholder equity while declining the minority shareholder’s repeated offers to sell shares for fair value.” In this holding, the Iowa Supreme Court provided an expansive definition of oppression based on reasonable expectations. The Court will determine whether a minority shareholder is being oppressed by considering the minority shareholder’s “reasonable expectations” regarding return on their investment. Additionally, the Court will also consider all of the circumstances of the business before determining whether there is oppression.
In Baur, the minority shareholder could sell his shares to a third party, but he first had to offer his shares to the other shareholders, and they could purchase the shares at fair value. This provision is somewhat common in closely-held corporations, including some auto dealership corporations. However, the majority shareholder refused to buy the shares at reasonable value and refused to pay any dividends to the minority shareholder. As a typical minority shareholder, he had little market outside of the corporation.
The bylaws in Baur provided a method for calculating the “fair value” of the shares, but the company failed to update those numbers since 1984. Since the value of the corporation’s assets skyrocketed, if the minority shareholder sold his shares at the 1984 price, then he would be selling them at a significantly reduced value. Importantly, the Court made it clear that if the “fair value” had been computed properly, then the written agreement would have been upheld. Therefore, if the written contract is reasonable, then it will be upheld.
Baur provides two major lessons to closely held corporations, including auto dealership corporations. First, majority shareholders should take an objective look at how they are interacting with their minority shareholders. A majority shareholder’s actions should be within the Baur standards. If you are concerned that your actions might fall into the Court’s definition of oppression, then you should speak to an experienced business and auto dealer attorney.
This case also illustrates that the bylaws of closely held corporations may need to include provisions that realistically address adjustments to corporate control and shareholder buyouts. The Baur family would have saved time and money with a well-developed set of bylaws. Since the Court will generally uphold written agreements, you should have an attorney examine your corporation’s bylaws if you are concerned about future corporate governance. Contact experienced auto dealer counsel to discuss what this case means to your closely held corporation.