Garry Bartecki TRUMP mandate. How will it affect your dealership?
Many of you probably had your 2025 plan in place before the election. If I had to guess, there is about a 50/50 split between those expecting higher taxes and regulation and those looking for lower taxes and less regulation. It seems like 50% got it right to some extent. Not bad.
Either way, it is time to zero in on planning for 25. This will not be easy because your options to improve your business are numerous and complicated, and in most cases, they require a budget line item you have not planned for up until now.
Not only do you have to study all of your options to ascertain their pros and cons, but you also have to be able to convey how these options benefit customers. This is not easy because 2025 is upon us, whether you are ready or not.
Hopefully, many of you hold frequent management meetings, 20-group meetings, or association meetings to help you define your options for 2025 and beyond. One would also hope that OEMs are taking the lead to assist in making the right decisions compared to your competitive brands. In short, there is much to consider if you hope to produce a profitable year.
Let me remind you about that book I mentioned recently, NOT HOW- BUT WHO. If you ever thought you needed additional help navigating this business puzzle, now is the time to invite some experts to discuss your options and provide suggested avenues for success. The point here is YOU DO NOT HAVE TWELVE MONTHS TO MAKE DECISIONS. It would be best if you had a reasonable plan NOW.
Here is a list of topics and issues you need to get a handle on:
- TAX CUTS
- DEREGULATION
- TRADE POLICIES
- INFRASTRUCTURE INVESTMENT
- ENERGY POLICIES
- INTEREST RATES
- NEW LABOR LAWS
- INFLATION
- CRYPTO REQUIREMENTS
- DIGITAL AND AI REQUIREMENTS
- ENERGY COSTS AND SOURCES
- NEW MANUFACTURERS, DISTRIBUTORS, STORAGE, AND ASSEMBLY OPERATIONS COMING TO US.
If you plan to make profitable moves at a reasonable cost, you could spend a week on each one of these topics.
Let us get one thing straight …. INFLATION IS HERE TO STAY! This means interest rates may not go down to the point where customers want to buy and finance more equipment. I was listening to Paul Tudor Jones on Squawk Box on October 22, 2024. After a lengthy investment and economic discussion, his final comment was that ALL ROADS LEAD TO HIGHER INFLATION. Many of the financial newsletters I read take the same position.
Let’s dive into these issues further.
TAXES
Hopefully, the 2017 bill will be extended. That is good regarding rates, deductions, and estate planning. Let’s hope we generate more taxable income if we lower corporate rates.
I suggest a review of your state and local tax picture. A lot of states made changes.
DEREGULATION
There is little doubt deregulation will roll back environmental regulations, including emissions standards for heavy-duty vehicles. Any change they can make could increase flexibility and reduce company operating costs. I recently saw a chart regarding one of Musk’s companies; at least 18 government offices told him what to do.
TRADE POLICIES
Tariffs are the main issue, and shoring is another. This could affect supply chains, increase the cost of foreign goods, and expand business opportunities. I trust Trump will use the tariff stick only as necessary to make his point. You should spend a good amount of your planning time on this. And I would be careful not to invest in front-loading inventory.
INFRASTRUCTURE INVESTMENT
Trump promised to prioritize infrastructure improvements, which means more manufacturing and warehouse opportunities. Warehouse systems should be a high priority in any event.
ENERGY POLICIES
Expect the green regs to be rolled back and oil production to increase. Could this impact on the methods used to propel your lift trucks? You may want to review which key customers may be affected by these changes.
INTEREST RATES
Expect rates to continue to get cut …until there is a reason not to. The prime rate with a 3% Treasury yield will be about 6%. Mortgage rates are around 6% +/-. Economic conditions, including inflation and GDP growth, will influence interest rates. Right now, interest rates seem to be quite volatile. Contact your banks and equipment financing sources to determine what they will charge for new and used equipment purchases. Do not overleverage if you can avoid it.
LABOR LAWS
Immigration enforcement raids will return. Agency chairs will be replaced. Expect repeals of some of the Biden regulations. There are the new overtime rules, the noncompete contract change, and the independent contractor rules. I would call your independent payroll service and inquire about the changes as they see them and ask for assurance that they can handle them as part of their service. Also, I expect DEI requirements to be toned down.
INFLATION
We could spend a week discussing this topic. This is the Elephant in the room. The national debt will require higher rates to finance. There is also the employment rate, considering Boomer retirements and those leaving the workforce. What the government has been doing to tone things down is printing more money, which will generate higher inflation. Hopefully, we can cut the cost of government and, at the same time, put AI and other digital means to make our business activity more efficient and productive, thereby lowering costs passed on to consumers. This will not happen overnight, but we need to get on a path to cutting deficit spending, which will increase the dollar’s value and, in turn, help with the inflation problem. And reshoring, of course, will increase GDP, generating more tax revenue to reduce deficit spending. I do expect Elon Musk and Vivek Ramaswamy to suggest many substantial cuts. They will use an AI process to review every aspect of government. This will be a brutal exercise to reduce unnecessary spending. Hopefully, we will find a way to start the process by producing a balanced budget.
CRYPTO REQUIREMENTS
Like it or not, businesses will need to be able to deal with CRYPTO. What if a customer makes a significant order and wants to pay in CRYPTO? Could you handle that? It might be time to find out how to use this new type of currency.
DIGITAL AND AI REQUIREMENTS
Should this topic go to the top of the list? Many digitally savvy people would say it should because there is zero doubt that firms that can adequately deliver benefits such as increased automation, better business processes to generate income, and new growth opportunities will have a material, competitive edge. On the other hand, jumping into the AI world can produce a costly mistake that your business may never recover from. YOU NEED A “WHO” TO HELP WITH THIS PROCESS.
The above issues need your review to determine how to execute through 2025 and beyond. The entire management team should be involved in the process, including customer comments about vendor expectations, especially regarding workforce efficiency and productivity. The results of your AI efforts should also be included, prioritizing customer needs while demonstrating tangible value. A Cap-X budget will be required to determine if you can monetize AI for financial growth.
Considering all of this data, I would prepare a plan for 2025 that would limit borrowing for new inventory until I had a better feel for the market. Instead, I would concentrate on the used market, which is currently strong. This indicates that buyers are deferring new purchases because of economic conditions and maybe because they are deciding which type of units to purchase because of a better offer at a lower cost.
As part of this used equipment program, I would start a formal refurbishment program to refurbish used units bought, used units in the rental fleets, and customer units that need to be refurbished. I have experienced how this program benefits the dealer and the customer. I used to be able to buy refurbished units for a rental fleet that cost 65% of a new unit that would be rented out at the standard rate and produced 65%-dollar utilization. You cannot tell the difference if you put a new unit next to the refurbished unit. I see this as a way to maximize your two most profitable income silos, parts and services. Think about it.
Need any help? Let me know.
Happy New Year!
About the Columnist:
Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail [email protected] to contact Garry.
