As a former multistore dealer owner and active member of multiple 20 Groups, I sat through dozens of guest speaker presentations. The “big ideas” our moderator and member dealers brought to the groups included everything from sales, finance, and service to taxes and HR. With millions of dollars at stake, we all wanted all the expertise we could get.
And yet not once did we discuss F&I profit participation programs. Tens of millions were at stake for us all. But the subject never even came up.
I sold my dealerships in 1998 and embarked on a second career as a dealer advisor. That’s when I began to talk to the experts and really learn about profit participation and reinsurance. Once I understood the additional income and tax benefits a properly selected program can provide, I sat down and ran a reinsurance pro forma. The results literally made me sick to my stomach. I got none of those profits.
More on that in a moment. First, let’s discuss why reinsurance is so rarely discussed in 20 Groups, how to make that happen for your group, and what you and your colleagues may be missing out on if the topic is never raised.
I Don’t Want to Talk About It
It’s no secret that most successful dealers have big egos. And it’s no secret that every dealer has been at the short end of the stick on a bad deal. It happens, it’s embarrassing, and we don’t like to admit it or talk about it.
Reinsurance is no exception. In fact, I think the main reason it’s so rarely discussed in 20 Groups is that so many dealers have been fleeced and don’t want to admit it. If you have ever been steered into the wrong structure or stuck with an underperforming program for too long, you know exactly what I’m talking about.
And you’re not alone. Too often, dealers rely entirely on the counsel of their providers, sometimes supplemented by input from their CPAs, their attorneys, and maybe an undereducated CFO or controller.
Your financial and legal advisors absolutely should be involved in your reinsurance decisions. But if they aren’t close enough to the car business to fully understand how profit participation works, they can’t be expected to offer the high‐level, proven advice you really need.
The better your relationship with your provider and the more money your reinsurance company is making, the less likely you are to ask other dealers about what is, at its very core, a personal financial asset. But every dealer should, and the 20 Group format offers the perfect opportunity and venue.
Your guest speaker can be a member’s trusted reinsurance advisor or an expert selected by your moderator. The standard rule applies: no commercials. Your speaker is not there to sell their program, drum up new business, or steal clients by undermining or misrepresenting their competitors. They are there to educate, inform, and answer questions.
Profit participation is admittedly a complex subject. Your speaker will be tasked with breaking it down into its core components to deliver a clear, concise, and fully comprehendible presentation. Their discussion points should include:
- An explanation and comparison of profit participation program types
- The financial advantages and pitfalls of each structure
- Formation and administrative fees
- Taxation, including changes brought by the Trump administration’s tax reform act and any recent or expected developments
- How reinsurance dovetails into succession planning and key manager retention
- How dealers leverage the working capital reinsurance companies create, including investments and loans
- When and how CPAs and attorneys should get involved
If that seems like a lot, it is, but a good speaker should be able to get through a general overview in about 45 minutes.
Why not the full 90? Because you will need another 45 minutes for Q&A. All it takes is one brave dealer to say, “Here’s what happened to me. How would you change what I was doing?” That’s when the floodgates open. And you may be shocked at what you hear.
The sad fact is that many dealers underestimate how little they know about their reinsurance company structures, their providers, or the options available to them. They would never go 12 years without getting a physical, but they will easily go 12, 15, or 20 years without reevaluating their profit participation program.
This mindset puts dealers at the mercy of their providers, the IRS, and even, in some cases, unscrupulous agents. If you suspect anyone in your 20 Group is being taken advantage of, it may be time to call in an expert.
Ignorance Is Not Bliss
I mentioned how upset I was when I calculated how much I lost by not participating in a reinsurance structure or a retro in my dealer days. When I ran my contract sales numbers through a true third‐party reinsured program, I discovered I would have had as much money in my reinsurance company as I sold my dealerships for in blue sky value.
So, yeah, it was a gut punch. It was a lot of money I can never get back, not to mention the overpaid taxes, the lost investment income, and the opportunities I may have missed because I didn’t have as much working capital as I could have. It would have been a game changer and made me and my dealership organization more profitable and secure.
I wish I had not relied on my agent, my accountant, and my CFO to advise me. I wish I had asked every dealer I knew for their opinion. I wish I had reached out to providers to pitch me on their program. I wish my 20 Group had helped me. I am certain I would have made a better choice.
We can’t change the past, but there is much we can do to determine our own futures. That’s what 20 Groups are for. If you believe your group could benefit from having a frank discussion about profit participation and sharing their experiences — the good, the bad, and the ugly — I encourage you to make reinsurance the next big idea you bring to your moderator.
Graye Wolfe is a former 10‐store, 14‐franchise dealer from Boise, Idaho, and senior managing director for Portfolio, a national provider of reinsurance programs and F&I products, the founder of Performance Improvement Concepts, and a graduate of Northwood University and the NADA Dealer Candidate Academy.