By Ira Silver, CPA, CGMA
A few months ago, I wrote a speculative column on what the relative tax/economic plans of the two major party candidates could have on the Auto Industry in general, and on M&A specifically gabapentin 300 mg.
Whether that piece had any influence on the results of the election, I cannot say, but here we are with President-elect Trump, and it’s time to take a closer look at what I believe is a favorable outcome for the industry.
Many believe that a successful Trump presidency will hinge on a successful auto industry, and much of that will revolve around trade policy.
Trump, Trade and NAFTA
As stated in my previous article, Donald Trump is no fan of NAFTA. He has said, “it has destroyed this country,” and has said, as President he would either “entirely renegotiate NAFTA” or “terminate it.”
His recent deal carved out with Carrier even before he has taken the Oath of Office speaks volumes for his commitment to keep manufacturing jobs here, as well as his promises to “rustbelt voters” that put him over the top in big auto states, such as Ohio and Michigan.
His tirades leveled directly at auto makers in general for moving jobs to Mexico, and at Ford specifically on the campaign trail, certainly resonated with these voters. Now heavily involved in the transition, President-elect Trump is already sending clear signals that reworking trade policies, including NAFTA, will be one of his number one priorities when he takes office next year.
Trump’s attacks on Ford focused on the automaker’s plan to build a new factory in Mexico, where it will begin making small cars in 2018. In the wake of the Carrier deal, Ford executives say that their plan to shift production of small cars like the Focus, to Mexico will “go on as planned.” They admit however, that a decision not to move the production of the Lincoln SUV, from Kentucky to Mexico, was “influenced by President-elect Donald Trump.”
Speaking to the Wall Street Journal, Ford CEO Mark Fields said that Trump had influenced Ford’s decision to keep Lincoln SUV production in the U.S. with favorable proposals on tax reform and infrastructure spending.
The “Trump Effect” Beyond Trade
However, there will likely be a positive benefit to the auto industry from a Trump presidency that go beyond trade. One is his commitment to loosening the regulations on emissions standards, and the other is his tax plan and incentives that should generally improve the economy, create jobs, and put more purchasing power back in the hands of the car buying public.
Corporate Average Fuel Economy (CAFE) standards are supposed to rise substantially for automakers selling vehicles in the US by 2025. With lower fuel costs, and consumers more interested in buying SUVs and Trucks than electric cars, the industry has been pushing back hard on Congress to relax the standards, which are much harder to reach on the vehicles in demand. A President Trump with a Republican Congress, will likely be able to roll-back the regulations.
The combination of a reworked NAFTA, corporate tax cuts and other incentives, and reducing the burden on automakers, by curbing the increase in CAFE standards, should all give the auto industry a boost.
Let’s look at what Trump’s tax plan will really mean for the auto industry. For 2017 we are anticipating tax rates to drop for both C corporations and individuals.
The most significant change proposed under the most recent plan that Trump campaigned under, would cut “tax brackets” from the current number of seven, down to three.
- Those making less than $75K would pay 12%.
- Those earning from $75K-$225K would pay 25%.
- Those earning $225K or more would pay a maximum of 33%.
Lower taxes across the board means more cash in the pockets of more individuals and businesses, which will add jobs. More cash and more jobs, means more auto sales.
Impact on M&A
So, what will all of this mean for M&A? A Trump-engineered robust economy bodes well for the industry and should keep M&A transactions brisk in 2017. Freed from the limited job growth and cash-strapping policies of the last 8 years, we should see a renewed consumer confidence, which will certainly spill over into increased car sales. Consumers will be more willing and able to trade-up for new cars more often, which will stimulate both new and pre-owned sales.
Dealers wishing to expand should find no lack of sellers, who will be interested in taking advantage of proposed favorable changes in capital gains and other tax incentives. Sellers will not have to sell short, and may be willing to invest additional profits acquired from M&A transactions in a stock market that is already sky rocketing in the wake of the Trump victory. A Trump presidency should create many “win-win” scenarios for both buyers and sellers of dealerships in 2017 and beyond.
As Goes Auto so Goes the Nation
In many ways, auto dealers are the symbol of the “family businesses” and the spirit of entrepreneurism that drives economies. A dealership is often the very gauge by which a community’s financial well-being, and its sense of self-esteem are measured. The automotive industry is one of the few that has as much impact on the local townspeople, as it does on the global economy.
If Mr. Trump can create the kinds of win-win solutions for our industry that he suggests on trade, environmental, and tax policies, he may very well be able to keep his promise to “Make America Great Again.”
Ira Silver, CPA, CGMA, is a principal in the Tax and Accounting Department at MBAF and is the principal-in-charge of the firm’s Orlando office. Ira has been in the public accounting profession since 1982. He can be reached at (407) 781-0150 or isilver@mbafcpa.com
