march 2009: automotive accountants' forum

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The GFC Is it about Global Finance Crisis

or Geelong Football Club? You decide!

26 March 2009

Presenter: Angelo Sirianni, Colledge’s

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This presentation has been prepared by Colledge’s for the general information of its clients and seminar attendees. While the information herein has been prepared with all reasonable care and derived from sources believed to be accurate, no responsibility or liability is accepted by Colledge’s or any of its affiliations, for any errors or omissions including liability to any person of negligence or otherwise.

Recommendations may not be appropriate in all circumstances and clients must consider their own personal objectives and financial advice before acting on recommendations in this presentation.

Colledge’s (ABN 52 439 950 641)

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“It ain't as bad as you think. It will look better in the morning.”

Colin Powell

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Australian Economic Outlook

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Australia cannot avoid the Global Financial Crisis!

Large Current Account Deficit

•Financed largely through foreign banks

•Australia’s banks do not have the sufficient Capital to replace this lending


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“Terms of Trade” gains (due to commodity prices)

• Boosted Australia’s income by 2.0% pa

• Sharp falls in prices have detracted significantly in Australia’s income


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• Deep recessions with Australian trading partners will affect Australia

• Australian shares have fallen as much as overseas shares

• Business confidence affected by the relentless tide of bleak news from overseas


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• Australian outlook not as bleak as in 1990-91

• Most of the factors impacting overseas economies are not present to the same degree here:

Australia’s banking system still in good shape

Australia’s house prices have not fallen significantly (except at the top end)

• Fall of $A is of assistance

Cushioning impact of sharp falls

Reducing risk of inflation


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• Monetary policy is working more effectively

• Fiscal policy is being activated earlier than in previous recessions

Australia’s measure has been better designed than in other countries

Source: Saul Eslake, ANZ, 27 February 2009


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Source: ANZ Economic Outlook, March Qtr 2009


Numbers 2007 2008 (F) 2009 (F)

GDPWagesEmploymentUnemploymentInflation

4.04.12.84.22.3

2.34.22.34.24.4

0.13.60.15.42.9

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Current Jun 09F Sept 09F Dec 09F

Interest Rate

RBA Cash Rate

90 Day Bill Rate

3.25

3.01

2.75

2.93

2.25

2.10

2.00

2.30

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GDP 2007 2008 (F) 2009 (F)

USChinaG7

2.011.82.2

1.49.10.9

-1.66.9-1.5

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Managing the Global Financial Crisis

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Bullet proofing

• Cash-flow- Accounts receivable process- Daily bank reconciliations- Discipline- Target cash-flow

• Finance- Cash balance expenses between 2-6 months

- Review finance facilities- Establish new ones- Keep your financier informed- Payouts - prompt


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• Costs / Expenses - Track key numbers- KPI analysis

e.g. Sales per staff numbers RIs per advisor, etc...

- Scale down as appropriate- Create cost control culture- Involve staff

• Sales - Monitor sales regularly- Re-adjust to the new market- Manage your customer database- Keep marketing (cost effective methods)


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• Inventory - Maximise stock turn

- Stock to your market

- Watch old stock

- Keep inventory to the correct level (increasing floorplan will come at a

cost)

- Keep retail finance up helps with floorplan availability


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• Staff - Use KPIs to manage staff

- New job descriptions

- Natural attrition

- Share roles where possible

- Train so you can maximise results when things improve

- Keep morale up

- Keep an eye on fraud opportunities

- Manage up and out as applicable


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• Planning - Prepare a master plan

- Develop action plans and strategies

- Involve staff

- Measure everything

- Quarterly forecasts

- Assign responsibilities and accountabilities

- Regular updates and meetings

- Keep things on track


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• Other - Are you “glass half full or glass half empty”?

- Positive spin e.g. 95% employment

Interest rates lowest in 8 yearsOil at $50/barrelPetrol 60c/l less

- Positives about your business: The silver lining

- Some segments are still improving


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Expect changes•Current economic downturn

•Significant economic restructuring occurring

•Uncertainty

•Increased Government ownership

•Different economy on the other side

•Future regulation / oversight will increase

•Less leverage / more Government

•Cash and securitisation increasingly important

•Be wary, but be prepared

•Opportunities will present themselves again


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Stimulus Package – Business

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• Stimulus Package – Business

• Draft Legislation – public consultation

• Investment Allowance – Tax Break

• Applicable to new assets

• Purchased and ready for use in Australia

• Tangible

• Depreciating assets with depreciation deduction under Division 40 ITAA


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Contracts entered by

30 June 2009 31 Dec 2009

Assets installed by30 June 200930 June 201031 December 2010

30% in 2008-9 30% in 2009-1010% in 2010-11

10% in 2009-1010% in 2010-11

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• Small business over $1,000 per individual asset

• Other business over $10,000 per individual asset

• Not applicable to second-hand assets

• Cars qualify if they are new and eligible for a tax deduction under Division 40


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• Demo can be new or second-hand

A demo can qualify for “new” assets provided they have only been used for reasonable testing and trialling (in the hands of the purchaser)


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Eligible for Tax Break (cars)

•Taxpayers using one third of actual expenses and log book method

Claim a deduction under Section 40

•Taxpayers claiming “12% of original value” method can claim a depreciation deduction (they will not be excluded)

•Taxpayers claiming “cents per kilometre” cannot claim tax break

•Car limit applies


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• Land and buildings are not eligible

• Definition of

• Small business – Less than $2M

• All others – Greater than $2M


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If the asset is subsequently sold, the tax break is still available, provided it was installed and ready for use by the deadline.


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Son of Holdback

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• Deloitte has initiated action with the ATO

• Recover GST paid on factory incentives made by franchisors to dealers

• Claim they are not a supply – basis is the KAP Motors Case

Son of Holdback

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Factory incentives include:•Fleet claims

•FBT reimbursements

•Annual, quarterly, monthly bonus payment

•Demo bonuses

•Subsidies

•Target incentives

•Parts obsolescence payments

•Advertising reimbursement

•Run out bonuses

Excludes warranty payments and holdback payments

Son of Holdback

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Issues:

•Needs a court case to define (Federal Court)

•ATO will rigorously defend

•Not sure of franchisors’ position on the matter

•Unsure of any protection available to the franchisors

•ATO may seek reimbursement from the franchisors

Son of Holdback

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Some actions:

•Stop the clock letters – intention to claim

•Quantify the claim

•Deadline is 13 March 2009 – not sure of relevance

•Unsure of the enduring quality of “Stop the Clock”

•May take some time for court action to be resolved

Son of Holdback

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New Award Requirements

Source: VACC

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Background•The Australian Fair Pay & Conditions Standard (AFPCS) introduced as part of Work Choices amendments.

•Came into effect 27 March 2006

•Maximum hours of work guarantee provides that employees cannot be asked to more than 38 hours per week, although reasonable additional hours may be agreed upon


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Background (cont)

•With the wages guarantee, an employee must be paid a minimum rate of pay for each hour of work, including any reasonable additional hours

•Each hour worked in excess of the 38 ordinary hours is to be paid on an hourly basis


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Vehicle Salespersons

•The Federal Vehicle Industry Repair, Services & Retail Award 2002 (the Award) has special provisions

•Salesperson agrees to work either 5½ day week or 11 day fortnight

•The special provisions do not restrict or limit the maximum ordinary hours during these rostered work periods


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Vehicle Salespersons (cont)•Vehicle salespersons are excluded from the provisions in the Award relating to ‘ordinary hours of work’, ‘overtime’ and penalty rates

•Three year exemption from the maximum hours of work guarantee

•Currently applies to vehicle salespersons, however the exemption will cease on 27 March 2009


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Vehicle Salespersons (cont)

•If you take no action, as of 27 March 2009 you will be required to pay your vehicle salespersons for every additional hour worked in excess of 38 hours.

•This will ensure you comply with the AFPCS under the Act.


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What are my current options?VACC suggests four options:1.No change to working hours or commission agreement:

Pay vehicle salespersons for hours worked over 38 hours

2.Reduce working hours to 38 hours per week with no change to commission agreement:

That is, you do not have to make payments for hours worked in excess of 38 hours, however a salesperson will have fewer hours in which to make sales and earn commission


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What are my current options? (cont)

3.Vary the contract of employment with the salesperson (by agreement in writing):

Agreement would be amended to provide that commission earned is to be attributed to any payments owed under the AFPCS for hours worked in excess of 38 hours


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What are my current options? (cont)

4.Vary the commission agreement with the salesperson (by one week’s notice under the Award):

Need to calculate the number of hours worked by the salesperson and determine what level the commission should be set in order to maintain current remuneration.
