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1HomePageMap small sw 0816Local news stories affecting the auto body industry in Arizona, Utah, Arkansas, ColoradoTexas, New Mexico, Oklahoma, and Louisiana

The Texas  Attorney General  has overruled the Texas Department of Insurance (DOI) in that information contained in a survey of insurers conducted by the DOI be made public. The ruling was in response to a petition by Larry Cernosek of the Houston Auto Body Association, and other members, which was filed under the Texas Freedom of Information Act and the Texas Consumer Bill of Rights.

The Texas DOI and the five major insurers surveyed argued that the documents should be exempt from disclosure requirements because they include insurer's proprietary information, but the Attorney General’s office disagreed, exempting only some items that the insurers deemed trade secrets.

The Attorney General reasoned that even if the DOI told the insurers that their responses would remain confidential, that agreement could not circumvent the requirements of the Freedom of Information Act, saying "We note that information is not confidential under the Act simply because the party that submitted the information anticipated or requested that it be kept confidential."

Thursday, 23 September 2010 16:48

TX-Based Service King Plans National Expansion

Dallas-based Service King plans to embark on an ambitious national expansion led by new president Cathy Bonner that could double revenue over the next five years according to reports in the Dallas Morning News.

The chain of collision-repair centers, founded in 1976 by company chairman Eddie Lennox, recently opened seven shops in Houston and the success of those centers—some were profitable after three months— prompted Lennox to consider the leap outside Texas.

Most of Service King’s 31 shops and 1,000 employees are in the Dallas area. The privately held company, which says it has a 20 percent market share in the area, expects to repair about 70,000 vehicles and earn $150 million in revenue this year.

“We were able to experiment with a lot of things in Houston that might work for us nationally,” said Lennox, 57, a former body-repair man who started Service King in a three-bay tin building in West Dallas.

Bonner, a Dallas native, has no experience with auto repair. But she served as executive director of the Texas Department of Commerce from 1991 to 1994, founded The Women’s Museum in Dallas and has started and managed three marketing and communications firms.

She also is Lennox’s sister-in-law so she knows the Service King culture, Lennox said. Bonner’s primary responsibility will be to develop a strategic plan for growth, determining which markets Service King should enter and overseeing that plan.

“This relates to growth and getting someone who can help us achieve it — and not ex-technicians like myself,” Lennox said.

He believes that planning for major growth requires knowledge that he and his managers don’t have.

“Eddie approached me and convinced me I don’t need to know how to fix a car,” said Bonner, 60, a finalist in 2007 for The Dallas Morning News’ “Texan of the Year” award for her work to pass legislation creating the Cancer Prevention and Research Institute of Texas. “I just get to build on their success.”

Bonner said she intends to have a growth strategy plan completed by the first of the year.

“I had a lot of experience identifying new markets and bringing in corporations when I was with the state,” said Bonner, who was part of a team of officials in the early 1990s that helped convince General Motors Corp. to not close its assembly plant in Arlington.

Service King offers several programs that Lennox says are unique— including a computer program developed by vice president Jeff McFadden that allows insurers to monitor and audit the entire repair process.

“We also have some operations programs that [vice president] Danny McKinley put into place that no one else does, and those products really made me more bullish on growth,” Lennox said.

Despite its moves to get larger, Service King has no interest in going public, said Lennox, who holds 80 percent of Service King’s stock along with his wife. Managers throughout the company own the remaining 20 percent. “We’re well capitalized, and we have good banking relationships,” he said. “We envision doubling our revenue in three to five years.”

The new-car dealer groups in Dallas and Tarrant counties have merged into the Dallas Fort Worth Metropolitan New Car Dealers Association according to reports made by the Dallas Morning News.

Dealers voted overwhelmingly to approve the merger, which is significant because the association will represent about 250 dealers in 11 counties with annual sales of more than $10 billion. The new association is the largest dealer group in the state and should have a strong voice in state and national legislative affairs that affect the auto business.

“D-FW is now viewed as a single market, with many of our dealers having franchises in both Dallas and Tarrant county areas,” said Sam Pack, former chairman of the New Car Dealers Association of Metropolitan Dallas and a driving force in the formation of the new group.

Pack, who owns Ford dealerships in Dallas, Tarrant, Collin and Denton counties, and other dealers began considering the merger about nine months ago after Drew Campbell retired as president of the New Car Dealers Association of Metropolitan Dallas after a 25-year tenure.

Lee Chapman, 50, the former president of the Tarrant County dealers association, will head the new association. The primary goals of the new association are largely unchanged — promoting and representing new-car dealers.

“I’m really excited,” said Chapman, who was president of the Tarrant County group for 26 years. “This is one marketplace, and we want to help dealers sell more cars and help consumers have a positive sales experience.” Among other initiatives, the new association intends to call more attention to dealers’ good deeds — “everything they return to the community, from supporting Little League teams to donating to hospitals,” Chapman said.

Fort Worth and Dallas-area dealers will still put on separate new-car shows. With annual sales approaching 400,000 vehicles, dealers in the Dallas-Fort Worth region sell as many vehicles as those in some small states.

“It just made sense to combine two smaller associations into one of the biggest and strongest in the nation,” said Tom Durant, a board member of the former New Car Dealers Association of Greater Tarrant County and owner of Classic Chevrolet in Grapevine.

Thursday, 23 September 2010 16:20

ASA Texas Warns COGS Excludes Labor

ASA Texas is warning shops that labor and other services are disallowed in calculating cost of goods sold for tax purposes. All shops are allowed to claim is the actual parts used for the repair. However, because this is such a common “error” in filing among auto repairers, Texas tax authorities are going to target auto repair shops in particular. The Comptroller’s office announced it will audit 29,000 businesses for the 2008 year. It has hired, or plans to hire, almost 500 auditors.

A shop owner in Tomball who was going through a franchise tax audit was unaware of this exclusion and after his CPA did recalculation of his tax liability, discovered it would cost him an additional $7300.
The Texas comptroller website has posted the following message:

“Franchise tax audits for report years 2008 and 2009 are now in full swing, and we’ve noticed that many entities in the service industry are incorrectly electing to use the cost of goods sold deduction to determine margin.

“Section 171.1012 of the Texas Tax Code specifically provides that, in determining the cost of goods sold, the term “goods” means real or tangible personal property sold in the ordinary course of business and does not include services. The Tax Code does not allow a cost of goods sold deduction for entities that provide services such as dry cleaners, law firms, parking facilities, rental services, towing companies, etc.

Franchise Tax Rule 3.588(c)(8) does allow a cost of goods deduction for transactions that contain elements of both a sale of tangible personal property and a service; however, an entity may only subtract as cost of goods sold the costs otherwise allowed in relation to the tangible personal property sold.

For example, an auto body shop offers the service of car repair and in the process of the repair, replaces some of the car’s parts. If the auto body shop elects to use the cost of goods sold to determine margin, the shop can only deduct the cost of the car parts. The labor related to the repair of the car is not allowed as a cost of goods sold.

If an entity that is not eligible for the cost of goods sold deduction elected to use this method for prior years’ reports, the entity must amend the reports. The compensation deduction, however, is not available for the prior years’ reports. The election language in Tax Code Section 171.101(d) does not allow a change in the method of computing margin to a cost of goods sold or compensation deduction after the due date of the report.

These entities that originally elected to use the cost of goods sold method must amend and use the 70 percent method to determine margin or, if total revenue is not more than $10 million, may use the E-Z Computation to determine tax due. The E-Z Computation does not allow a cost of goods sold or compensation deduction in computing margin but instead applies a lower tax rate of 0.575 percent directly to apportioned total revenue.

In future years, entities that do not sell real or tangible personal property in the ordinary course of business may choose the compensation deduction over the 70 percent method or the E-Z computation. The compensation deduction, detailed in Franchise Tax Rule 3.589, includes W-2 wages and cash compensation paid, net distributive income reported to natural persons and employee benefits provided.”

ASA wants to address this interpretation of cost of goods sold by contacting the Ways and Means Committee of the Texas House and our representatives. Contact Charles Parker, Director, ASA Texas at cparker@asatx.org.

Repair shops in Oklahoma are still trying to catch up with the colossal amount of work left for them after the May 16 hail storms left thousands of cars in the area damaged, according to reports made by The Oklahoman. Now, almost 4 months later most body shops are just getting caught up with the work.

Cars made up about $80 million worth of damage costs for insurers, Southwest Insurance Information Services President Jerry Johns said.

"From an insurance perspective it will go down as one of, if not the most significant weather-related events since 1999," Johns said. "Obviously much of it was roof damage and things like that but vehicle claims were extremely high for those not fortunate enough to shelter their car or truck before it hit."

Some customers waited for weeks and even months to get their hail-damaged cars repaired, most body shops in the area were having people come in and schedule an appointment months in advance.

"We've slowed down quite a bit, to about 1/3 of what we had initially, but there's still a lot of work to be done," said Bob White, Manager for Body Works Inc. in Oklahoma City.

White said the focus after the storm was on cars that weren't drivable because of broken windshields. Now the focus is on less-serious hail damage, such as dented hoods.

"We're still pretty scheduled out until November but we're managing the jobs better than we were. Right after the storm we were scheduled out until December," said White, "We've even been able to call some people in ahead of schedule now that the jobs have tapered a little bit more than in the beginning."

White also mentioned that Body Works has been able to start working back with some of their collision work that had to be put on hold after the spring storm.

Some cars that haven't been repaired might have remained on the road and could potentially pose hazards. It's up to officers to decide whether to cite a driver for a cracked windshield, which is against the law in Oklahoma. Although tickets are most likely to be written when the vehicle damage might impede someone's ability to drive safely.

Johns said people with damage should make their claims as soon as possible. He said insurance adjusters likely will remain in Oklahoma for up to a year after the storm.

Oklahoma-based car rental company Dollar Thrifty Automotive Group, Inc. raised its corporate adjusted EBITDA forecast for the full-year 2010 on September 7, citing strong operating performance in the months of July and August, and the continuing projections of lower fleet costs. The company also provided an update on fiscal 2011 outlook.

The Tulsa, Oklahoma-based company raised its fiscal 2010 forecast for corporate adjusted EBITDA, excluding merger-related expenses, to a range of $240 million to $260 million from the prior guidance in the range of $200 million to $220 million. The company had earlier raised it guidance in early July.

Dollar Thrifty attributed the increase to projected lower fleet costs, and the continued strength in operations and ongoing cost control efforts at the company.

The company also noted that it continues to expect vehicle rental revenue for the full year of 2010 to increase 1% to 2% from last year. Meanwhile, the company lowered its expected fleet cost target to a range of $230 to $240 per unit per month from the prior forecast of $245 to $255 per unit per month.

Meanwhile, the company also lowered its estimate for vehicle depreciation per unit per month to a range of $270 to $290 for the third and fourth quarters of 2010 from $300 to $310 per unit per month, citing continued strength in residual values and favorable trends in vehicle disposition results.

For fiscal 2011, Dollar Thrifty reaffirmed its previously announced fleet cost estimate of $300 to $310 per unit per month. The is expected to lead to corporate adjusted EBITDA for the full-year 2011 to range between $186 million and $198 million.

The company added that it expects the used car market in 2011 to be based on solid fundamentals, though less robust than now, as demand for used cars is expected to be firm, while supply is expected to be somewhat constrained.

Car rental companies are slowly recovering from the recession, which battered demand from business and leisure customers, after having struggled in recent years due to reduced travel budgets, falling used-car prices and large debt loads.

DTG closed Tuesday's regular trading session at $47.04, down $0.69 or 1.45% on a volume of 1.18 million shares, higher than the three-month average volume of 0.89 million shares.