Automotive News - January 16, 2023 - 28

28 * January 16, 2023
CREDITS
More guidance from feds,
automakers is needed
continued from Page 1
complex - and " increasingly overwhelming, "
as one analyst put it - federal tax incentives for
at least a two-month period.
" We're totally confused, " said John Luciano,
owner of Street Volkswagen in Amarillo, Texas.
Luciano said employees at his store are being
cautious, in some cases telling customers who
are seeking answers about the credit and their
eligibility, " I don't know. "
" It's not always the best answer, but it's an
honest answer, " he told Automotive News.
" We're too afraid of getting it wrong. "
Between now and at least March, some dealers
have opted to take a more hands-off approach,
explaining the credit's intricacies to the
best of their knowledge but steering customers
to federal government websites and tax professionals
to determine credit eligibility.
" Right now, it's good that it's not a point-ofsale
credit, " said Mike DeSilva, owner of Liberty
Auto Group, which has three stores in New Jersey
and sells vehicles from Genesis, Hyundai,
Kia and Subaru.
" What we're telling any of our customers that
are buying EVs that inquire about it is just to inquire
with their own tax accountants ... because
we can't issue guidance on whether or not they
qualify for the credit, " he said. " We just don't
have the answers. "
Dealers selling EVs to consumers seeking to
use the credit must provide a report to the buyer
on the date the vehicle is purchased and to
the IRS within 15 days after the end of the calendar
year it was sold, according to Treasury. The
reports include taxpayer identification numbers
and the maximum credit allowable for the
vehicle.
Carl Scharf, tax shareholder in Schneider
Downs' automotive advisory group, said his
firm is getting more questions from clients,
which include large, multistate dealership
groups and single-point stores.
" But with the delay, what you're seeing is ... a
lot of the manufacturers have delayed the training
as well, sales folks training, " he said.
More complexity
On Dec. 29, Treasury and the IRS released
preliminary rules that could be further revised
come March. The documents include a 10-page
FAQ, an updated list of potentially eligible EVs
and a notice on the expected content of the
forthcoming proposed guidance and regulations.
The
information provided dealers with more
clarity on what's counted in the retail price,
specifying that " optional equipment physically
attached to the vehicle at the time of delivery to
the dealer " is included, while optional items
added by the dealer as well as destination
charges, taxes and fees are not.
It also clarified the term " placed in service, "
meaning the date the customer takes delivery of
the EV.
However, that means eligibility could change
between the time an order is placed and the vehicle
is delivered - adding yet another layer of
complexity for dealers, automakers and consumers
trying to figure out what's eligible and
until when.
LINCOLN
Dealers see value in
early preparation
continued from Page 4
The Lincoln program will run from
late 2024 until 2026. Another enrollment
period will open near the end of
2026 for a program that starts in 2027.
Lincoln does not sell any EVs but has
promised to launch three globally by
2025 and add a fourth in 2026. ExecuVehicles
ordered or purchased by consumers
this month, for instance, could be subject to the
tax credit's EV battery sourcing restrictions if
they are delivered after Treasury issues the proposed
guidance.
" You may not get the credit that you were otherwise
expecting, " said Buddy Dearman, national
industry leader for the dealerships practice
at Forvis LLP.
" The dealer will have to be doing some educating
of the consumer to make sure that they
understand. "
Loren McDonald, CEO of the analysis and
consulting firm EVAdoption, said the information
may cause some consumers to postpone
their purchases.
" I subscribe to the old theory that consumers,
when faced with complexity, choose simplicity, "
he said. " At the end of the day, they might
just choose a lower-cost [internal combustion
engine] vehicle or hybrid ...
because it's an easier decision. "
McDonald said dealers - some of
whom may be struggling to explain
and sell EVs to customers even without
a tax credit heavy with caveats - need
more training to understand the incentives.
" It's
such a massive tangled web, " he
said. " I can't imagine that dealers are
prepared to untangle this. "
Classifying vehicles
Treasury and the IRS sought to help
consumers with a new list of vehicles
that may be eligible as of Jan. 1 or later.
However, the list has raised concerns
over how the vehicles are being classified.
Treasury
did not classify the Cadillac
Lyriq as an SUV, for example, meaning
its retail price cannot exceed $55,000.
The Lyriq, which Automotive News
classifies as a midsize crossover, starts
at $62,990.
The department used corporate average
fuel economy, or CAFE standards,
" which
are preexisting - and
long-standing - EPA regulations that
manufacturers are very familiar with, "
a Treasury spokesperson said. " These
standards offer clear criteria for delineating
between cars and SUVs. "
General Motors said it is addressing
these concerns with Treasury and
hopes that " forthcoming guidance on
vehicle classifications will provide the
needed clarity to consumers and dealers,
as well as regulators and manufacturers. "
The
Alliance for Automotive Innovation,
which represents GM and other
major auto companies, said automakers
should self-certify to Treasury what
classification a vehicle is marketed as, according
to comments submitted to the department
in November.
" There's a great many that are in the 'other'
classification, and that's largely due to crossovers
and SUVs causing a little bit of consternation
about how they're going to ultimately be
viewed by the government, " said John O'Donnell,
CEO of the Washington Area New Automobile
Dealers Association, adding that he's
" very optimistic " many of the vehicles will end
up with a " favorable " classification.
Meanwhile, Cadillac dealers such as Inder
tives say they expect almost 90 percent
of Lincoln's volume in North America
to be electric by 2030.
Chris Poulos, chairman of the Lincoln
National Dealer Council, told
Automotive News the timing of the announcement
makes sense.
" If you start the process too late, and
then there's delays, you're stuck and in
a bad place, " said Poulos, who is general
manager of West Point Lincoln in
Houston. " I do think there's some
thoughtfulness that's gone into the
timing. It does seem like it's early, but I
Stanton: Going to
be a challenge
McDonald:
Choose simplicity.
Dosanjh said customers interested in buying
the Lyriq are frustrated.
" Sometimes customers think we're making
this stuff up and then we have to take them to
the IRS website and show it to them, " said
Dosanjh, CEO of Dosanjh Family Auto Group.
" We're spending a lot of time explaining to customers
why Treasury thinks it's a car, not an
SUV. "
More leasing
One bright spot - especially for dealers selling
international brands, such as Hyundai Motor
Group, that do not yet have North American
EV assembly operations - could be in the commercial
clean vehicle credit, known as 45W.
Treasury, in its Dec. 29 release of preliminary
information, said EVs leased by consumers
could qualify for the credit, which is not subject
to the same eligibility restrictions as the
tax credit for consumers buying new
EVs, known as 30D.
The credit is limited to $7,500 for vehicles
weighing
less
than
14,000
pounds, and $40,000 for all other vehicles.
While
the credit does not transfer directly
to the consumer or lessee,
Scharf: Training
is delayed.
it
could be used by the lessor, or leasing
entity, to lower lease prices, several
dealers and tax experts said.
The alliance and the National Automobile
Dealers Association have applauded
the department's guidance on
45W.
" We don't know what the lessors are
Dearman: Not the
credit expected
going to do, but it's a competitive market, "
said NADA CEO Mike Stanton,
noting that he expects to see a much
higher penetration of leasing than if
the program were structured differently.
Hyundai
Capital America, the captive
finance partner of Hyundai, Kia and
Genesis brands, deferred comment to
the automaker when asked whether it
plans to pass along part or all of the
credit to consumers for leases. In a
statement, Hyundai said tax credits for
EV leases are a " positive development
for the entire auto industry and for the
broader adoption of EVs. "
Ford Motor Co.'s financial services
arm, Ford Credit, said it is eligible to
claim the tax credit on qualifying EVs
that it owns and leases to customers.
" Tax credits are included in the mix of
factors we consider as we work with
Ford to plan marketing programs and
other incentives, " Ford Credit spokesperson
Margaret Mellott said. " This allows
the tax credits to be used in a variety
of ways to support customers and
vehicle sales over time. However, these
are competitive decisions that we won't discuss
publicly. "
'Opposing the goals'
In the meantime, dealer associations and tax
professionals continue to field questions and
concerns as they await Treasury's release of
more information in March.
" The implementation strategy is currently
nothing short of a mess, effectively opposing
the goals of the legislation in many instances, "
said Zach Doran, president of the Ohio Automobile
Dealers Association. " They've made the
also can understand what the pitfalls
would be if they don't start early. "
Joe Hay, president of Jim Burke
Ford-Lincoln in Bakersfield, Calif.,
said opting into the Lincoln program
was a " logical decision " for his store.
He also enrolled in the top tier of
Ford's program, which requires an investment
of as much as $1.2 million.
" As a West Coast dealer, I see this as the
price of entry, " he said. " I don't know
how you could be successful in the retail
environment we find ourselves in in California
without being in the EV business. "
What took effect Jan. 1
Until the day after the U.S. Treasury
Department issues proposed guidance on
the critical mineral and battery component
requirements, eligible vehicles may qualify
for a tax credit between $3,751 and
$7,500 depending on the battery capacity.
Other rules that apply:
 Vehicle's final assembly must be in
North America.
 Manufacturer's suggested retail price
cannot exceed $80,000 for vans, SUVs
and pickups; $55,000 for " other "
vehicle types.
 A buyer's modified adjusted gross
income cannot exceed $300,000 for
joint filers, $225,000 for a head of
household or $150,000 for all other
taxpayers.
 Vehicle must have a gross vehicle weight
rating of less than 14,000 lbs.
 Vehicle must be powered to " a
significant extent " by an electric motor
with a battery capacity of 7 kWh or more,
and must be capable of being recharged
from an external source of electricity.
 Vehicle must be made primarily for use
on roads and highways and have at least
4 wheels.
Still to come
Critical mineral and battery component
requirements will take effect the day after
the U.S. Treasury Department issues the
proposed guidance, which is expected in
March.
 Once the proposed guidance is issued,
the $7,500 credit will be split into 2
halves: $3,750 if the battery contains at
least 40% critical minerals that were
extracted or processed in the U.S. or in
a country where the U.S. has a freetrade
agreement in effect, or from
materials that were recycled in North
America; and another $3,750 if at least
50% of the battery components were
made or assembled in North America.
Those percentage requirements rise
annually.
 Starting in 2024, the tax credit can be
transferred to the dealer at the point of
sale.
Source: U.S. Treasury Department, IRS
rules and regulations incredibly confusing for
both dealers and consumers alike. I'd liken it to
handing Olympic champion Michael Johnson
his gold shoes and then tying a piano to his
back. "
Doran said his group will continue to advocate
alongside NADA and help dealers through
the process.
NADA, which has set up a virtual hub on its
website to regularly update and educate dealers,
is urging the administration to establish a
VIN-based verification system that will easily
determine vehicle eligibility, especially once EV
battery sourcing rules take effect.
A VIN decoder available through NHTSA can
only verify where the vehicle was built.
" It needs to be simple. No one can be left
guessing. Type in 17 digits and get a 'yes or no,
this vehicle is eligible,' " Stanton said.
" Until that happens, it's just going to be a
challenge. " a
While much of the cost is expected to
go toward charging infrastructure, Hay
said the certification program also includes
necessary training for dealership
employees.
" The ensuing two years we have
gives us the time necessary not just to
get the infrastructure right, but to get
our teams trained, educated and ready
to speak EV fluently, " Hay said. " A lot of
the people we're hoping to get to look
at a Lincoln EV probably have owned
Teslas and are looking for something
different, new and exciting. They're experienced.
We have to be able to really
take the next two years to gain a lot of
ground and talk intelligently about the
future in a way we haven't been doing
today. "
Although he wishes Lincoln was selling
EVs today, Hay also said rolling out
requirements now gives dealers a
chance to prepare.
" Lincoln put a lot of time into trying to
get this right, " he said. " We don't have a
lot of opportunities to have misses. The
brand needs to make sure that when
this happens, it's done well. " a
Automotive News - January 16, 2023

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