Introduction

Following the restructuring of the American auto industry, the American auto market is now dominated by seven major established auto companies: General Motors, Ford, Chrysler / Fiat, Toyota, Lexus, Hyundai, and Honda. In particular, as American brands rebound, each is redesigning itself as energy efficient by reducing the fuel consumption of all car models and consolidating its number of dealerships. In the quest to reduce operating costs, these dealers are investing in facilities that match their brand-name fuel efficiency efforts.

To get an idea of ​​the kind of fuel efficiency efforts American car brands are making, consider Ford’s new EcoBoost engine. According to Ford, the EcoBoost engine combines advanced direct injection and turbocharging technology with a gasoline engine. The end result is an engine that can deliver up to 20% more fuel economy, 15% less CO2 emissions, and improved driving performance compared to larger displacement engines.

Car dealerships are interested in both energy efficient interior lighting and energy efficient exterior batch lighting. They are becoming more and more comfortable with LED lighting technology because they have witnessed how it has become widespread in automotive headlight and taillight applications. LEDs are now being integrated into dealer showrooms and outdoor lots.

Section 179D EPAct Tax Opportunities

Pursuant to Section 179D of the Energy Policy Act (EPAct), auto dealers who make qualified investments to reduce energy at their new or existing locations can earn immediate tax deductions of up to $ 1.80 per square foot.

If the construction project does not qualify for EPAct’s maximum immediate tax deduction of $ 1.80 per square foot, there are tax deductions of up to $ 0.60 per square foot for each of the three main building subsystems: lighting, HVAC (heating , ventilation, and air conditioning), and the building envelope. The building envelope is every element of the building’s outer perimeter that touches the outside world, including the roof, walls, insulation, doors, windows, and foundation.

Unique Opportunity in 2011: Enhanced Bonus Tax Depreciation

Outdoor lot lighting is normally eligible for MACRS depreciation, but building owners who install LED lighting systems after September 8, 2010 through December 31, 2011 can receive a 100% depreciation tax credit immediately. Even if building owners miss this 2011 window, they can still enjoy a 50% tax depreciation bonus on equipment placed in service from January 1, 2011 through December 31, 2012.

Outdoor Lot Lighting

Exterior lot lighting is lighting that illuminates only the garden or exterior of the building (but not parking areas or hallways), as well as lights for growing plants, but is not related to the operation or the building maintenance. Outdoor lot lighting systems are typically pole-mounted or freestanding and are used to illuminate sidewalks, parking lots, or recreation areas.

For the first time in US tax history, based on the additional depreciation benefits described above, 100% of the cost of an outdoor lighting project can be expensed for tax purposes.

Dealer facility restructuring at Ford, General Motors and Chrysler

With the total number of US dealerships falling from more than 30,000 to approximately 18,000, when sales volumes recover, each dealership will by definition have to be a much larger facility capable of supporting higher sales and service volumes. There is a general decline in US car sales over the last decade and a drop in the number of car dealers since 1970.

When energy efficient tax incentives were first enacted in 2005, foreign car dealers were financially strong and focused on dominating the small efficient car market, which meant that it was primarily foreign brands that were making improvements from energy efficient lighting at your dealer locations and taking advantage of EPAct tax savings. For example, Emich Volkswagen of Denver has installed LED lighting throughout its new and used car dealership. The LED modernization project reduced Emich VW’s lighting energy use by nearly 80% and the dealership will realize a return on their investment in approximately 18 months based on the energy savings from their LED lighting and conservation rebates offered by Xcel Energy and the City and County of Denver.

Due to their restructuring and market demand for more efficient vehicles since 2008, American car brands have followed suit with their foreign counterparts.

Federal lighting bans

Dealerships that have not updated lighting in the last five or more years often have inefficient metal halide or T-12 lighting, the production or import of which is now prohibited by the federal government. Therefore, sooner or later, these dealers will be forced to upgrade to more efficient lighting such as T-5 and T-8 fluorescents, or new high-efficiency LED lighting.

LEDs are up to four times more energy efficient than traditional incandescent bulbs, which means their ability to reduce energy operating costs is twofold: energy savings and the related tax savings.

Ford

Ford has closed its old Mercury brand. As a result, it has chosen to consolidate select Ford and Lincoln dealerships across the country. Some exclusively combined Lincoln-Mercury dealers experienced lower gross sales volume than either Ford-only dealers or combined Ford-Lincoln dealers. While there are many factors that influenced Ford’s decision to cut the Mercury brand, what is important is the effect that a reduced number of brands will have on Ford’s dealership strategy going forward.

Fewer brands in its portfolio, combined with its improved financial situation, will allow the automaker to focus not only on product quality, but also on cost reductions across the board. Ford’s anticipated annual operating profit of about $ 8 billion would be its best result since a profit of $ 10.2 billion in 2000, when US industry auto sales were 33 percent higher. Achieving higher profits with lower sales volume has been a key to the company’s strategy since CEO Alan Mulally arrived in October 2006. There are indications that some of the building improvements required will range from $ 300,000 to $ 1,500,000 per dealer. Some dealers balk at these numbers, which can result in more closings unless dealers are receptive to the energy and tax savings that come with more efficient lighting equipment. Upgrading to long-lasting power LED lighting is one way to reduce ongoing O&M costs.

General motors

The biggest reduction in dealer installs has occurred at General Motors, which has been down to 4 brands, namely Cadillac, Chevy, Buick and GM after ditching Oldsmobile, Pontiac, Saab, Saturn and Hummer. GM has launched the largest and most widespread reimaging plan of any national auto dealership. They sent inspectors to analyze all attributes of their dealership facilities, including appearance, location, and overall quality. Many dealerships that were fortunate enough not to be canceled are now required to make major facility improvements.

Chrysler

Chrysler has merged with Fiat, giving Fiat a major distribution network in the US for its line of more fuel-efficient products. Recently reported dealership data indicated that Chrysler dealership’s average pre-tax earnings fell to $ 150,000 during the economic downturn. This means that a $ 15,000 reduction in facility energy operating costs equates to a 10% increase in pre-tax earnings.

Dealers can combine energy efficient LED lighting with energy efficient HVAC in air-conditioned and non-conditioned parts of the premises for $ 1.20 per square foot of EPAct tax deductions.

Conclution

The newly formed American auto industry is increasingly focused on fuel efficiency, both for vehicles and for dealer facilities. By upgrading indoor and outdoor lot lighting to LED, dealers have the opportunity to significantly reduce their energy costs while gaining substantial tax savings.