Canada: COVID-19: Support For Auto Dealerships In Ontario

Like many businesses, auto dealerships in Ontario have had to navigate a very uncertain path over the last few weeks as they deal with the rapid changes resulting in the COVID-19 pandemic. For public safety, the province has directed public showrooms to close, resulting in the reduction of showroom and support staff and an abrupt pivot towards digital methods of selling automobiles. As of this moment, dealerships have been allowed to stay open in order to provide auto parts and vehicle maintenance services to clients, albeit with strict new safety protocols requiring social distancing and hygiene measures.

In fact, I experienced the new service model first-hand as I had my snow tires removed last week. My car dealer had always provided a high level of client service; however, this time, I was not allowed in the car showroom. Instead, the entire transaction was delivered according to new safety protocols: a professional from the garage donning protective gear and seat covers picked up my vehicle, drove my vehicle to the garage to switch out the tires, returned my car to me fully sanitized and took my payment information over the phone by credit card. No contact at all!

We have witnessed a tremendous amount of ingenuity as Ontario auto dealerships move their showrooms online—an already growing trend in the auto industry. Yet, closing traditional showrooms has also meant that many auto dealerships have had to reduce their staff temporarily. In these cases, we suggest impacted businesses consider Supplemental Unemployment Benefit Plans as an option for those employers who wish to continue supporting employees while the bulk of their income is carried by Employment Insurance.

Many auto dealerships are capital intensive businesses, with large spaces and equally large rents. They have been looking for advice on cutting costs, streamlining businesses and preserving cash flow. Although there are no details yet, the federal government has promised rent support to assist small and medium-sized businesses amid the pandemic. In the meantime, many businesses have been trying to negotiate rent reductions with landlords, although not all landlords are amenable to deferring rent at this time as they, in turn, may be struggling to pay mortgages and other expenses. On April 16, the federal government announced it would offer loans, to commercial landlords who offer rent reductions to businesses and we hope this can provide some relief.

We have also been guiding clients through the interpretation of some recent government measures to help Canadian businesses, many of which have been updated several times over in recent weeks.

For instance, although most auto dealerships will not qualify (particularly larger auto dealership groups) those with taxable capital for the preceding year less than $15,000,000, calculated for an associated group basis, may qualify for the Canada Temporary Wage Subsidy for Employers (TWSFE). This measure permits eligible employers to reduce the amount of payroll income tax remittances made to the Canada Revenue Agency between March 18, 2020 and June 19, 2020 subject to certain limits and restrictions.

Fortunately, many auto dealerships may be eligible for the Canada Emergency Wage Subsidy (CEWS), which is in place from March 15, 2020 until June 6, 2020 and will allow eligible employers to have experienced a reduction in gross revenue of no less than 15 per cent in March, and no less than 30 per cent in April and/or May. Eligible employers will have to demonstrate that they have the requisite drop in revenue and there will be a waiting period to receive compensation for wages paid.

Though larger auto dealership groups may not be eligible for the Canada Emergency Business Account (CEBA) (available to Canadian employers with $20,000 to $1.5 million in total payroll for 2019) they may be eligible for the EDC Loan Guarantee for Small and Medium Enterprises (EDC) or the BDC Co-Lending Program for Small and Medium Enterprises. The EDC allows financial institutions to issue operating credits and cash flow term loans of up to $6.25 million to existing clients with 80 per cent guaranteed by the EDC. The BDC program provides term loans for operational and liquidity needs of businesses. The loans are segmented to target three different business sizes:

Auto dealerships may also defer their GST payments pursuant to relief measures announced by the provincial government. While these relief measures defer payment and allow business to preserve cash flow, businesses will still need to file their returns on a timely basis and consider how to pay these taxes down the road.

Over the last few weeks, our auto dealership clients have been able to focus on the shorter-term solutions available to them. Down the road, there may be new ways of doing things, more streamlining and new business models to follow. We're not sure where the industry will land yet since this is still playing out. We are doing all we can to support our clients right now and want to do the best for everyone to ensure we all make it through this situation together.

How Can Crowe Soberman Support You?

In these uncertain times, it is essential to remain agile and proactive as the COVID-19 situation unfolds. Having timely access to financial experts, insights and news as quickly as possible is critical—and that's where we can help.

We have established a dedicated COVID-19 Resource Hub, highlighting areas of business operations that will likely be impacted by coronavirus. Whether you need to discuss your current financial situation and learn what options are available to you, or you want to be guided through the appropriate cash flow management strategies for your business, our team of experts are ready to help you at every step of the way. Please do not hesitate to reach out to your Crowe Soberman professionals for support during these challenging times.

Originally published 23 April, 2020

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