Dealer Owned Warranty Company

HOW IT WORKS

Let’s say the service contract is sold to the consumer for $2,000. If we assume the dealership profit is $1,000, that means the remainder is held by a third party who controls the funds to its own benefit. -The DOWC structure proves there’s a better way. With a dealer-owned warranty company, a dealer forms a separate C corporation that controls the entire service contract transaction and all funds including investments. The DOWC serves as the provider of the service contracts and is treated as an insurance company for tax purposes.

At Malibu Financial, our dealer-owned warranty company is a testament to our commitment to excellence in customer service and satisfaction. With transparent policies and customizable warranty methods, we prioritize meeting the diverse needs of our clients. Our company ensures your vehicle investment is protected with top-tier coverage and reliable service.

Our dealer-owned warranty company offers comprehensive dealers warranty packages to ensure the longevity and reliability of your vehicle. With a focus on customer satisfaction, we provide transparent and flexible warranty options tailored to your needs. We stand as a testament to our commitment to excellence and integrity in the automotive industry.

We take pride in being recognized as one of the best extended warranty companies in the industry. Our firm offers top-tier coverage and exceptional service to ensure customer satisfaction. With transparent policies and customizable plans, we strive to meet the diverse needs of our clients.

A DOWC brings the tax advantages of the insurance industry to Automotive F&l, creating a true wealth-building opportunity for dealers. Here’s how that works.

Let’s go back to that $2,000 service contract with a term of, say, 10 years. Now, because the term of the service contract is 10 years, the earned premium for the first year is only $200. The rest is considered unearned premium reserves, or UPR, that gets earned over the rest of the term.

For accounting purposes, these UPR funds are considered a liability, not an asset. As the years go by, the UPR becomes earned and is initially regarded as taxable income until it is offset. One thing that’s important to note is that the rate of earnings is affected by the IRS’s requirement to reduce deductions by 20% for increases in unearned premium. Now let’s get back to that offset. The commission the dealership earns on the sale of the service contract which was the dealership profit in the traditional scenario,plus incentives, administrative and insurance fees, management fees, and any other expenses, these are all considered acquisition costs for the warranty company.

That’s right, what is considered profit for the dealership is treated as an expense for the DOWC. So thanks to the unique structure of a DOWC, the same $2,000 service contract will result in a net operating loss, or an NOL. that can be carried forward every year for the duration of the service contract. In this example, the resulting net operating loss for the first year is a negative $1,200. This loss is carried forward to result in an NOL for seven years, only as modified by tax requirements.

Here’s why this is so important. The annual net operating losses can be used to offset

as much as 100% of taxable income in a given year, while still carrying a loss to the following tax year. and unlike many reinsurance structures, investment income is not taxed separately. But it gets even better, because say that in year five or so, there is a claim. Any payments for that claim will only add to the net operating loss, extending the window that the NOL can be carried forward. And you can do all this without having to go the route of setting up an overseas entity. Want to see how this could benefit your dealership?

WHO IS IT FOR?

A DOWC company is a great option for large dealer groups. Typically dealers with more than 5 rooftops or dealers that are exceeding $2.8 million dollars per year in extended warranty premiums.

With a DOWC you can expect

More access to cash to fund growth, floor plans, financing,leasing programs, or other investments.
Security in a down economy
Maximized F&I Profits
Private Labeled Warranties
Low fees