White House Announces Guidelines For Re-Opening The U.S. Economy
Department of Homeland Security Calls Auto Service AND Sales Essential
Late last week, the U.S. Department of Homeland Security Cybersecurity & Infrastructure Security Agency amended its list of essential critical infrastructure workers to include those engaged in vehicle sales. Automotive service had been deemed essential in the early days of the pandemic’s impact on the U.S. economy.
This federal guidance is an excellent development but doesn’t impact New Jersey unless (or until) Governor Murphy amends his Executive order, again, to reopen showrooms, which is not likely to happen until the end of April (at the earliest).
NJ CAR is currently working on a plan to present to the Governor’s office that would allow showrooms to reopen, by appointment, but we are not likely to see any movement until the end of the month or sometime in May, at the earliest. In the meantime, online sales and “contactless” delivery of vehicles are allowed in New Jersey.
New Jersey Snapshot Of Early April Sales And Service
NJ CAR conducted a brief survey on the pandemic’s impacts on sales and service from April 1-15, 2020. With approximately 50 respondents (about 10% of New Jersey dealerships), 92% were open for online sales and 90% were open for service.
The results also found that new vehicle sales in the first half of April were down 78% from the same period last year and used vehicle sales were down 80%. Additionally, service department revenue was down 58% and repair orders were down 46%.
Congress Prepares To Vote On Additional Coronavirus Aid For Businesses
While the White House and congressional negotiators continue to work on an agreement to bring additional coronavirus aid to businesses, the House is preparing to vote, as soon as Wednesday, on a new coronavirus aid package, once an agreement is in place. The Senate could vote as early as Friday.
According to reports, the aid package being discussed was expected to be between $400-500 billion, including $300 billion more for the Small Business Administration’s Paycheck Protection Program, $50 billion for the Economic Injury Disaster Loan, and $100 billon for hospitals and testing.
Additional state and local government funding and a boost in food assistance funding are not expected to be part of a final agreement, according to reports, but elements of the agreement may change.
Dealers In Hardest Hit Areas Of Country Find Little Or No Forgiveness In SBA Loan Program
The Paycheck Protection Program (PPP) is a powerful tool designed to pump liquidity into the market and keep small- and mid-sized businesses afloat and working men and women on the payroll and off the unemployment line. But, in the most severely affected areas of the country, it is not providing sufficient relief to the businesses it was intended to help. The benefits of the Program are being hampered by the strict public health and safety measures needed to minimize the horrific impact of the ongoing COVID-19 pandemic.
Many businesses in the hardest hit areas of the country have qualified for (and received) SBA money, only to discover that the formula used to calculate loan forgiveness penalizes employers that cannot immediately rebuild their workforce to pre-COVID 19 levels.
While many businesses can easily qualify for sevein-figure loans, deductions for loan forgiveness fall disproportionately hard on businesses at the epicenter of the crisis. Simply put, the drastic, dollar-for-dollar deduction applied for falling below pre-crisis payroll levels has a crushing and disparate impact on businesses in the most hard-hit regions of the county.
While the SBA program was designed to fund payrolls and to keep employees off the unemployment rolls, in many parts of the country, the program simply is not working that way. There are three reasons why:
- Strict and sweeping Executive Orders issued by Governors, Mayors and County Executives in the most hard-hit areas require people to stay home and this has consumers and workers unwilling to venture out or return to work;
- OSHA rules and employers’ sincere desire to protect employee health and safety make it difficult to call workers back to work at pre-crisis levels without creating a public health risk or an unsafe work environment; and
- Many workers are under the mistaken impression that unemployment insurance eligibility rules have been relaxed and now allow workers who are offered an opportunity to return to work to turn it down if they fear potential exposure to COVID-19 on the job.
Employers in high operating expense businesses (like auto retail) and high cost of doing business areas of the country (such as northern New Jersey and the New York Metro area) simply can’t make the SBA program pencil. Employment at pre COVID-19 crisis levels is unattainable and, in any event, would run counter to state and local government directives to “stay home” and the employers’ obligation to ensure a safe place for workers and customers.
Indeed, the federal loan forgiveness formula penalizes business owners who put the health and safety of their customers and employees first and who adhere to strict State and local stay-at-home orders. The federal stimulus package rewards back-to-work, while many State and local authorities are still urging caution.
There is an urgent need to harmonize State/local stay-at-home orders with the back-to-work bias of the SBA loan program. This could be accomplished in either one of two ways:
- SBA loan forgiveness penalty for a reduction in FTE or payroll below 75% of pre-crisis levels (for employees who made under $100,000 in 2019) should be calculated based on employment and payroll levels for the 8-week period starting after a state or local stay-at-home order affecting the borrower has been lifted, rather than the 8-week period after loan origination; or
- SBA loan forgiveness penalty for a reduction in FTE or payroll below 75% of pre-crisis levels (for employees who made under $100,000 in 2019) should be calculated based on employment and payroll levels on June 30, 2020 or a date that falls 30 days after a State or local stay-at-home order affecting the borrower has been lifted, whichever date is later, rather than the average FTE or payroll levels (for employees who made under $100,000 in 2019) during the 8-week period following loan origination.
NADA Publishes Updated Guidance On How To Use PPP Loans & Maximize Forgiveness
NADA has recently updated its Payment Protection Program (PPP) document entitled PPP Loans: Use of Proceeds and Forgiveness NADA Preliminary Guidance. The document provides guidance for dealers on how they can use the loan proceeds, where they can apply them, and to what extent the loan can be forgiven. The information is preliminary and does not reflect the additional guidance expected from SBA/Treasury, which will be communicated as soon as it is released.