When it's really just the IRS's classification of cars and the confusion surrounding the new Inflation Reduction Act.
Aspiring electric vehicle owners will be relieved to know the Inflation Reduction Act is officially in place, but many auto dealers are citing frustration with the lack of information and are seeking clarity on the matter.
Several retailers told Automotive News (AN) that with the new restrictions being enforced, more guidance is needed from automakers and the federal government. To make matters worse, Treasury failed to meet a deadline pertaining to the proposed guidance on the credit's mineral and battery component requirements.
In lieu of this, the department has said it will issue the guidance in March. As you'd expect, this has placed a strain on dealers hoping to sell EVs to eager customers.
John Luciano, purveyor of Volkswagen vehicles in Amarillo, Texas, said he and his employees are very confused by the tax credit. Street Volkswagen staffers have resorted to telling customers that they simply "don't know" when asked about their eligibility. "It's not always the best answer, but it's honest. We're too afraid of getting it wrong."
While some dealers are playing it safe, others are trying to assist customers cautiously. Mike DeSilva of Liberty Auto Group said, "we're telling ... our customers that are buying EVs ... to inquire with their own tax accountants ... because we can't issue guidance on whether or not they qualify for the credit."
"We just don't have the answers," added DeSilva.
Retailers selling EVs to those seeking the incentive are required to provide a report to the buyer on the date the vehicle is purchased. They're also required to send a report to the IRS within 15 days after the end of the calendar year it was sold. With many dealers not sure what to do, this will make things tricky for both consumers and retailers.
Carl Scharf, a tax shareholder at Schneider Downs' automotive advisory group, said his firm is being inundated with questions from puzzled clients, which consist of large dealerships. Scharf believes delayed training is also to blame for this mass confusion.
"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.
The delayed guidance on mineral and battery component requirements may cause yet another problem. The credit becomes active once the customer takes delivery of the vehicle. But if a customer places an order now and only receives the vehicle in a month or two, the credit could be reduced during that time owing to potential changes to legislation.
EVAdoption CEO Loren McDonald believes this may lead to slowed EV sales and adoption. "I subscribe to the old theory that, when faced with complexity, [consumers] choose simplicity. At the end of the day, they might just choose a lower-cost [ICE] vehicle or hybrid … because it's an easier decision."
Like Scharf, he believes dealers require training to better understand the incentives. "I can't imagine that dealers are prepared to untangle this."
Another issue facing customers and perplexing dealerships is the peculiar vehicle classification system employed by the government. The Cadillac Lyriq, for example, is curiously classified as a car and not an SUV. The government deems an SUV as a vehicle that has a gross weight of more than 6,000 lbs or has three-row seating.
This has infuriated potential Lyriq owners, said Cadillac dealer Inder Dosanjh. "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. We're spending a lot of time explaining to customers why Treasury thinks it's a car, not an SUV."
A Treasury spokesperson told AN that it used corporate average fuel economy (CAFE) standards for its classification. "[These are] preexisting - and long-standing - EPA regulations that manufacturers are very familiar with. These standards offer clear criteria for delineating between cars and SUVs."
There is a glimmer of hope in all of this. Leasing an electric car could potentially be cheaper, and benefit brands like Hyundai which currently does not assemble EVs in America. According to preliminary information released by Treasury, the 45W commercial clean vehicle credit won't be given to the customer, but rather to the lessor who can then reduce lease rates.
While Hyundai didn't confirm whether it will pass these benefits on to consumers, it did say the EV lease tax credit is a "positive development for the entire auto industry and for the broader adoption of EVs." Ford Credit issued a similar statement to AN, noting "This allows the tax credits to be used in a variety of ways to support customers and vehicle sales over time."
So is there a way to remedy the situation for retailers and their confused customers?
It seems that way. When the mineral and battery component guidance is released in March, it should clear things up for everyone involved. For now, however, dealers remain in the dark.
"The implementation strategy is currently nothing short of a mess, effectively opposing the goals of the legislation in many instances. They've made the 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," explained Zach Doran, president of the Ohio Automobile Dealers Association.
Working together with the National Automobile Dealers Association (NADA), Doran will help dealers through the process. NADA is hoping the NHTSA will establish a VIN-based decoder that will be able to tell consumers whether a vehicle is eligible or not.