How Properly Structured Programs Help Dealerships
- Strengthen cash positions for acquisitions, debt reduction or reinvestment
- Improve team performance through aligned incentives
- Maximize revenue beyond standard commissions
- The right program, however, depends on each dealer’s financial goals, risk tolerance and growth strategy.
Common Profit Participation Structures
There is no one-size-fits-all model. Each program comes with distinct advantages and considerations:
1+ Program
- Advantages: Immediate access to additional per-contract commissions, flexible timing of distributions, ideal for dealers seeking liquidity.
- Considerations: No built-in investment management; best suited for dealers with a clear deployment plan.
Retrospective Commission Program
- Advantages: No upfront capital required, no dealer liability for losses, transparent way to gain experience before reinsurance.
- Considerations: Lower long-term earning potential compared to other participation options.
PARC (Producer Affiliated Reinsurance Company, also called a Controlled Foreign Corporation or CFC)
- Advantages: Maximizes participation with favorable tax treatment, requires minimal upfront capital, funds remain in the U.S.
- Considerations: Premium limits may require additional structures for growth; subject to controlled group rules.
Dealer Owned Operating Company (DOOC)
- Advantages: Defers taxes for several years, strong option for investment, and flexible for dealers with sufficient sales volume, whether part of a large group or a high-performing single-point store.
- Considerations: Eventually taxable at federal and state levels; more complex regulatory oversight.
- Note: In the industry, this structure is often referred to as a DOWC (Dealer Owned Warranty Company).
Retail PARC
- Advantages: Combines favorable attributes from the PARC and DOOC structure options; typically suited for larger dealer groups or high-performing single-point stores.
- Considerations: Eventually taxable at federal and state levels; relatively new structure.
Non-Controlled Foreign Corporation (NCFC)
- Advantages: No annual premium limits, typically suited for larger dealer groups or high-performing single-point stores; qualified dividends taxed at long-term capital gains rates, professionally managed investments.
- Considerations: Offshore funds subject to an additional 1% excise tax, requires board approval for distributions.
Key Factors to Consider
Choosing the right profit participation program requires careful assessment of both short-term and long-term needs. Dealers should ask:
- How important is immediate access to cash?
- What level of investment oversight do we want?
- What is our appetite for risk and regulatory complexity?
- How will this structure support future expansion or succession planning?
How the Right Partner Adds Value
Profit participation is more than a financial decision. A full-service F&I partner provides:
- Expertise in structuring programs that align with dealership goals
- Performance coaching to maximize F&I profitability, fueling participation returns
- Ongoing guidance to adjust strategies as dealership needs change
This partnership ensures participation programs are not only profitable, but also sustainable over time.
Take the Next Step
For a deeper dive, watch the full webinar: Maximizing Dealership Profitability: The Potential of Profit Participation Programs. JM&A Group experts Ian Hunter and Chris Bhim break down participation models, key benefits, and questions to ask when selecting the right program.
.png?width=450&name=JM%26A_Healt-Captive-Blog-Image_OG-index-image-v2%20(1).png)
< 1 min read
