Why Profit Participation Matters
Dealership profitability doesn’t end with vehicle sales or F&I product margins. Profit participation programs create opportunities for dealers to capture underwriting and investment income, helping to build both short-term cash flow and long-term wealth.
How Properly Structured Programs Help Dealerships: Well-designed profit participation programs can:
- 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. There is no one-size-fits-all model. Each structure offers distinct advantages and considerations. Common Profit Participation Structures:
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 capital 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 known as a Controlled Foreign Corporation (CFC)
Advantages:
- Maximizes participation with favorable tax treatment
- Requires minimal upfront capital
- Funds remain in the United States
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 long-term investment
- 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
- Increased regulatory and administrative complexity
Note: In the retail automotive industry, this structure is often referred to as a DOWC (Dealer Owned Warranty Company).
Retail PARC
Advantages:
- Combines favorable attributes of the PARC and DOOC structures
- Typically suited for larger dealer groups or high-performing single-point stores
Considerations:
- Eventually taxable at federal and state levels
- Relatively new structure with evolving guidelines
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 are subject to an additional 1% excise tax
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?
There really is no superior structure. The best fit depends on your specific needs, access to cash, investment interest, and risk tolerance. It’s important to consider both your short-term and long-term goals and reevaluate as your business evolves.
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 and evolve.
- This partnership ensures participation programs are not only profitable but also sustainable over time.
- Board approval required for distributions.
To learn more about the ideal profit participation program or consult on your current structure and investment strategy, feel free to visit our profit participation program page or contact Heather.wilkinson@jmagroup.com. I’ll be sure to send a link to our online profit participation assessment so you can get started!
