Tax opportunities for LED lighting in car dealerships


Following the restructuring of the US auto industry, the US car market is now dominated by seven major consolidated car companies: General Motors, Ford, Chrysler/Fiat, Toyota, Lexus, Hyundai and Honda . In particular, as the US brands come back on their feet, each is rebranding itself as energy efficient by reducing the fuel consumption of all car models and consolidating its number of dealerships. In the quest to reduce operating costs, these dealers are investing in facilities that align with their brand’s fuel efficiency efforts.

To get an idea of ​​the kind of fuel efficiency efforts American car brands are making, consider Ford’s new EcoBoost engine. According to Ford, the EcoBoost engine combines advanced direct injection and turbocharging technology with a gasoline engine. The end result is an engine that can deliver up to 20% better fuel economy, 15% lower CO2 emissions and improved driving performance compared to larger displacement engines.

Car dealers are interested in both energy efficient interior lighting and energy efficient exterior lot lighting. They are becoming more comfortable with LED lighting technology because they have seen it being integrated into automotive headlight and taillight applications. LEDs are now being integrated into dealer showrooms and outdoor lots.

EPA Section 179D Tax Opportunities

Pursuant to Section 179D of the Energy Policy Act (EPAct), because licensees who make qualified investments to reduce energy use at their new or existing locations can get immediate tax deductions of up to $1.80 per square foot.

If the construction project does not qualify for the EPAct’s maximum immediate tax deduction of $1.80 per square foot, there are tax deductions of up to $0.60 per square foot for each of the building’s three major subsystems: lighting, HVAC (heating, ventilation, and air-conditioning). conditioning), and the building envelope. The building envelope is every element of the building’s exterior perimeter that touches the outside world, including the roof, walls, insulation, doors, windows, and foundation.

Unique Opportunity in 2011: Enhanced Bonus Tax Depreciation

Exterior lot lighting is normally eligible for MACRS depreciation, but building owners who install LED lighting systems after September 8, 2010 through December 31, 2011 can get a 100% depreciation tax credit. immediately. Even if building owners miss this 2011 window, they can enjoy a 50% tax depreciation bonus on equipment placed in service from January 1, 2011 through December 31, 2012.

Outdoor Lot Lighting

Exterior lot lighting is lighting that illuminates only the landscape or exterior of the building (but not parking areas or walkways), as well as lights for growing plants, but is not related to operation or maintenance of the building. Outdoor lot lighting systems are typically pole-mounted or freestanding and serve to illuminate sidewalks, parking lots, or recreation areas.

For the first time in US tax history, based on the additional depreciation benefits described above, 100% of the cost of an exterior lighting project is taxable.

Restructuring of dealership facilities at Ford, General Motors and Chrysler

With the total number of US dealerships falling from more than 30,000 to around 18,000, when sales volumes pick up, each dealership, by definition, will have to be a much larger facility capable of supporting higher sales and service volumes. There is a general decline in car sales in the US over the last decade and a drop in the number of car dealerships since 1970.

When energy efficiency tax incentives were first enacted in 2005, foreign car dealers were financially strong and focused on dominating the market for small, efficient cars, which meant that it was primarily foreign brands making energy-efficient lighting upgrades at their dealership locations and taking advantage of EPAct tax savings. For example, Emich Volkswagen of Denver has installed LED lighting throughout its new and used car dealership. The LED upgrade project reduced Emich VW’s lighting energy use by nearly 80% and the dealer will see a return on their investment in approximately 18 months based on their LED lighting energy savings and conservation rebates Offered by Xcel Energy and the City and County of Denver. .

Due to their restructuring and market demand for more efficient vehicles since 2008, American car brands have followed the example of their foreign counterparts.

Federal Lighting Bans

Dealerships that have not upgraded lighting in the past five years or more often have inefficient T-12 or metal halide lighting that is now federally prohibited from being produced or imported. Therefore, sooner or later these distributors will be forced to upgrade to more efficient lighting, such as T-5 and T-8 fluorescents, or the new high-efficiency LED lighting.

LEDs are up to four times more energy efficient than traditional incandescent bulbs, which means their ability to reduce operating energy costs is twofold: energy savings and related tax savings.


Ford has closed its old Mercury brand. Consequently, it has chosen to consolidate certain Ford and Lincoln dealerships throughout the country. Some combined-only Lincoln-Mercury dealers experienced lower gross sales volume than Ford-only or combined Ford-Lincoln dealers. While there are many factors that influenced Ford’s decision to reduce the Mercury brand, what is important is the effect that a reduced number of brands will have on Ford’s dealer strategy in the future.

Fewer brands in its portfolio, combined with its better financial position, will allow the automaker to focus not only on product quality, but also on cutting costs across the board. Ford’s anticipated annual operating profit of about $8 billion would be its best result since a profit of $10.2 billion in 2000, when US industry auto sales were 33 percent higher. Earning higher profits from lower sales volume has been a key to the company’s strategy since CEO Alan Mulally arrived in October 2006. Indications are that some of the required building upgrades will range from $300,000 and $1,500,000 per dealer. Some dealers balk at these numbers, which may result in more closures unless dealers are receptive to the energy and tax savings that come with more efficient lighting equipment. Upgrading to long-lasting power LED lighting is one way to reduce ongoing operation and maintenance costs.

general motors

The largest reduction in dealership facilities has been at General Motors which has been reduced to 4 brands namely Cadillac, Chevy, Buick and GM after shedding Oldsmobile, Pontiac, Saab, Saturn and Hummer. GM has launched the largest and most extensive rebranding plan for domestic car dealers. They sent inspectors to look at all attributes of their dealership facilities, including appearance, location, and overall quality. Many dealers who were lucky enough not to be laid off are now required to make major facility upgrades.


Chrysler merged with Fiat, giving Fiat a major US distribution network for its line of more fuel-efficient products. Recently reported dealer data indicated that the average Chrysler dealer’s pre-tax earnings fell to $150,000 during the economic downturn. This means that a $15,000 reduction in facility energy operating costs equates to a 10% increase in pre-tax earnings.

Dealers can bundle energy-efficient LED lighting with energy-efficient HVAC in both the air-conditioned (air-conditioned) and non-air-conditioned portions of the facility for $1.20 per square foot of EPAct tax deductions.


The newly configured American auto industry is increasingly focusing on fuel efficiency, both for vehicles and dealer facilities. By upgrading interior and exterior lot lighting to LED, dealerships have the opportunity to significantly reduce their energy expenses while realizing substantial tax savings.

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