The Last-In, First-Out (LIFO) method is preferred by many industries because it has the effect of reducing a company’s taxes and therefore increasing cash flow. Approximately 70% of auto dealers utilize the LIFO method.
The LIFO method is an inventory valuing method that assumes that the last items placed in inventory are the first sold during an accounting year. During inflation, when prices are rising, the LIFO method yields a lower ending inventory, a higher cost of goods sold, a lower gross profit, and a lower taxable income. However, inflation is projected to be lower this year than we have seen in the past.
As an alert to our auto dealer clients, low inflation will mean tax deductions will be reduced for most auto dealers. Inflation rates are based on individual brands and your results may vary depending upon your mix of vehicles.
Inflation percentage by brand for new vehicles for 2016 and 2015 are included in the table below for comparison. As you can see from the data, LIFO indexes will be lower this year for most manufacturers indicated in red. The brands that are defying this trend and have seen an increase in inflation are: Acura, Buick, Cadillac, Honda, Infiniti, Lexus and Toyota.
| Manufacturer | 2016 Inflation/ (Deflation) Percentage | 2015 Inflation/ (Deflation) Percentage |
| Acura | 0.700% | 0.491% |
| Audi | 0.307% | 0.452% |
| Buick | 0.144% | (0.858%) |
| BMW | 1.145% | 1.642% |
| Cadillac | 0.245% | 0.085% |
| Chevrolet | 1.025% | 2.051% |
| Chrysler | 0.251% | 3.033% |
| Dodge Ram | 0.996% | 3.154% |
| Ford | 2.203% | 2.487% |
| Fiat | (2.432%) | 1.482% |
| GMC | 0.955% | 2.631% |
| Honda | 0.615% | 0.205% |
| Hyundai | (0.064%) | 0.523% |
| Infiniti | 0.234% | (0.053%) |
| Jeep | 1.219% | 2.361% |
| Jaguar | 0.424% | 1.026% |
| Kia | 0.785% | 0.996% |
| Lincoln | 0.002% | 0.454% |
| Lexus | 0.396% | 0.300% |
| Mazda | (0.148%) | 0.086% |
| Mercedes | 0.362% | 0.686% |
| Mitsubishi | 0.649% | 0.889% |
| Nissan | 0.305% | 1.253% |
| Porsche | 0.146% | 0.162% |
| Land Rover | 0.000% | 0.000% |
| Subaru | 0.591% | 0.839% |
| Toyota | 1.723% | 0.781% |
| Volvo | 0.119% | 0.131% |
| Volkswagen | 0.408% | 1.068% |
Data provided by: SourceHOV|Tax
If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or at 800-849-6022.
