Demo vehicles

[Brianp]

I would like to ask all of you what your opinion is on Demo Vehicles? Our dealer is planning to pull all demo's from all the department managers on Sept 1 2001. A Demo allowance will be provided but would hardly cover the cost to lease/own a vehicle. I have had a demo for nearly 6 years with not one problem. The reason told was that if there is an accident the parties involed would come after the Dealer and there was a 17% increase in insurance cost, we have not had any altercations. This situation is frustrating and there are more positives than negatives to keep the demos in place.
Your feedback is appreciated!

Shopping for a good pair of walking shoes...

[fburrows]

Brian:

When we were negotiating the insurance for the dealership I asked on several occasions How much would our premium drop if we eliminated demos The answer from all the companies was nothing. The insurance premiums are based on the dealerships prior experience and if that experience is what determines the renewal premium. Now the industrie's loss experience will also affect what base rates the insurance company charges.

The reason given is that the demos are the dealerships greatest liability potential. So the reasoning is that eliminating the cars will reduce the potential for large increases. The cars obviously offer a valuable incentive for managers and you really have to consider that you are taking a cut in pay. There has been a trend to get rid of demos. You have to evaluate your overall situation and then decide whether it is worth trying to renegotiate your pay plan or perhaps a change.




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Frank Burrows
Automotive Business Solutions
frank@autobusiness.org

[jargonaut]

This is really an interesting topic and as a warranty administrator who had for over 10 years a company demo at various dealers I have strong feelings on the matter.
I remember being peeved when the tax laws changed and we were taxed on demos and more peeved when dealers started taking them away , sometimes offering some incentive monies toward my own wheels or an allowance. Business is business and while getting a demo was always a great thing for me I realize the economics shifting all the time for a dealership makes business decisions sometimes painful for employees (no different from what I read about in nearly every other industry in our country). My fortune was in understanding a demo is a privilege and you cant always count on it being there for you. Get them when you can and cherish them since I saved each month the money equal to a car payment just for when I would no longer have a demo. But unless you can leverage a better deal elsewhere or more allowance from your present dealer , realize the chances are less and less demos will be a perk in future.

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Alan The Warranty Guy

[Hawk]

As a dealer in a small dealership, we still believe in demos, but only for the sales department. It adds no cost to insurance policies, but I agree that there is potential. We believe it helps us recruit salespeople. Otherwise, I am not a believer in demos for other managers...mainly because the hassle of managing them.

Tom Hawkins

[missyr]

As the controller for a large dealer group, I have seen and heard just about every imaginable argument both for and against demo's. The bottom line for most dealers is this: having employees driving company vehicles is too great a risk. This is no reflection on any particular employee and their proper or improper use of their demo. Who among us has not made a traffic error or driving slip that could have caused an accident? This inherent risk is worse in "open" demo plans where no personal use is prohibited. Employees who drive demo's on vacations, nights out on the town, let their spouses and sometimes even children operate the demo ("just to run to the store", etc.) increase the risk. As a company we found that the demo plan had us probing into too many areas of an employee's personal life and habits (driving records, accident reports, mileage logs for tax purposes, etc.)

For these and also cost reasons, we replaced the demo plan with a generous allowance to department managers (obviously "generous" being the key word in determining if you are taking a pay cut). If a dealership is properly taxing its employees on demo use, you must consider this too when weighing allowance vs. demo. In other words, the car was not free to you anyway by the time you paid taxes on it as a benefit. Since we did make sure that we provided an allowance that would allow managers to buy a comparable vehicle to what they were driving, we had unexpected appreciation from employees who had previously driven demos because they were "free" but really didn't care to drive a new car. They took their demo allowances, bought a cheap car and used the rest for other things their whole family could enjoy.

Once the shock was over, it has turned out to be a great move for both our company and our employees. Again assuming the allowance is reasonable, try to view it as getting complete control over a chunk of your income in cash $$ instead of your employer deciding for you that you will "spend" this money on a car.

[reneek]

Our dealership did away with demos for all department managers except Sales Managers and our General Manager. We made the change when the IRS dictated that we tax nonexempt employees driving demos (the sales department is considered exempt). What a hassle! It was much easier for us to take them away. YES it was painful for those that were affected, however, the dealership offered a demo allowance and at that time (12/97), there were some terrific lease/retail rates out there that helped to soften the blow. We have continued to stick to this policy and it works for us. There is not an option.

It has also helped us to reduce our insurance costs, not because of doing away with the demos, but we have fewer claims with the insurance company involving accidents, thefts, etc. There is too much of a liability out there, and these days with the public being sue happy, a law suit could be devastating to a dealer, even if you are a large dealership.

Also, the market is so competitive you cannot afford to have several miled demos sitting on your lots. They are much harder to sell unless you are discounting the vehicle. And we all know that discount comes right off of the bottom line! Like we can afford to do that all of the time!

The bottom line is that it will be painful and costly to those that have to buy a vehicle, but I think the majority of dealerships are moving in this direction if they have not already.

Good luck!

[fossy]

I can't believe ANY dealerships offer demos any more. I thought they went away with the plaid pants, white belts and white shoes.

Simply, demos cost...cost in lost gross, insurance expense, interest expense, unnecessary risk. Just take the last demo you sold and see how much less you took for the car or how much you over-valued the trade plus take the flooring cost of that vehicle and youll see first hand that demos cost $$$.

We cut out demos and our insurance agent reduced our premiums 25%. Not because anything changed except the risk of some salesman that had maybe three beers on his way home and hit someone. Plus you must tax everyone except the salesman at the fair rate and thats over $400 per month on a $20K car.

Take the money, buy a program car at the dealers cost and sell it every 6 to 9 months and youll come out ahead of the game. So will the dealership! Good luck

[ladams]

Aside from the financial & risk issues noted above, it is my experience that the tax exposure minimized rampant use of demos (or at least caused concern by owners of dealerships - the ones who would have to foot the additional tax bill).

This issue is not likely to go away soon because the IRS has recently agreed to look at the regulations related to demos and will be revising them in the near future. I would anticpiate that something will come out later this year or early next year.

This means that demos will continue to be a hotly debated topic for some time into the forseeable future.