Demos & Service Loaners in your dealership: How to profit from them?

3 Minutes read.

It is generally assumed that Having Demos and Service Loaners in your dealership is usually seen as an unavoidable added cost to your dealership because of the demo depreciation, service expenses on demos, cleaning, etc.

Despite the fact that some manufacturer’s offer some type of “compensation” to the dealership for offering Demos & Service Loaners, usually is not enough to cover the total cost of the demos and therefore a is a net expense in the budget of the dealership, lowering the bottom line.

What can be done about this to improve this situation? How we can profit from Demos? Or minimize this expense at the very least?

There are a number of measures that can be applied that will for sure lower your total Demo and Service Loaners costs.
Let’s start with the beginning:

How to choose what vehicles we put as Demos/Service Loaners?

There are several strategies, two of the more commons are:

1).- Put your oldest vehicles in stock: These vehicles are hard to sell, hence they are aging New vehicles in your inventory and costing you interest in the foor plan, probably close (if not already) past model year. This seems like a great idea, since by depreciating them we lower the cost and will be easier to sell them later on.

Fact: You are expensing the demo depreciation (in other word is costing you money). When these vehicles will have enough mileage and are grounded (between 8k-14k or more depending on the dealership), and likely 6 months later or more. It will be more profitable to sell them then?

More often than not, the total expense (Depreciation plus loss on sale) is HIGHER than if this vehicle would have been discounted and sold retail brand new.

2).- Put your newest models as Demos / Service Loaners: This strategy aims at that it will be easier to sell a demo in let’s say 6 months of a new model, since: customers always want a good deal on the latest model, and there are always customers that don’t mind getting into a demo if the pricing is better.

I have another twist to this strategy (N# 2) and is:

Put as demo / Service Loaners: the vehicles with the color, trim level and options that will minimize your total expense when sold. These models should be selected by choosing vehicles that customers want and will likely require minimum discounts due to the mileage for being demos when sold.

This strategy can result in the minimum total expense for the dealership.

Since each manufacturer is different and each dealership location, customer base, inventory situation represent different realities, we recommend to have your dealership checked. We have experience helping dozens of dealerships improving their inventory, floor plan and profit management. Contact us to get your free evaluation.

Gabriel Krozkin, CPA, CGA is a nicknamed “problem solver” specialized in car dealerships. He has experience improving profitability, offering consultation services, accounting, tax and audit services. He can be contacted at info@krozkin.ca