Demonstrator Cost Analysis 

Depreciation

This category should include both the diminished value of the automobile by way of use, as well as the lost profit.  This calculation is easily obtained by taking the average gross of all new vehicles sold at retail.  The number is on page 3 of the financial statement and is named “Average Gross Profit, New Vehicles”.  There is no account number, per se, but it is the average of all units, YTD or for the month, sold, excluding any finance or after sale income.

Depreciation may be recorded in the Acct. 335, Accumulated Dept Company Autos or it may be expensed in the cost of sales, Acct. #660 through #625.

Interest

The actual carrying cost for having the vehicle in floorplan / demo service.  The rate for demo use is generally higher than the straight floorplan cost.  Both costs should be included in the Demo expense since both the incremental charge for Demo service and the straight floorplan rate are costs that would disappear or not exist if the Demo were not in service.

If Demos are curtailed or paid for outright, then interest expense Acct #76 disappears, but there is loss to “other income” Acct. #905 which is the rate or interest income the Dealership gains on any investment income it does not employ for working capital.

Insurance

Be sure to include both the “flat” charges, which are the floorplanners piece as well as the comp. And False Pretense charges.  The Acct. #’s are #85 & 88 for P&C and #77 for flat charges from the floorplanner for Comp and False Pretense.

Yard Damage

Properly accounted, these expenses will show in #13 Delivery Expense and #25 Policy Work, New and Used.  Often these costs are disguised because of pay plans or departmental expense or income criteria.  However, cost of sales, in the “Used Car Prep or Reconditioning” Acct. #647 or “New Car sales at Retail, (Cost of Sales)” Acct. #600 through 618 is not the appropriate place to leave the expenses and hides the true costs from inquiring eyes.

Policy Work

Acct. #67 is an account where the Dealership places or expenses costs due to obligations made to customers before the sale but not required or fulfilled until after.  A missing floor mat, and oil change, missing or upgraded stereos get expensed accordingly.  As Demos are imperfect, have mileage, and don’t have that “new car” smell, salespeople will promise or be required to add additional repairs, accessories, or after the sale work to induce the customer to take this blemished, inferior, and “previously owned” vehicle.

Dealer Paper Work

Paper work extends beyond Taxable Fringe / Employee side of the equation.  Demos have different “In Service” dates than all other regular vehicles and require separate filing and notice to the manufacturer.  They are also a source of customer complaints and problems for customers and service departments regarding unreimbursed warranty as expectations are always identical to new vehicle purchases.  On the balance sheet, there is a “200” series of account numbers, one of which is Warranty Claims.  Since it is a balance sheet account there is an absolute number for a value, as inventory, but debits and credits to this account can easily hide unreimbursed service work which may factor in Demo costs.

Lost Opportunity Costs

These costs extend beyond the unavailability of the Demo unit for sale, or the unavailability of what would have been the new, unused unit to each of the other profit centers of which the “New Car Gross” is a fraction.  In most instances, the sale of a Demo requires the Dealer to give the Warranty at cost, Financing at the “buy rate” and Insurance at “net”.  The lost income or gross profit associated with these is often equal to or in excess of the “New Vehicle Gross”.  Finance Income, Acct. #806, Insurance Income, Acct. #807 and Acct #454 and 455, Protection Plans (warranties from the manufacturer or other sources) are the applicable numbers.

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