Demonstration Vehicles: Do the Benefits Outweigh the Costs?
By John Bachle
The subsequent increase in cost to the dealerships has many turning to accounting, tax and financial advisors for assistance in controlling expenses. One such group of professionals, the AutoCPAGroup, recently conducted a survey of dealerships and their use of demonstration vehicles as benefits to their employees. The AutoCPAGroup's goal was to measure the cost of providing demos as well determine the practices and policies used industry-wide.
Many dealerships are concerned about providing demonstration vehicles as part of the employee benefit packages. Others wonder what would happen if they chose not to offer a prospective employee a vehicle for personal use, or some monetary compensation in lieu of a demo? What is the actual cost to the dealership of providing demos?
The AutoCPAGroup mailed surveys to over 1,500 dealerships from coast to coast. The data collected from the nearly 400 completed surveys revealed the varying policies regarding use of demos. Generally, demos are only provided to the managers from each department. However, most dealerships that offer demos to their sales staff offer them to all sales personnel, not just the manager. The total number of employees from each dealership surveyed ranged from three to 400, and the average number of sales personnel per store is 20.
Of the 396 dealerships surveyed, 250 offered demonstration vehicles as part of their employment benefit package. Of these 250 dealerships, 22% offered either a demo or monetary compensation in lieu of a demo. However, 146 of the dealerships surveyed did not provide demos as an option at all. A small number of these dealerships did offer monetary compensation instead of a demo. The average amount of the compensation offered by the dealerships was $286 per month.
Approximately 50% of the dealerships who did offer demos did so at no cost to the employee. On the other hand, some dealerships charged employees an average of $216 per month. Dealerships that reported an additional income to the employee added amounts ranging from $101 to $13,485 per year to their W-2. The average amount added to the W-2 was $2,759.
Dealerships that provided demos had policies on the maximum number of miles allowed for each demo. On average, each car was allowed 5,559 miles when used by an employee. Those dealers who chose to offer demos reported the value of the demo to range from $2,485 to $51,285. The average value for a demo was $21,160.
The surveyed dealerships reported an average decrease in value of each demonstrator to be $950. Respondents indicated an additional increase in cost of liability insurance to average $527 per demo per year. Obviously these amounts will vary by the value of the vehicle provided and the number of miles it is driven.
Based on this data, a dealership that provides 10 demos that rotate three times per year could compute its cost to provide this fringe benefit as follows:
Although the numbers show an increase in cost for the dealerships that provide demos, they do not measure the overall benefits these dealerships receive because they do offer demos. According to the survey responses, the number one reason a dealership provides demos is to keep the employees satisfied. Many indicated that by providing demos, they were able to increase employee loyalty and increase sales for the type of vehicle driven by personnel. Salespeople are also better able to show a customer a car if they are familiar with it. Some dealerships also view the demos used by employees as moving display advertisements for the make and model of car being driven.
It may be difficult to measure the benefits against the costs by looking at the numbers alone. Turnover of personnel, recruiting potential staff and the price of training a new employee could equal or exceed the cost of providing demos. Dealerships that are able to retain loyal, hardworking and productive employees by offering benefits such as demos could recoup the costs of such a benefit in the long run. Each dealership must decide if the benefits of its demonstrator program outweigh the increased cost. The mission of the AutoCPAGroup is to provide data and information that will allow dealers to make informed business decisions. The survey results will hopefully assist each dealership with decisions regarding demos.
John P. Bachle is a CPA with the AutoCPAGroup. jbachle@dealeronline.com
