What is the real deal with buying a demo car?

Consumer Reports News: March 27, 2009 05:08 AM

We are currently in the midst of one of the greatest buyers’ markets in the last century. (Read: How to buy a car in today’s market.) Dealer inventories are swollen, cash and financing incentives can be found on even the most popular and fuel-efficient models (though not all buyers may qualify), and dwindling sales mean more negotiation room for buyers. Plus, innovative new offers are competing for consumer attention, such as Hyundai’s Assurance Plus program; some inventive pitches are even happening at the local level.

During a recent roundtable discussion with our Auto Price Service customer service representatives, I learned that we’ve been receiving calls from customers who visited dealer lots and were presented with an opportunity to buy a "demo" model. Unlike a truly new or traditional used car, it can be trickier to assess the value for a "demonstrator".

What is a demo car?

Demos are new cars that have been driven by the dealership's staff or as test-drive vehicles by interested customers. Often they are used as a salesperson’s personal vehicle and can have hundreds to several thousand miles on them.

Since a demo can have several thousand miles on it, is it technically a new or used vehicle?

If the vehicle has never been registered (regardless of how many miles are on it), the vehicle is legally considered new. Once it has been registered, it’s legally a used car, therefore its future value is reduced by the mileage and any wear and tear.

How much should it be discounted?

There is no rule of thumb for how much money should be deducted from the invoice price when negotiating to purchase a demo. However, keep in mind that a dealer should be extra motivated to move it, especially in today’s market where sales are down and even the top-selling vehicles aren’t selling the way they normally do. Expect the price to be between the vehicle’s new and used-car value, or notably less than the Consumer Reports Bottom Line Price.

When does the warranty begin if the car has 5,000 miles? Does the warranty extend beyond the normal maximum mileage?

Unfortunately, despite the mileage that is already on the vehicle, there is no free extension to the manufacturer’s warranty. In fact, it is not unusual for a demo to be driven “hard” and as a result have some wear and tear that may not be noticeable at first glance. For a fee, the dealer will be more than happy to sell you and extended warranty, but most are a poor deal.

The bottom line

In today’s car market, where dealers are highly motivated to move vehicles, you should be able to get an unblemished new car at a great price. If you are particularly intrigued by a demo, we’d suggest you start negotiations by making an offer below the Consumer Reports Bottom Line Price. Be sure to ask for all the maintenance records and don’t hesitate to request even the basics, such as an oil change and detailing.

If you don’t mind getting a car with mileage on it, you should also consider a reliable used car from a recent model year. Late-model used cars can be a great buy due to the fact that they have already gone through the period of greatest depreciation (the first 2-3 years), yet still offer contemporary levels of comfort, fuel economy, safety, and performance. For example, 2007 models are, on average, 37-percent cheaper than their original MSRP, and if properly maintained, can provide many years of reliable transportation.

--Mike Dempsey

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