For such a relatively small part of the California automotive universe, you wouldn’t believe the frequency and regularity in which we receive Hotline calls about demonstrator vehicles, or as most of us refer to them as “demos.” Accordingly, this article will discuss and address some of the most frequently asked questions about when a vehicle is placed into demonstrator service and then taken out and offered for sale.
Let’s start first by laying some ground rules to get us all on the same page about demonstrators. This article will presume that we are talking about a previously unregistered new vehicle that is being placed into demo service (and then subsequently removed and offered for sale). The article will also follow the California Code of Regulations title 13 section 255.02 definition of a demonstrator, which states:
With this in mind, let’s move onto these frequently asked questions:
Q: How should we advertise a demonstrator?
A: Demonstrators are included within the definition of a “used vehicle.” [Vehicle Code § 665]. As such, demonstrators cannot be advertised or represented as a “new vehicle.” [Vehicle Code § 11713(d)]. Moreover, the advertisement must specify that the vehicle was previously used as a demo. [Vehicle Code § 11713(t)]. Accordingly, when advertising a demonstrator, dealers should use clear and conspicuous language such as “Used Dealer Demonstrator” in the advertisement. Furthermore, since MSRP is typically used as a benchmark in advertisements for new vehicles, dealers should be cautious when using MSRP in an advertisement for a demonstrator. Any reference to the original MSRP should be clearly and conspicuously described as “original MSRP when the vehicle was new.”
Also, remember to run an NMVTIS vehicle history report before advertising (or offering) the vehicle for sale. [Vehicle Code § 11713.26].
Q: How do we disclose a demonstrator on a retail installment sale contract or lease contract?
A: For retail installment sale contracts, the law requires that the contracts describe any vehicle being sold as either “new” or “used.” [Vehicle Code § 11713.1(v); Civil Code § 2982(q)]. As discussed above, since demonstrators are included within the definition of a “used vehicle,” a retail installment sale contract must describe a demonstrator as a used vehicle.
Technically, the California Vehicle Leasing Act does not contain specific language about how this “new” or “used” requirement applies to leases. However, the DMV generally interprets laws governing retail sales as also applying to lease transactions. Additionally, Vehicle Code section 11713(d) expressly prohibits a dealer from representing a vehicle as “new” if it is a used vehicle. Suffice it to say, a dealer must never describe a demonstrator as “new” on a lease contract, and we always recommend a dealer describe a demonstrator as “used” on such a contract.
Q: Can we charge tire fees when a customer purchases a demo?
A: It depends. When a new vehicle enters demo service, the dealership must self-report and pay the appropriate tire fee for the four tires on the ground (i.e., $4 x $1.75 = $7). When the vehicle is taken out of demo service and then sold to a customer, the dealer cannot claim reimbursement for the fees already paid for the four “used” tires. However, the dealer may collect a $1.75 tire fee from the customer if, and only if, the vehicle is being sold with a new spare tire. In other words, no tire fee can be collected when selling a demo if the vehicle is not equipped with a spare tire.
Q: Is it true that when offering a demonstrator for sale, the vehicle should display both a Buyers Guide and an MSRP label?
A: Yes. When a vehicle is removed from demo service and offered for sale, it should display a Buyers Guide, as it is illegal to display a used vehicle for sale unless a completed Buyers Guide has been posted on the vehicle. All the manufacturer’s original labeling (i.e., the Monroney label) must also be placed back on the vehicle prior to offering it for sale.
Q: Can a demo be displayed on the sales lot with the new vehicles?
A: No. Because the demo is a used vehicle, it must not be displayed among, or intermingled, with new vehicle inventory. The demonstrator should be displayed with used vehicles. When taking a vehicle out of demo service, a dealer may also want to assign it a unique demo stock number to alert dealership personnel of its prior history as a demonstrator.
Q: Do we need to safety and smog a demo prior to offering it for sale?
A: Yes and no. Upon removal from demo service, a vehicle should be safety inspected with full records maintained. However, unregistered demos need not be smog certified. No smog fees (other than the smog abatement fee) should be collected when selling a prior unregistered demonstrator.
Q: Are there any special DMV forms we need to use for demos?
A: Yes. Along with an Application for Registration of New Vehicle (a REG 397 New Vehicle Report of Sale), the dealer must also submit a Used Vehicle Certification (a REG 496, or better known as a “demo certificate”).
Q: Do we need to offer a contract cancellation option agreement for a demo?
A: Yes, if the vehicle purchase price is under $40,000. Vehicle Code section 11713.21 provides that a dealer “shall not sell a used vehicle, as defined in Section 665 . . . without offering the buyer a contract cancellation option agreement that allows the buyer to return the vehicle without cause.” As stated above, a demonstrator is included within the definition of a “used vehicle” in Vehicle Code section 665.
Q: Are there any other disclosures we need to make?
A: Yes. When selling a previously unregistered vehicle, you must disclose in writing to the customer the date on which the manufacturer’s warranty commenced. [Vehicle Code § 11713(o)]. This disclosure should be signed by the customer. We also highly recommend that dealers disclose the vehicle’s demonstrator history on a separate used vehicle disclosure form rather than only relying on the demo certificate. Conveniently, these two disclosures can be made together on the Reynolds LAWCA-UVHD-EX19 Used Vehicle Disclosure form.
We know that these times are hard, and everyone everywhere has been affected by this global pandemic. We are all in this together, and this too shall pass. Hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or [email protected]. We are here to answer any questions you may have.