Best New Car Incentives – Image via leasing.com
Best New Car Incentives – This is part of a series that breaks down all the requirements you need to know if you buy a new or used car from a dealer. View the rest of the series in our Car Buyers Glossary.
Car dealers are not in the business of giving money. They’re in the game to make money – and can you blame them? So is everyone else selling consumer goods. So when you hear about incentives (ie, rebates, low interest rates, or cash back offers), you should know what happens before you assume you get a free lunch.
Best New Car Incentives
There are several main types of incentives:
Offer cash-back or rebate
Offer low or zero interest
Incentives “from factory to dealer”
At a very basic level, incentives do one of two things for car dealerships: it gets people into dealers, and helps move inventory. Let’s look at both a little closer.
The first part is basically marketing psychology. If you tell someone that they can get $ 1000 back on a new car deal, it might get them excited (and invested in) the process. You may be a little less worried about negotiating the price because you get the money back. And the dealer has another way of making that $ 1,000 – coat the little interest rate or sell you some extra high service, like an extension of the warranty. It’s a bit of a shell game – you focus on one thing, but the dealer has some way to make money. The idea is that you’ll be a little distracted and or think you’re getting a better deal than it really is, and they can benefit somewhere else. And that’s entirely their prerogative.
The second is a bit more useful for consumers. Say there is a best-selling car while sitting in the parking lot. Dealers borrow money from the lender to buy the car, hoping to sell it quickly so they pay the minimum interest for the loan. Typically, dealers order what vehicles they want, using information about what is selling in the region and where they are. Sometimes the manufacturer will hold or allocate the model based on dealer performance or other considerations, but mostly depends on the dealer, any vehicle mix in the parking lot. Sometimes they were wrong, or the car was not as hot as everyone expected, and a car sat longer than usual in the parking lot.
But the cars that will not sell clog up a lot. They spend the dealer’s money, but more importantly, they take up space. Space that can be occupied by more cars coming from the factory. Since factories want to sell all the cars they make, they do not want pipes from the factory to the dealers and then the owner is clogged by old supplies.
So another type of incentive is the incentive paid by the manufacturer to the dealer. It’s basically a bit of financial relief, and some motivation to lower the price a bit and get the old car from the parking lot to create a new one. This is called a “factory-to-dealer” incentive. You, the car buyer, will not see it. And maybe the dealer will lower the price a bit, but maybe they’ll ask for the full price and pocket the money from the factory.
It’s hard to find out about the incentives from the factory to the dealer, but there are some sites that list them. You can use it to lower the price a bit on the best-selling car, because it’s not money coming out from the dealer’s bottom line.
The same applies to other types of manufacturers incentives, which are generally advertised. You can use it to reduce the purchase price of a vehicle – which is something to be negotiated. They also do not hurt the dealer’s bottom line.
So, with the advertised factory-to-dealer or producer incentives, negotiate a low and fair price, and then reduce the applicable discounted price. If the dealer is okay with a negotiated price, they can not complain too much if you want to share in a gift given by the manufacturer.
Lastly, let’s talk about low or zero percent APR offerings. There are two catches here, the first is you have to have excellent credit to qualify for them. Dealers hope that you will be very committed to the agreement that when a finance person tells you that you are not qualified for it, you will not feel like leaving. You will be invested psychologically.
The second is that you will almost certainly be locked into using a manufacturer’s lending holder – such as Honda Financial Services or Ford Credit, to give you two random instances. It may be a problem for you, or not.