What Do Dealers Get Out of New Car Rebates?

Dealers get prospective new car customers out of new car rebates. Rebates, also known as "cash back" offers, are a common sales incentive offered to car buyers on new vehicles. Typically the auto dealer deducts the rebate amount from the sale price when the consumer's transaction is made, and the rebate amount is later paid by the manufacturer to the dealer.

Function

In practice, rebates are like money down being used by a consumer on a new car. When a rebate is used, the dealer must apply to receive the incentive money from the factory. Rebates must be passed on to consumers, and this is why they are sometimes called cash to customer.

Benefits

Rebates allow a manufacturer to lower the price of the vehicle without eating directly into dealership profits. By offering rebates and incentives on slow-selling models, sales volume may be increased.

Considerations

If a rebate is offered on a car, prospective buyers should verify that the dealership is also discounting the vehicle further. While discounts by way of rebates come from the manufacturer, the dealership has additional room to negotiate relative to the invoice price.

Warning

New car rebates can be confusing, even for dealership employees, so it is best to sit down with the salesperson and review current rebates. You may find that there is a discount available for veterans, for clients who use a specific insurance company, for family members of autoworkers, or under other conditions.

Effects

Although new car rebates can create more transactions in the short term, they ultimately lower the residual value of vehicles, their value when they are resold on the used car market. Lower new-car transaction prices diminish used-car transaction prices.