About Auto Rebates

When car sales hit a slump, manufacturers offer cash rebates as one form of incentive to boost sales. But because rebate offers come and go and vary by make and model, it's often hard for car shoppers to keep track of them. Luckily, though, there are several websites at which consumers can locate the latest rebate offers.

Economics 101

New-car rebates offer the perfect example of the economic principle of supply versus demand. If a manufacturer has too many units of a certain model on dealer lots, it offers a rebate to stimulate demand for that model. The incentive causes more people to buy that model and the supply goes down.
Manufacturers began offering rebates in the 1970s during a slump in auto sales related to the Arab oil embargo. Eventually, buyers became so used to rebates that some of them stayed out of the market until rebates were offered.
Car companies are selective as to which models they offer rebates on and how much. Rebates typically range from $500 to as much as $5,000, but are seldom offered on newly released models because if consumer demand for that must-have new model is high, there is no need for the dealer to offer a rebate enticement.

Rebates or Financing?

Rebates are offered as an alternative to simply lowering the price of the car because rebates are offered only for a limited time until inventories come into balance with demand while the underlying price of the car stays the same. When the rebate expires, the dealer goes back to charging the original price and makes more profit.
Dealers also offer rebates in combination with other incentives, such as low-interest rate financing or low lease rates. In other cases, the dealer offers an either-or choice of the rebate or the financing, requiring the customer to calculate which deal is better for them in the long run.
Car shopping magazines and websites such as "Consumer Reports" advise consumers that the rebate is not the only discount customers can get on the car; they can negotiate additional savings. Also, the rebate can be applied toward the down payment on the car to reduce the amount that has to be financed.

Keeping Track of Rebates

Because rebates come and go and vary by manufacturer, it may be difficult for a car shopper to keep track of them all. However, multiple websites offer information on rebates by make and model.
The MSN Autos website lists rebate and financing incentives alphabetically by make and lists the expiration date for each promotion.
The Kelly Blue Book website also lists rebates by make and model but also by car category so the shopper can compare rebates among makes of convertibles, sedans, SUVs or pickup trucks.
See References below for links.

Don't Buy Just for the Rebate

Edmunds.com lists rebates and financing incentives but also includes information on "marketing support" to dealers. These are cash incentives from manufacturers to dealers of a couple thousand dollars, depending on the model, that give dealers more room to discount the price of the car to the consumer. Being aware of dealer incentives also gives the buyer more leverage in negotiations with the dealer beyond the savings he can get from a rebate.
"Consumer Reports" lists rebates and other incentives for cars and trucks but also highlights incentives on models it recommends. "Consumer Reports" road-tests cars, gauges their reliability and tracks the depreciation of models to determine which offer the best overall value. The magazine advises car shoppers not to buy cars just based on the size of the rebate, arguing that the larger the rebate, the more likely the car is inferior in some way.

Uncle Sam Rebates

Car makers aren't the only ones offering rebates to sell new cars. The federal government now has, as well.
The American Recovery and Reinvestment Act (ARRA) signed by President Barack Obama on Feb. 17, 2009, allows purchasers of new cars, light trucks, SUVs and other vehicles to deduct any state and local sales or excises taxes on their 2009 federal income tax returns.
The tax deduction applies to vehicles purchased between Feb. 17 and Dec. 31, 2009, and up to a maximum $49,500 of the purchase price. Someone can buy a more expensive car but the deduction applies only on $49,500 of the price. There are also household income limitations.
The provision was included in the bill for the same reason car makers offer rebates--to stimulate new car sales.