Car Prices and Research

We've all seen the splashy newspaper ads. Who hasn't seen or heard those television and radio commercials, blaring "$3,000 cash back! Zero percent financing!" --- they're certainly hard to ignore.

As if we'd want to ignore news about rebates and discounts. Automaker executives may grumble a bit about having to offer so many great deals, but the noise of money-back deals continues with no end in sight --- much to the delight of new car shoppers around the nation. More than ever, Automakers and dealers are using sales incentives to drive shoppers into dealerships. Sales figures show that it's working ---- new car lookie-loos buy when they get a discount. Case in point: General Motors had pulled their national rebate program in May, then watched from the sidelines as sales slumped. Guess what happened next: GM is back to wheeling and dealing, and sales are starting to climb.

According to John Honiotes, vice president of automotive operations for Autobytel, the market is so competitive that manufacturers who -- up to now -- had stayed out of the rebate battle have now joined in order to keep or increase sales.

Honiotes urges shoppers to learn about current programs, and to ask dealers if they qualify for additional discounts --- such as first-time buyer, or college student rebates. There are also regional sales factors at work: Cars that don't sell well -- such as two-wheel drive SUVs in an area that requires four-wheel drive capability --- may be have additional discounts, as dealers work to replace the slow-sellers with high-demand vehicles.

If you're on the hunt for a new car, make sure you fully understand how rebate programs work before you buy. Sure, terms like 'rebate', 'incentive' and 'cash back' consumer rebate may seem self-explanatory, but understanding the difference between a dealer and consumer rebate, or whether to opt for the financing deal or the cold, hard cash, can be quite complex. The following definitions and explanations are designed to help you take full advantage of today's incentive-crazed auto market-by understanding what incentives are, how they work and how you can get the best deal.

What is an incentive?

Incentives and rebates are price reductions offered by the factories to increase sales on current slow-sellers or simply to reduce excess inventory. Incentives can take the form of direct cash back, low-rate financing, or a combination of these two.

Incentives are offered directly to the consumer (as advertised in specials on TV and in the paper), to the dealer or to both, and they can vary regionally.

Keep in mind that incentives vary by region (for instance, a hot-seller in California is often not the top-seller in North Dakota). Most manufacturers stress that any national consumer rebate listed is only the MINIMUM rebate you can get since it can be supplemented by these extra-unpublished incentives. It would be nigh impossible to list every detailed regional program--that information is hard to come by because it's constantly in flux and very specific. Only prophets, mind readers, factories and specific dealers have updated access to this information. Frequently, a dealer is not even aware of dealer incentives that may be in place and the sales manager may be a better source. The published, national figures are the best benchmark, but note that regional programs may also be in place instead of or in addition to them.

When's the best time for incentives?

In general, late summer is when dealers clear lots for the new models so it's a big time for incentives. However, because some models may be in scarce supply you might not get just what you want. "Carryover allowances," special model-year-end allowances given to dealers or consumers to clear out last year's inventory, are not the absolute rule anymore but they are still frequent, so knowing that can save you cash. Note: these allowances don't kick in until the dealer actually has next-year's model on the lot!

It's also a good idea to learn the 'life-cycle' of the particular car you want. If a car's due for a major redesign or will be dropped as a model, you may expect incentives on that car before or when the new-generation or replacement model debuts. You can call the manufacturers to see if they'll tell you when that model is do for a makeover

What is a customer incentive?

These are the incentives that carmakers often advertise on TV and radio, but many are in place without marketing dollars spent to advertise, and you may not know about them unless you check reliable automotive information providers. They usually come as a choice of either cash or a reduced financing rate--or a combo of both. They are often used regionally, where an oversupply situation exists. This rebate tends to be out in the open, but can still be confusing. It can often include the option of a low finance rate instead of cash. It can also be given to special kinds of consumers; college grads, first-time buyers, repeat buyers, etc. Autobytel.com updates consumer (and available dealer) incentives each week. Always check that any rebate info you come upon is up-to-date.

Note: a cash incentive can give the dealer the ability to qualify the buyer into a payment buyer category more quickly and easily. A dealership could, potentially, use these incentives, especially a low finance option, to 'talk' the financing part of the deal before the new vehicle price is determined. This can be confusing to consumers when they should keep their eye on the real issue: how much you'll pay for the car overall. Even if you take advantage of a fantastic financing deal later in the purchasing process, keep the vehicle price, trade-in value, and financing/leasing option separate and straight in your head. First subtract the cash incentive from invoice pricing to start. Then you need to consider which option--cash rebate or cut-rate financing--is best overall...

Should I take the cash back or the cut-rate financing option?

If either financing or cash are offered on your model (or a combination of both) you now have to decide which is a better deal. First, use a loan calculator to tally the loan on your car (with the interest rate your financial provider is giving you)--then subtract the rebate. Next, add up the full price of the vehicle at the special subsidized interest rate. If the loan ends up costing less with the incentive financing then with the payout in cash--you may want to choose that option. But you may simply want to increase your down payment, and then you should choose the rebate money. You need to calculate what you'll be paying each month under each option, and how much you will spend overall.

Finally, to determine whether to take cash or the loan deal, you'll also need to do the calculations for each and every car. What is potentially a better deal for a $20,000 car with a $2,000 rebate is not necessarily a better deal for an $11,000 car with a $2,000 rebate. Also: many of the super-super deals, such as 0% and 1% financing, are for a brief 24- or 36-month term and that's going to mean stiffer monthly payments. You may save a lot of money overall, but it's a bad option if it's simply out of your monthly budget's reach. If you have the financial freedom, go with what saves you the most. But keep these other factors in mind, and do the math and the monthly breakdown for each car you're considering.

What exactly is a dealer rebate?

This is money given back to the dealer to move certain cars. Unlike customer incentives, information about dealer incentives tends to be much more secret and guarded, as well as more volatile and regionally specific. Autobytel.com posts the national dealer programs they can hunt down to better inform their consumers each week. Carmakers tend to play with and jockey these incentives almost on a weekly basis, depending on sales, so they're slippery figures to pin down. Furthermore, dealer incentives are usually regionally specific, and can also be offered in tandem with other incentives that depend on the regional manager's specific judgment call.

Tip: check the date the vehicle you want was actually manufactured. If it's been on the shelf for 6 months or so, it could be a good bet some kind of dealer incentive is placed on it--if a customer one isn't already listed. Dealers have to pay more to keep cars on their lot (they are financed through a bank), especially after a car's been on that lot for more than three months. Just because there's a customer incentive on a vehicle doesn't mean there's not an additional dealer incentive: if you know about any dealer incentive, those savings should be passed on to you, the consumer. It's called a 'dealer' incentive, but it's meant to be reflected in the price offered to you, the buyer. Occasionally, dealer incentives can be big, especially on slow-selling luxury cars--and can reach $5,000 for the dealer.

Sometimes the Internet-savvy consumer may know even more than a salesperson, who may be in the dark about certain dealer incentives. If a salesperson says they're unaware of any "dealer money" they may simply be telling the truth. Once again: ask. Research the posted dealer rebates and don't be afraid to ask a lot of questions. If a dealer ever fails to offer legitimate incentive money you've documented--go elsewhere. Increasingly, many dealers covet high Customer Satisfaction Ratings, and they know that selling in volume at good prices is better than profits at any cost.

What other types of dealer incentives are available?

Occasionally, there are special, unique programs in place that offer dealers unusual incentives. For instance, a manufacturer may want to help a new dealership get on its feet and establish a customer base, and will offer them special sales spiffs. Or, they may want a dealership to take more inventory. Not every manufacturer works the same way, and some may not use this system, but, there could be a program in place that will give a dealer $** for selling a certain number of cars by the end of the month, but even more money per car if they reach a certain sales target. They could, for instance, get $200 per car if they sell less than 15 cars, but that figure could go up to $400 if they hit 16. This encourages dealer's to, at times, offer lower prices to reach that targeted sales point.

Important Note:

All the different types of incentives we've outlined--to help you get the best deal--apply ON THE DAY OF DELIVERY. You need to remember that buying the vehicle on factory order may jeopardize the incentive, if it expires before you actually get the car. You can try to make sure that it's "price-protected," with a written guarantee on the purchase contract. Otherwise, the incentives that were in place when you ordered from the factory may disappear by delivery date. The factory may tell you the car will be delivered in 2 weeks, but all kinds of things affect production and distribution and a delay can cost you the rebate.

Now that you have passed Rebates 101, Click here to see current rebate programs