This would seem familiar. A customer wants a particular car but it’s a little over their budget. They negotiate with the dealer and arrive at a price that suits them. Or, they wait till the model comes on a discount. Then, with the satisfaction of bagging a great deal, they buy the car. How was this ‘discount’ in the car’s price possible? Factory to dealer incentives make it possible for dealers to reduce the price of the car.

Dealer incentives are rebates given to car dealers direct from the manufacturers so that they can buy the cars at a reduced cost (wonder why cars are so expensive?). Manufacturers resort to dealer incentives when they want to boost sales of a particular model in a given region. They may also offer higher incentives to dealers who have reached a specified sales target to promote healthy competition between dealers and to increase sales.

Dealer incentives not just help to get the sales figures up. They also let dealers give out ‘discounts’ to customers. The customer, who is probably waiting for a drop in the price of a car he wants, gets it at a lesser price and the dealer is successfully makes another sale. This ‘discount’ is actually a part of the incentive that the dealer has got.

More about Factory to Dealer Incentives

Dealers are not required to share the details of these incentives with the customers. These incentives are quite high and can run into hundreds of thousand dollars for each dealership. They are usually run on a quarterly basis. Of course, the dealers are pretty secretive about the amount they are getting paid from the manufacturers in the form of incentives.

There are three distinct incentives or offers that customers are given:

  1. Rebates offered on the price
  2. Low-interest financing
  3. Special leases or add-ons (learn more about the downfall of leases)

If a customer is aware of how the incentives work, they are at a better position to negotiate.

The actual discounts that the dealers offer, are given at their own discretion. The manufacturers have no say in it and they do not really reimburse this difference.

Other aspects of dealer incentives

Sometimes the incentives given by the manufacturers might depend on the sales targets achieved by the dealer. That is why, dealers might not be interested in offering a price reduction right away. But, if the dealer is eager to make a sale, they might offer a rebate themselves to entice customers.

If you believe that the price on the invoice of the car is the price you need to pay, you are mistaken. If the salesperson tells you that they are giving you a discount by reducing their profit margins, it is false. Manufacturers usually would pay back the cash incentives which dealers offer to customers as a ‘steal deal’.

How can it benefit a customer?

It is difficult to find dealer incentive details anywhere. There could be a few sources on the internet that provides some figures on this, but they are usually not comprehensive and may not give the full picture.

The dealer incentives play a major role in deciding how low a price a customer can get for the car they want. Customers can negotiate on the price to get a competitive deal from the dealers. If the dealer agrees to give an additional reduction in the price of a car, then this reduction is actually a part of the incentive they have received from the factory.

Negotiating on the best price for a car is not a straightforward job though. This is because:

  • There is no way a customer can know which dealers are participating in the dealer incentive programs.
  • Customers have no idea how near or far the dealers are from achieving their sales targets
  • Customers do not know how much a particular dealer has paid for a car.

The automobile industry is driven by the sales volume. A particular dealer’s sales dictate how many cars they will receive from the manufacturer in the future. So, dealers might offer higher discounts for a brand that is not selling well. Similarly, if a particular model is already doing well, the dealer might be reluctant to offer additional discounts. So, it follows that, if one brand is doing well, it might be a good thing to buy a similar specification car from the rival brand. This way, a customer can hope to get a good deal.

The bottom line is that, awareness about how things work go a long way in giving you an actual good deal when buying a new car.