Generally speaking, there are at least three criteria manufacturers use to determine automaker-to-dealer incentives: regional inventory, dealer inventory, and the most controversial, stair-step. The strategy varies from automaker-to-automaker, but don’t expect a hot-selling crossover SUV, for example, to be offered with these additional rebates. These automaker-to-dealer incentives generally are announced to a dealer around the first of the month.
Patience is a Virtue
Simply negotiating a price at the beginning of the month, and then returning to that dealer at the end of the month to renegotiate the price for that same model could result in significant savings.
This strategy can be effective in certain situations. If you are not pressed for time, it may be right for you. However, you do run the risk of missing out on the exact vehicle you want, colour and model, for example, as the dealer may sell it before you return at the end of the month. If ‘the deal’ is the only thing that matters to you, it’s not a bad strategy to try, but it’s not guaranteed to work.
If this strategy does sound appealing, try negotiating the price for two or three vehicles at different dealerships at the beginning of the month. If one vehicle sells, there is likely a backup vehicle on another lot. This strategy can be used whether buying or leasing a car.
This "patience is a virtue" approach could pay off. For example, car buyers could be offered discounts between the lease deal offered at the beginning of the month and the deal they accepted at the end of the month. These discounts could involve lease pull-ahead incentives (usually three months), bonus cash of some type if the vehicle selected was on the lot, lease loyalty cash, capital cost reduction on the new lease or some combination of all three. Programs differ by automaker and brand.
Also, deals get better as the end of the month approaches. That's when manufacturers generally start boosting the automaker-to-dealer incentives on specific models. But it is a challenge for dealers to keep up with changing incentives.
The Dealer Angle
Proactively reacting to market conditions, automakers can announce a wave of automaker-to-dealer incentives at the beginning of the month and then change their programs two weeks later. Once again, the savvy buyer will wait until the last week of the month, as some dealers do 50 to 60 percent of our sales in the last week.
Automaker-to-dealer incentives also are known as "conditional cash" because the dealer may or may not apply all or a portion to sweeten a deal. These incentives are not publicized, so a customer has a difficult, if not impossible, time determining how much if any additional money is available to them. However, a buyer should ask if there is any conditional automaker-to-dealer cash and the amount that is available to improve the deal. Of course, the dealer may not answer the question, but it doesn't hurt to ask, especially if you're shopping more than one store.
If sales are slow in a specific geographic area, the automaker may add regional rebates that may or may not be disclosed to the public. For example, if there is a high inventory of a specific model in your city, the automaker may offer higher incentives in that area than in a nearby town where the inventory level is under control. Check an automaker's website, and if requested, type in your postal code. The automaker limits regional rebates to buyers residing in specific postal code areas. There also could be conditional automaker-to-dealer incentives based on postal codes that are not revealed.
Inventory Levels a Factor
Another formula addresses each dealer’s new vehicle inventory. The automaker will select the model or models by the Vehicle Identification Number (VIN) on each dealer’s lot that will receive the conditional automaker-to-dealer incentive. If there are two or more identical models at the dealership with the same optional equipment, only the model with the specific VIN will be eligible for the automaker-to-dealer incentive. The others are not and could cost buyers thousands more.
The number of vehicles receiving the VIN rebates depends on a dealer’s sales volume. Smaller volume dealers may only have three, four or five cars receiving this rebate that month while larger volume stores likely will have considerably more. It is wise to ask the salesperson which models have the largest retail and conditional rebates. The savings could be significant if the buyer is willing to take a model in a different colour and a different level of optional equipment.
More Sales, More Incentives
Finally, there is the controversial stair-step formula.
This is a practice where automakers reward dealers for hitting certain sales targets. If they hit their target in a month or beat it, they receive money for every vehicle sold. If they fall short, even by one or two sales, they miss out on all the money.
For example, an automaker can offer regional dealers conditional incentives on a particular model sold if the dealer met that month’s sales objective. Keep in mind that this is also a discretionary rebate that doesn’t have to be part of the deal.
While the stair-step formula is not uncommon, not every automaker uses it. Dealers don’t like it as it disrupts the natural competitiveness. Stair-step is obviously an aggressive incentive for dealers as it may lead to a willingness to lose money on individual sales in an effort to reach the overall target. The result is that larger dealers can often undercut smaller ones. Stair-step rewards the volume dealers who advertise heavier, and in some cases, pull consumers from another dealer’s primary market area. This essentially cannibalizes an automaker’s sales with costly incentives.
However, although a large dealer could have a better bottom-line price, that’s not the only thing to consider.
As it’s challenging to track and know the details of stair-step incentives, this is not necessarily a practical approach to take. Again, by focusing only on ‘the deal,’ a buyer may be giving up other benefits of a new car purchase such as dealer location, service reputation, or an existing relationship with the dealership. If you have a trade-in, each dealer will approach that differently as well. A big dealership is not a guarantee of a lower price.
As you can see, the world of Manufacturer-to-Dealer Incentives is complex. However, by applying the "patience is a virtue" motto and gathering all the relevant information during the buying process, the result can be the best deal possible on your next new vehicle.