Car Buying Incentives & Dealer Holdbacks
A car buying incentive is an immediate discount offered to a buyer from the vehicle's manufacturer, whether in the form of a price discount or a low interest rate. Dealership holdback is a variable amount of cost returned to a dealership from its manufacturer to help offset the various costs associated with purchasing and advertising a new car. Dealer holdback is often non-negotiable.
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Dealer Holdback
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Many shoppers believe that a dealership owns a car for its invoice cost. Even if the dealer sells a car at invoice, holdback is guaranteed profit paid by the manufacturer. The dealership can use this profit to offset its expenses for a new vehicle. In most cases, dealers pay interest on each new vehicle on the lot. Dealerships finance most of its inventory through the manufacturer's bank. Additionally, the dealer can use the profit to offset its various advertising costs. Because the dealership uses holdback profit to maintain its inventory, it is non-negotiable.
Interest Rate Incentives
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Incentives often change monthly for each manufacturer. Many manufacturers offer competitive interest rates in lieu of rebates, or automatic price discounts off of a new car's purchase price. Rate incentives aim to entice buyers to purchase a specific vehicle; many offer financing rates as low as zero percent or at least rates lower than traditional or local lenders. The manufacturer must discount the vehicle to supply the low rate financing, so if cash-back incentives are available, be sure to compare the savings.
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Price Discount Incentives
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Cash incentives are automatic discounts taken from a car's MSRP (manufacturer's suggested retail price), but are not supplied from the individual dealer. Dealerships are reimbursed by the manufacturer for applying any price incentives. If a customer purchases a new vehicle for a discounted price offered by the manufacturer without further negotiation to discount the car's MSRP, the dealership makes full profit on the vehicle's sale when reimbursed from the manufacturer. Negotiate with the dealer before applying any manufacturer incentives.
Considerations
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If you are pursuing an incentive, check to find out when the offer ends, as most change every month. You can find current offers and details at the manufacturer's website. Compare the price differences between discounts and low-rate financing, as the two offers are similar in value. Because dealers are reimbursed for manufacturer discounts, plenty of room still exists for price negotiation. Be sure to further negotiate the price of a new car to save more money.
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