Making Sense of Incentives

Written By: MyRide.com
Reprinted under license.

Slow sellers, big hits and why automakers discount their cars

Making Sense of It All

Somewhere between the glamour of new cars posed on the cover of glossy magazines and the classified section headlines that scream about untouchable deals - you know, five at this price -- you will discover the truth about buying a new car. So let's get down to it. The truth is that any salesperson worth their shoes will try to get as much as they can out of every sale. That's how they feed Junior. But you need to feed your own child, and that can be hard to do when you've got a big fat car payment dangling off your neck like a rap star's Apollo medallion. So you do your homework, you read lots of information - but still, it's all a hazy maze. Customer Cash? Marketing Support? What?

Today's auto market is among the best in many years, but it is also much more complicated. Never have there been as many choices as there are today, and incentives play a very large role. In the past, rebates were used during specific times as a way to reduce inventories of outgoing vehicles. It was, in essence, the automaker's version of a department store weekend sale. Thanks to what some in the business called "discount marketing," that changed and rebates became a central part of the automotive sales world - mainly to get us consumers to buy a car a little earlier than normal. By raising suggested retail prices and then applying a layer of "automatic" rebates - so that people thought they were getting a deal - some automakers altered the auto buying landscape much like a wildfire forever changes a canyon. With rebates used in this expanded fashion, they could control sales virtually month-to-month or quarter-to-quarter simply by cranking up discounts until people couldn't resist what looked like a fire sale. Like a spastic yo-yo, sales responded - first, records were broken and then a precipitous drop occurred.

But then vehicles at Chrysler, Ford, and GM lots stopped selling altogether, and not even employee pricing could put the sales back together again -- or even pleas to "Buy American." Sticker prices were still too high, those in the market were already driving new rigs, and new models failed to sway additional buyers. Soon new cars were joined by newer models and, then, still newer cars. Lot kids were challenged to figure out how the heck am I gonna all these Tahoes on the lot at the same time? The answer - still -- is to slap a big fat rebate on the sticker price, but this time it's back to where it all started - rebates to clear inventory. Only problem is that there's a big inventory, so big rebates are needed, though the likes of Chrysler, Ford and GM are slowly getting themselves out of the mess all these plans caused in the first place. Until the existing overstock of models is gone, however, you can count on increasingly aggressive rebates and finance plans on 2006 and 2007 models. The basic rule is this: the more desperate an automaker/dealer is to sell a car, the better deal you're gonna get, through the use of rebates and smart negotiating. It's an opportunity to buy a new car for less - an opportunity that's wasted if you buy for the deal and not for the car.

True winners will get both.

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