Car Rebates – Just the Facts

car rebatesCar companies such as Ford, General Motors, Nissan and others frequently offer rebates as a way to attract customers to their vehicles.

These rebates come in the form of limited-time promotional incentives that can appear, disappear, or change from month to month.

Some car companies use rebates, others do not. For example, you never see rebates from luxury brands such as Lexus, Mercedes, Jaguar, or Porsche. They don’t want to be viewed as discount brands so, if they offer incentives at all, it might come in the form of special lease deals, or trade-in bonuses (rebates), which are more subtle and don’t cheapen the brand name.

What is a rebate, you might ask? Isn’t it just a price discount?

Actually, no. A rebate and a discount are very different.

Rebates come from the car manufacturer, through dealers, and passed along to customers. It’s the car companies’ money, not dealers’ money.

Is it important to customers as to where the money actually comes from? Yes, and no.

Rebates differ from discounts that come from a dealer’s pocket. Manufacturers lose money on rebates; dealers lose money on discounts. If a dealer sells a car that comes with a manufacturer’s rebate, he still makes his full profit on the sale. This leads to the question, “Can I get both a rebate and a price discount?” Absolutely, although many customers don’t know it and don’t know to ask. Dealers should be expected to make their own contribution (price discount) to a car deal even if there is a manufacturer-provided rebate. Don’t let a dealer salesperson tell you otherwise.

There’s another difference between rebates and dealer discounts. A discount actually reduces the sale price of a car while a rebate does not. Let’s explain. When you look at the sales contract for a car that has been given a price discount, the sale price on the contract will already have the discount subtracted. Therefore, when you pay sales tax, you pay it on the discounted price.

However, when you buy a car that comes with a rebate, the sale price is the vehicle’s full price (assuming no dealer discount), which means you pay sales tax on that amount. The rebate is subtracted later, like a down payment, after tax has already been computed. The effect on vehicle price that the customer actually pays is exactly the same, except he pays more sales tax on the deal with the rebate.

For cars for which rebates are not being offered at the time you want to buy, always negotiate a dealer discount, although you can’t expect dealers to offer discounts that are as large as many rebates from car companies. Multi-thousand dollar rebates are fairly common but dealers don’t have enough built-in profit to offer discounts as high.

So, is it better to get a rebate from a car manufacturer, or a price discount from a dealer? Answer: Get both.


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