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Why Do Car Makers Offer Incentives?

The main reason car manufacturers offer incentives is to help boost sales of slow-moving models.

There are over 300 different cars, trucks, and SUVs available for sale in the U.S. and there's no way each one is going to meet its original sales target. So it's natural that some cars sell better than others.

One of the strongest ways to motivate buyers is to reduce the price of the vehicle. This can be done in several ways, the most common of which is to offer cash-back rebates.

Manufacturers don't like having to offer cash rebates because it's usually a sign that a car isn't selling well. The higher the rebate, the worse the sales. If a brand new model is offering incentives, that's a clear sign that it's not hitting initial sales goals.

In order to disguise the fact the car isn't selling well, some manufactures prefer giving incentives via "hidden" avenues, such as dealer incentives and low APR financing. Hidden dealer incentives are bonuses that are given directly to the dealer whenever they sell a slow-moving model. You'll find that most luxury car brands tend to prefer these types of incentives in lieu of cash back rebates.

Many dealers pass this bonus to the customer in the form of a lower purchase price. This way, the manufacturer saves face while still providing a boost in sales. Sometimes car incentives are provided merely as a competitive tool and not necessarily to help sell slow-moving models.

Every now and then, an incentives war will break out among competing brands. When this happens, manufacturers feel pressured to offer some incentives as a way of keeping or gaining market share against competitors. Usually, these types of incentives are kept small and will be on popular models in the form of cash back rebates and leasing deals.

A final reason car incentives are used is to clear out year-end vehicles to make room for next year's models. These are common after September and are usually in the form of hidden dealer bonuses, which are usually passed on to the consumer. The largest incentives are reserved for leftover models where the incoming model is newly redesigned. This occurs every 4 to 6 years for each brand, so it's good to know when these changeovers are due.

My Recommendation for Car Shoppers

TrueCar No-Haggle and Edmunds Price Promise are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan

Gregg Fidan

About: Gregg Fidan

Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.

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