Even if there are no rebates or incentives on a car, the dealer could probably sell it at invoice cost and still make a profit.
It works like this: Many manufacturers refund to dealers a small percentage of the invoice price, such as 2 or 3 percent. These "holdbacks" are distributed to dealers as a lump sum several times a year.
Manufacturers might also offer dealers various cash incentives to sell specific cars. These incentives increase as they sell more cars. With these twin "safety nets," dealers can make a profit even if they sell the car at, or sometimes below, invoice price.
Rebates and incentives are legitimate money-savers, and are likely to be available on plenty of models. Incentives are placed on certain models for a specified period of time. They come three ways:
- Cash rebates direct to the customer.
- Low interest rates on loans (including zero-percent financing).
- Cash incentives to the dealer to sell a particular car.
In each case, the manufacturer -- not the dealer -- is the source of this "generosity." Rebates are intended to spur sales of specific models that are already on dealers' lots, so they won't apply to a car you have "built to order." In fact, not many people order vehicles anymore, and many dealers aren't eager to complicate their lives by getting into custom-ordered models.
Cash rebates are often advertised. These consist of a check made out from the automaker to the buyer, and they can usually be applied to your down payment. As an alternative, you might get a low-interest loan. Rates typically range from 0.9 to 7.9 percent APR (annual percentage rate), but they can be as low as zero-percent for shorter-term loans. Only the best credit risks qualify for the lowest rates. If you have weak credit, or little credit history, the rate you'll be offered is certain to be higher -- often a lot higher.
Do the math to determine which is best: the low-interest loan or the cash in hand. Cash might sound good, but in some cases you could save more money with the low-interest loan.
Dealer incentives are trickier to learn about, but they're reported in trade magazines, such as Automotive News, and by some newspapers. Basically, a manufacturer is offering dealers specific amounts of cash to sell certain cars. Unless you want one of those particular models, these incentives won't apply to your purchase.
Remember that incentives come from the manufacturer, not the dealer. Don't allow a salesperson to use them as a means of "giving you a deal" on the final sale price.