If you’re shopping for a new car, some dealers will come up with all kinds of reasons why they can’t offer you a better price. Some of these reasons are legitimate, but saying there are no factory rebates or deals to be had definitely isn’t one of them.
Rebates and incentives are extra discounts that come from the manufacturer to help move certain units off the lot. This “cash on the hood” as it’s sometimes called does not come out of the dealer’s pocket. Now some of these rebates like college graduate or military, you have to qualify for, but others that are often called “customer cash” everyone gets regardless of their situation. Rebates are supplied in addition to whatever discounts the dealer can offer you on that car.
So unless you are shopping for a really rare and in-demand car like a Ford Raptor or Dodge Demon, if a dealer says they can’t give you any discounts because there are no rebates, they are lying to you.
Recently, I’ve been in several situations where I went shopping for a fairly common car on behalf of a customer—a Honda, Ford or Nissan, something like that—and I encountered a few dealers that simply couldn’t be bothered offering a competitive price compared to the other stores in the area. When I asked them why they couldn’t do any better they came back with “Well, there aren’t any rebates on this car.”
Either the dealership fundamentally misunderstood how rebates work, or they simply weren’t interested in earning a customer’s business.
All new car buyers should understand there are three prices for a new car: MSRP, invoice, and actual dealer cost. The MSRP is the price you see on the manufacturer’s website otherwise known as “sticker price,” and unless you are buying something rare no one really pays sticker for a car.
The invoice price is the number the dealer wants you to think they themselves paid for the car, before any markups so they can make a profit. A good dealer may even show you their invoice if they are serious about making a deal. Depending on the car and how popular it is at a given moment, getting it for invoice might be a good deal.
You may be wondering why so many people get cars “below invoice” and how dealers can possibly make any money if they are selling cars for less than they bought them for. That is because the dealers don’t really pay the listed invoice to keep that car on the showroom—they pay a little bit less than that. The number you don’t see is the actual dealer cost that the dealership gives to the bank to hold that car. Most dealers have what is called “holdback” which is basically a little extra wiggle room below the invoice price that allows them to sell the car at or below cost.
So how do rebates play into this price structure? Basically, the applicable rebates are applied after the dealer determines their discount on the vehicle. In some states these rebates are applied before the tax is added on and in other states, they are applied after tax.
Here is an example from a Hyundai quote I got in California:
Now some cars that sell really well don’t have any rebates, but that doesn’t mean the dealer can’t offer you a good price. For example, Subarus are some of the hottest selling crossovers at the moment, and therefore the automaker doesn’t need to put any rebates out there, but many Subaru dealers are willing to sell cars well below invoice price.
Below is a quote I received from a Subaru dealer on a new Forester. The discount of almost $3,000 is way under the dealer invoice price:
2017 Forester 2.5i Premium CVT
Quartz Blue Pearl/Gray
Option Package 13
Forester Premium with Eyesight would be:
Sale Price: $26,350
So rebates are a way for a store to offer you additional savings, but they still have plenty of room to discount the car below the MSRP. And if a dealer says they can’t go down on price because there are no deals or rebates, walk down the street to another dealer.
How much wiggle room they have depends on the brand and the car; some cars have only a little bit of markup while others have several thousands of dollars to work with. The only way to know for sure who is offering the best prices is to compare the quotes in writing.