Sweetening the deal with customer incentives
Nothing gets a customer’s attention like the word free, and automotive dealers often lure in customers with the promise of free money. Free money in the form of cash back rebates and zero percent manufacturer financing are two common customer incentives dealers use to help move inventory and sell certain car models.

The freewheel deal
Low financing—sometimes as low as zero percent—is hard to beat even if you shop around. But even though zero-percent financing sounds like a deal too good to pass up, it often applies only to consumers with excellent credit scores or are restricted to short-term loans—typically one to three years--that make the monthly payment for a car cost-prohibitive for the majority of the market. If your credit score is less than perfect, the cash rebate may be a better deal.

Cash back rebates are another staple of customer incentives. Many manufacturers offer cash rebates on certain cars to entice buyers by lowering the purchase price of the car and making it more affordable for consumers. But how customers use the rebate is at the discretion of the customer, and many—to the delight of the dealer—use the rebate to upgrade their vehicle trim package and purchase add-ons. Using a rebate to upgrade a car with a bigger engine or purchase extended warranties can drive up the price of the car and also pad the dealer’s profit margin. To avoid this trap, negotiate for the car you want before indicating which incentive you will choose. Even if the sales representative doesn’t mention a rebate, always ask if one is available when you are shopping for a car. If you fail to take advantage of the rebate or the financing, the dealer gets to pocket the rebate.

Weigh the difference
Customer incentives are often one or the other--the customer can choose either cash rebates or low financing, but seldom both. In difficult markets or with difficult-to-sell cars manufacturer may resort to offering both incentives. When you are required to choose, consumers should research which incentive is better by securing an independent financing quote and calculating the cost of the loan when they use the cash back to reduce the loan amount and compare lifetime cost of the loan against a low manufacturer financed loan.

While the customer incentives are often not applied to the most popular vehicle models, free money isn’t the only way dealerships can sweeten a deal. Recently dealers have become creative with their incentives and offering free gas or free satellite radio for a set amount of time to encourage customers to choose their dealership over a competitor.

Incentives aren’t just for the customer
Customer incentives are not the same as dealer incentives. Factory-to-dealer incentives—also known as dealer incentives--are commonly used by manufacturers to motivate dealers to move inventory or assume excess inventory for them. Dealer incentives are often provided in the form of bonuses or vacations to managers and high-achieving sales representative who meet or exceed a quota. Factory-to-dealer incentives may benefit customers by motivating the dealer to sell more cars and in turn, be more flexible in price. However, dealer incentives are not published and the consumer has no way of knowing if such an incentive exists or how close the dealership is to qualifying for the incentive.

National customer incentives are often available online, but you will need to contact individual dealers to learn of local promotions and incentives.