Why Dealers Use Rebates To Sell Cars

2013-Hyundai-ElantraHey Cool Car Fans,

Many of my clients contact me toward the end of the year wanting to take advantage of the end of the year rebates that manufacturers place on their vehicles.  Rebates serve a great purpose for the automobile industry and they typically come when the new line of vehicles are coming out for the following year.  A rebate really has to do with the fact that a vehicle has depreciated over the course of the year, so the manufacturer is trying to sell their remaining vehicles to get ready for the next model year.  You are really just getting a discount on the vehicle because of the depreciation that has taken place throughout the year.

However, rebates can be a great way to roll negative equity in a trade.  For example, if there is a $2,000 rebate on a vehicle and someone has $2,000 in negative equity, it could mean the difference between qualifying for a loan and not qualifying.  Many times rebates are also placed on vehicles that are available for lease and they will call it “lease cash” or some other type of incentive.  This additional money from the manufacturer can again be a fantastic way for someone to solve a nightmare that someone may find themselves in with their current vehicle.

I had a client who had this problem recently with their Mercedes Benz that needed a $5,000 repair.  Rather than paying for the repair on the vehicle, they traded out of it and took the hit on the trade value of their vehicle, so they had about $5,000 in negative equity.  They were able to lease a new Toyota Highlander because of the incentives that were on the vehicle and their payment on the new car only went up slightly from what they were paying for their older, broken Mercedes Benz.  In three years they will be able to start over, while driving a new Toyota that included two years of free maintenance, with a lease that was structured to fit the number of miles that they drove each year.

cpo_index_carThis is a great example that many people often overlook when they are in a difficult situation with their vehicle related to repairs. Why fix an old vehicle that you still owe money on when you could start over with a lease and drive a new vehicle under warranty that can even include free maintenance?  Too many people are “anti-lease” when they really don’t realize the benefits that leasing can often offer.  It all depends on the structure of the lease, the situation of the person and the incentives that are included in the overall package.  I recently did a lease like this for someone who was only paying about $450 in interest over three years on a $45,000 vehicle, where if they were to finance it they would have been paying more more than that in interest each year for five years.  Many manufacturers will also offer 0%, 1.9% or 2.9% financing options as well, so it’s important to look at all the offers available.

Rebates and incentives can be a fantastic tool that many people can take advantage of as we head toward the end of the year.  Many manufacturers like Honda and Subaru clear out of their 2013’s fast, but other manufacturers still have inventory that they have incentives on that you can leverage before year end.


John Boyd

Auto Consultant – John Boyd: The Cool Car Guy

John is an auto consultant with his license at a car dealership in Denver, Colorado. He can help you save time and money on any make or model, new or used, lease or purchase – nationwide! Call or email John about your next vehicle! jboyd@coolcarguy.com or Twitter @coolcarguy