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Dealer incentives

Dealer incentives is a money term you need to understand. Here’s what it means.

What are dealer incentives?

Car dealers frequently offer their customers incentives to buy from them. In addition, carmakers offer incentives to the dealers, and these incentives lower the dealers’ cost for buying the vehicles from the manufacturer.

Deeper definition

Carmakers sometimes use dealer incentives to boost sales of a specific model, often offering different incentives in specific regions of the country.

For example, if certain models don’t sell as well as others, the manufacturer might offer a cash-back incentive for each one that does. This can create competition between dealers who want to sell more of that model than others so they reap the financial rewards.

Dealers don’t publicize these incentives the way they do other incentives they offer their customers. And while they can pass the savings along to their customers, they’re not required to, and some don’t.

However, if a customer knows about an incentive, he or she can use that to negotiate a lower price or overall better deal on the vehicle. Incentives are sometimes listed online or can be spotted by comparing price quotes from multiple dealerships to see who is offering the steepest discount.

In addition to incentives for selling specific models of vehicles, manufacturers may offer dealer incentives to specific dealerships to help them boost sales when they first open. Or if they have vehicles they want to unload, they may offer incentives to dealers who agree to take more of them.

Some incentives apply not to selling specific vehicles, but to meeting long-term quotas. For example, a dealership may offer a reduced price to a customer for a vehicle so it can meet an upcoming sales target and earn an incentive.

Some incentives offer so much to the dealerships that they’re willing to take a loss on a particular transaction to get the hefty reward.

Dealer incentives example

A manufacturer may offer dealerships cash back at certain levels or tiers, offering more money as they sell more vehicles. As the dealership reaches higher levels, it earns more per vehicle than it did at the previous level. So, if a specific transaction would get the dealership to the next level, it might offer a discount to the customer so it can reach the next incentive level and earn more on every vehicle it sells after that.

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