A Call For Reality In New Vehicle Incentives/Rebates and Pricing

July 17, 2015

I’ve been talking new cars with dealers lately, helping them create and navigate strategies for proper pricing in today’s market.

Naturally, customer incentives and rebates are a key part rebatesof the discussion—particularly as some manufacturers rely on them more than ever to drive market share and sales.

From these conversations, I think it’s fair to group dealers in three buckets:

Bucket 1: These dealers resist applying any incentives or rebates as they price new vehicles. The chief reason: The dealers prefer to limit incentive/rebate discussion to the showroom floor, where they can be absolutely certain they’ve matched specific customers with the correct price discounts.

Bucket 2: These dealers believe it’s appropriate to include incentives/rebates in their new vehicle pricing, provided a) most buyers would qualify for them, and b) each vehicle listing properly discloses the conditional nature of the rebates/incentives, and shows how a dealer uses them to calculate each asking price. The dealers have adopted this practice to meet buyer desires for a greater level of pricing transparency.

Bucket 3: These dealers include nearly all available incentives/rebates in their new vehicle pricing, even those that may only apply to a small percentage of potential buyers. The dealers rationalize this “kitchen sink” approach by noting that they provide the proper disclosures, and they hear few complaints from customers who might feel misled.

I can understand why dealers in Bucket 1 are where they are. It’s only been of late that dealers have the technology and tools to accurately apply/stack incentives and rebates in their pricing strategies.

I typically applaud dealers in Bucket 2. They’re keeping it real and realistic as they include incentives/rebates and offer more transparent asking prices.

With Bucket 3 dealers, I offer a word of caution. Just as you get more proficient at applying incentives/rebates as they price new vehicles, customers and industry regulators get better evaluating them. The “kitchen sink” approach may be working for now, but I have to question the strategy’s risks and viability moving forward.

It wasn’t all that long ago that every dealer was essentially a Bucket 1 dealer. Incentives/rebates were too complex, and online pricing technology too limited, to confidently and efficiently include them in a new vehicle pricing strategy.

Times are different now, of course. The technology is now available and, more importantly, dealers recognize that it’s increasingly important to provide consumers incentive/rebate information right away, while they shop new vehicles online.

Looking ahead, I believe incentive/rebate-based new vehicle pricing will become the norm, and we’ll see the vast majority of dealers in Bucket 2.

As this transition continues, dealers would be wise to remember what our customers will be thinking when they evaluate new car prices—“if it seems too good to be true, it probably is.”