Incentives: The Auto Biz’s Version of Funny Money
Automotive News is an important automotive industry trade pub. It is read each week and one line by dealers, suppliers, analysts, executives, and yes, journalists, among others. One of its many great services is a page that outlines all of the various incentive programs being offered. There are two categories of rebate. Retail incentives are those offered by the manufacturer direct to the customer. You know exactly what that amount is, and it is washed against your purchase price when the dealer papers the transaction (unlike other proof of purchase rebates, you don’t have to send in a box top and a coupon and wait 60 days for your $3.00 check). This is called “money on the windshield.” The other common rebate plan is a Factory-to-Dealer incentive. The carmaker kicks back X dollars to the dealer, so he can pass on a better than sticker price to you. Although the amounts can be similar to those of the Retail rebate, the downside is that you don’t know how much that is, and if the dealer is passing that entire amount on to you or not (let the gaming begin). This is colloquially referred to by a dealer friend of mine as “money under the windshield.” In looking at AN ’s Customer Incentive table (dated April 20), several interesting trends made themselves clear. It’s not uncommon to see a few rebate plans for last year’s models, but this already being early the second quarter, I’m amazed at how many rebate plans there are out there for 2008 models. What does that mean? Simple: tons of unsold inventory. Given the state of the world economy, this is no surprise. But the point is driven home when you see it in black and white dollar signs. The “leader” of the Retail rebate pack? The 2008 Saab 9-7X . This is no surprise: it’s a badge-engineered variant of a near ten-year old Chevy truck that doesn’t fool anyone into believing it’s a real Saab, even if the ignition switch was moved to the floor. The number? $10,000, baby. And that’s not including what a dealer might throw in to move one of these rigs. Next up is the ‘08 Cadillac XLR and XLR-V. I’ve never thought this overpromising, undelivering Mercedes-Benz SL wannabe was worth the money GM tried to get for it, and neither do car buyers. Take off $8500. The third big player is also on GM’s Not Exactly a Hit List, that being the ‘08 Hummer H2 and H3, on which you can scribble off $7000-8000 . Over on the dealer incentive side of the page, the “star” is the Range Rover. Its dealers qualify for a $12,000 kickback on remaining 2008 models. The Range Rover Sport is next at $9000-11,000 (probably depending upon if it’s a supercharged or naturally aspirated model). The previous gen Dodge Ram 2500/3500 scores high too (or low, depending upon how you look at it), offering $7000-9000 in dealer rebates. But here’s an interesting one: The Lexus LS 460 and its various models — long considered paragons of value — also are pasted with $7000-9000 dealer incentives. So don’t think it’s just an American brand thing. What does this mean? Besides the obvious “times are tough” it tells me that carmakers, large and small, and up and down the luxury scale, need to get real with their pricing. As a consumer, I feel better about paying a fair to better-than-expected price for a quality, high value product, instead of trying to figure out what its really worth, what the dealer is really making, how I’m being gamed, and then seeing the product be so severely devalued the minute I drive it home. Difficult as they are for many, perhaps the current economic realities will bring teach carmakers, dealers, and buyers alike some price/value lessons as well. What do you think?