What are Dealer Cash Incentives on New Cars?

By

Senior Pricing Analyst

Alex Bernstein is the Senior Pricing Analyst for CarsDirect.com. Each month he studies immense volumes of pricing and incentives data in search of trends that are useful to car shoppers. In the process, he often breaks industry news stories -- his analyses and insights have been featured on websites such as Automotive News, The Detroit News, Autoblog, The Truth About Cars and The Car Connection.

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, Senior Pricing Analyst - August 20, 2015

Although it continues to be a taboo subject in the car-buying world, dealer cash can play an important role in new car prices with certain car brands. Unlike traditional incentives, dealer cash isn't advertised and may not be offered to everyone. But what is dealer cash exactly? What automakers use it? And what does this mean for shoppers? Here's what you need to know.

What is dealer cash?

Dealer cash refers to a manufacturer incentive designed to allow special discounting of new cars at the sole discretion of dealers. This is not to be confused with dealer holdback, something outlined separately below.

Unlike traditional rebates, dealers may choose to pass along the discounts or keep it as profit. While dealers are not obligated to pass along the incentive, it is generally intended to help dealers sell more cars.

Another difference with traditional offers is that dealer cash often lowers the sale price of a vehicle before sales tax is applied. In contrast, traditional rebates are generally considered to be taxable. This can affect the final transaction price.

See our ranking of the best advertised discounts »

Is dealer cash the same as holdback?

Dealer holdback, another taboo subject, is based on an arrangement between dealers and automakers involving a percentage of a car's value that is paid back to the dealer later (usually quarterly). In contrast, dealer cash is a manufacturer incentive that can change month to month at the same time as advertised offers.

Why does dealer cash even exist?

Automakers that use dealer cash typically do so as part of a strategy to protect their brands. For example, Lexus and Acura almost never advertise traditional rebates. Instead, they generally make dealer cash available to allow dealers to sell at more competitive prices while maintaining exclusivity.

Dealer cash can have a supportive impact on used car values when you consider a $2,000 rebate on a new car may negate the apparent price advantage on a near-new equivalent in the used car market. While there are many variables affecting advertised used car prices, this is something automakers consider.

View the current lineup of Acura performance vehicles »

Luxury brands that use dealer cash

When it comes to luxury automakers, Acura, Infiniti, Lexus and Lincoln generally opt to use dealer cash to help sell certain models. These may not necessarily be on the slowest-selling models either- it's not unusual for dealer cash to be offered on a brand's bestselling nameplates.

To some extent, Mercedes-Benz uses unadvertised incentives to help dealers sell cars. Rather than using dealer cash, the automaker has been giving select dealers discount certificates worth up to several thousand dollars to help sell certain models.

Not all automakers use dealer cash, however. While BMW has dabbled in it previously, aggressive sell-down offers such as Build Out Cash worth up to $4,000 are being advertised publicly to aid this year's model year change on certain models.

View pricing insights on the BMW 640 »

Mainstream brands that use dealer cash

Dealer cash is not a phenomenon limited to luxury brands. Mainstream automakers like Honda almost exclusively employ dealer cash incentives. In contrast, Toyota almost always uses traditional cash offers, though not to the same levels we generally see from Nissan, Ford and the Fiat Chrysler Automobiles (FCA) brands.

Some even use a hybrid setup. For example, Mazda has at times offered rebates on some models and dealer cash on others, on rare occasion even flipping between the two types from one month to another.

See the best advertised discounts on crossovers »

What this means for shoppers

Dealer cash can undeniably impact new car prices in some cases. However, shoppers should be aware that there are many factors that can affect the final cost.

Depending on a shopper's financial background, loan rates may be higher (or lower) than one's expectations, equating to hundreds of dollars. When a vehicle trade-in is involved, appraised values can often be negotiated, potentially resulting in big differences between expectation and reality.

A close look at dealer quotes should be enough to reveal what's happening with market prices. If a dealer representing a brand that historically uses dealer cash is advertising an incredibly good deal, it's a likely possibility that dealer cash is involved.

Learn more about the best deals on new cars »

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, Senior Pricing Analyst

Alex Bernstein is the Senior Pricing Analyst for CarsDirect.com. Each month he studies immense volumes of pricing and incentives data in search of trends that are useful to car shoppers. In the process, he often breaks industry news stories -- his analyses and insights have been featured on websites such as Automotive News, The Detroit News, Autoblog, The Truth About Cars and The Car Connection.

Follow On: Google+ | Website