New Car Pricing & Rebate Terms Explained
To get a really good deal on a new car, you have to understand how
pricing and rebates work. It's a whole lot more complicated than you think.
Ad Units
Also known as “Advertising Units”. You’ll see these cars advertised in your
newspapers and they will say something like: “Only 3 available at this price”.
These are for real and they are there to draw you into the dealership so they
can up-sell you to something more expensive and profitable for the dealer. They
are loss leaders.
Allotment
Also referred to as “Dealer Allocation”. This is a system the manufacturers use
to allot cars and trucks to their car dealerships.
Asking Price
If you’re looking in the classified ads for a used car and you see the term
“asking $5000.00” then you can assume that $5000.00 is a starting point to be
used when negotiating a final selling price. Their final selling price could end
up being much lower than the “asking price”. If they specifically say “$5000.00
firm” then you can expect that they aren’t going to want to negotiate at all.
Book (Blue Book)
This is a term given to determine the value of a used car as seen in the Kelley
Blue Book, NADA guide and others. Its usually broken into categories of retail,
trade-in and wholesale value. Also known as “Book Value”.
Carryover Allowance
Near the end of the year when the car dealers get the next years models, they
will usually discount last years inventory of new vehicles. This is known as a
“Carryover Allowance”. This can be a good way to buy a new vehicle at a decent
price. The downside is that your vehicle will be last years model, which may not
matter as far as value, unless the new car has gone through a major design
change.
Churn & Earn
When new car dealers buy a number of in-demand vehicles from the manufacturer
they usually must also order a couple low-demand vehicles too. If this is the
type of vehicle that you want then you can get it at a good price because the
dealers will be eager to just “flip” this vehicle or “churn & earn”. Maybe even
selling it without a profit. These vehicles are sometimes used as loss leaders
in their advertising to draw potential buyers in.
Commission
This is the money that the salesperson gets for selling a vehicle. The more
vehicles (“units”) they sell in a month, the higher that their commission rises
too.
Customer Incentive
Also known as “Rebate”. These are incentives offered by the manufacturers. They
are usually used on low-demand vehicles, high supply vehicles or they are
offered when car sales in general are low. Its worth watching and waiting for
deals like this.