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What is a Factory Incentive?

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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 27 August 2014
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In the automobile world, a factory incentive is a discount offered to car dealers by the manufacturer. This discount can range significantly, from a few hundred US Dollars to as much as a couple of thousand USD. The factory incentive tends to get larger as the year ends, especially if certain models of cars aren’t selling well. Since the manufacturer has a vested interest in selling all of its inventory, they will sometimes be willing to sell it at a lower price to the dealer in order to make room for inventory for the next year.

There is a difference between a factory rebate or manufacturing rebate and a factory incentive. Rebates are conferred to the customer. If you buy a certain vehicle, you’ll get X amount of USD back, or the car will be offered to the buyer at a lower than sticker price amount. Rebates are widely advertised and they do mean that you will see a direct lowering of price when you purchase a vehicle. Factories may again offer these rebates to quickly move merchandise that isn’t selling. One key difference, though, is that you’ll be fully aware of rebates offered to you. It may be more difficult to find out if your dealer bought the car and received a factory incentive.

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Most dealers will not tell you if the purchase of the car was less than usual, which can make your job as a purchaser just a little more difficult. Before you do purchase a new car, it is a good idea to find out if there are any factory incentives to the dealer for the models and types of cars you are looking at. Note this tends only to apply to new cars and not to used ones.

There are a number of Internet sites that may help you find out whether factory to dealer incentives are currently available on your car. A few of these offer free quotes, like Edmunds, and others charge a small fee like Consumer Reports. Both offer good services for finding out whether a factory incentive exists on the model you are purchasing, since the dealer is unlikely to list this incentive. Another thing to look for is company websites for the cars you’re looking at purchasing. They may have dealer information or news that lists current factory incentives.

It’s also important to look at the sticker price, or manufacturer suggested retail price (MSRP). It is now becoming more common for cars to be labeled with dealer pricing, rebates, and any factory incentive on the car. Note the difference between the actual price and the MSRP. Generally, if the car you want is not in high demand, you can probably be able to get the car for about 3% over the MSRP. This gives the dealer some profit, but doesn’t give him/her an inflated profit.

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Inaventu
Post 2

@mrwormy- I rarely visit a car dealership until the last month before next year's models start arriving. The dealership needs to get older cars off the lot and the manufacturers want to make some last-minute sales.

All I had to do was ask the salesman at the lot about factory incentives and he knocked $1500 off the asking price.

mrwormy
Post 1

I've heard numerous local car dealerships use the phrase "factory incentive program" in their commercials, but they rarely explain what it means. I've always assumed it was a deep discount from Ford or General Motors or other manufacturer placed on car models that were not selling quickly. It seems like I'd hear more about factory incentives the closer it got to the end of the sales year.

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