A dealer incentive is a perk of some kind that the manufacturer of the vehicle gives to the dealer for taking on vehicle inventory to stock the dealer’s lot. A dealer incentive can present itself in a couple of different forms including selling the vehicles to dealers at a lower cost or rebates on the vehicles the dealer sells.
One of the most popular dealer incentive is when the manufacturer sells the dealer the vehicles for a price that is less expensive than the true cost to the dealer. Since the dealer pays less money to acquire the vehicle from the manufacturer, the dealer has the opportunity to make more of a profit when they sell the vehicle.
In some cases, the manufacturer only offers a dealer incentive if and when specific sales goals are met. In this case, the manufacturer sells the dealer the vehicles at the normal cost. If and when the dealer meets the sales goal that the manufacturer has set, then they will rebate the money back to the dealer as part of the dealer incentive.
Some of the dealer incentive packages are also tiered. This means that the sales goals for the rebates that are set by the manufacturer have different levels. As the dealer reaches the selling point of these different levels, the rebates from the manufacturer increase at each tier as well. It is a manufacturer’s way of building competition between dealers and to sell vehicles that may be slow-movers on a normal basis.
While a dealer incentive is a treat for the dealer, it can be a motivating factor for the dealer to help a customer as well. For example, if the dealer incentive is based on the amount of vehicles that the dealer sells, they may work out a lower price on the vehicle to sell more of those vehicles rather than lose the sales all together. Typically, the dealer will only go as low on the price as they can to sell the car and at least have the dealer incentive make up for what they lost on the individual sale.
In addition to offering dealer incentives to motivate dealers to sell vehicles that are not selling as well as other models, dealer incentives are also a tactic for acquiring dealer customers. For example, a manufacturer may provide an incentive for the dealer to take on additional inventory that the dealer would not normally take on to help the manufacturer move the vehicles and provide an incentive to the dealers for keeping these additional vehicles in inventory.