On the usual car ads on tv, how does cash back work?

Question

You know how they say "Or get $2000 Cash Back!" How does it work?

Answer 1

If you're paying cash, they reduce the negotiated price by the "cash back" amount. If you're financing, the "cash back" amount is added to your down payment and reduces the amount financed.

Watch out for advertised prices that state, "All rebates to dealer." That's actually a very high-profit deal for the dealer EVEN if he's selling the car for factory invoice.

The best way to buy a car is to learn the invoice price first. Then deduct another 5% to cover the dealer holdback and unpublicized factory-to-dealer incentives. Then deduct any publicized incentives and cash back. Start negotiating UP from that price. Do NOT settle for anything more than invoice + 1% or 2% - the cash back amount.

Example:

MSRP: $25,000
Invoice: $21,000
Cash Back: $2,500

Start your first offer at $17,450 (Invoice - 5% - cash back). They'll scream. Let them. Just remember, at that price you are VERY close to a true zero profit deal.

Max buy price: $18,920. (Invoice + 2% - cash back) That's $1,000 or more real profit for the dealer -- fair for him and a good deal for you.

Answer 2

Automobile manufacturers make frequent use of promotions that give cash-back payments. Two common types of cash-back promotions are rebates to customers, which are widely publicized to potential customers, and rebates to dealers, which are not publicized. While the payments nominally go entirely to one party or another, the real division of the manufacturer-supplied surplus between dealer and customer depends on what price the two parties negotiate. We show that customers obtain almost the entire surplus in cases when they are likely to be well-informed about the promotion (customer rebate), and about half the surplus when they are likely to be
uninformed (dealer rebate). However, manufacturers ultimately do not care about the price effect of a promotion; a thousand dollar promotion costs a manufacturer the same whether it is directed to customers or dealers. Instead, manufacturers are
interested whether a given promotion leads to the sale of an additional car. We find that customer cash promotions, consistent with the pass-through results, have a larger dollar-for-dollar effect on sales than do dealer cash promotions

Answer 3

In addition to what hawk996 said, it also has an effect on how much you are putting into the deal and how much (if any) your trade is worth. the more you put into the deal, the less the dealer has to put when in it comes to dealer cash. That is how cars salesmen make a grand a week is in dealer and customer cash.

Answer 4

simple. you buy a 14000 dollar car. they charge u 16000. give you 2000 back. you pay years of intrest on 2000 loan..think about it..what a rip!

Answer 5

Just about any wrecking yard, pick-n-pull or dismantler will do that