How Do Manufacturers Determine Rebates?

02/03/19-I always get asked the question "do you think rebates are going to go up" or "are there going to be any (insert holiday here) rebates?"  Well, if I could predict the future, I wouldn't be selling cars. I'm joking or course (somewhat). But how do manufacturers determine rebates? Do they pull a number out of a hat? Throw darts at a dart board? The answer, is no.

Manufacturers actually use a fairly complex method to determine rebates. Lets use the Chrysler Pacifica LX as an example.  The first thing they look at is the Pacific LX average days on lot. What that means is they take a nationwide "snapshot" Pacifica LX inventory and calculate how many days on average that Pacifica LX sits on a lot until it's sold.  The longer Pacifica LX's have been sitting on dealer lots, the higher the likelihood of there being rebates on the vehicle.

Secondly, a manufacturer looks at Days Supply of a particular vehicle. In other words, does the average dealer have a 200 day supply of a vehicle or a 300 day supply of a vehicle. This is determined by how many of that particular vehicle is sold in a specific time frame. Using very simple math, lets say that nationwide, dealers on the average sell 200 Pacifica Touring Plus's in a week.  Lets also say that there are 10,000 Pacifica Touring Plus's in inventory and in transit nationwide. That works out be a 350 day supply for Pacifica Touring Plus's. (10,000 Pacificas/200 sold per week=50 weeks until all are sold. 50 weeks X 7 days=350 day supply of Pacifica Touring Plus's) The more days supply of a vehicle the manufacturer has the greater the chance of there being rebates.

Rebates, once introduced by the manufacturer, typically don't go down. The one exception is if a region of the country has been affected by a severe economic problem or natural disaster. The manufacturer may, for a limited time, offer additional rebates to those affected.  Rebates that come out for holidays such as Presidents Day or Labor Day often run through that particular month and then are just renamed the following month. For example, lets say that Chrysler comes out with a $500 Presidents Day rebate. It typically would start the week before the holiday weekend and run through February. Once March begins the rebate is still there, just not called Presidents Day Rebate. It may be called National Consumer Cash Rebate. Again, the point being is that once a rebate amount is introduced, it typically doesn't "go away".

Now you have a basic idea of how rebates work.
Basically, what it boils down to is good ole supply and demand. The higher a demand and lower supply of a vehicle, the lower the rebates. The higher supply and lower demand for a vehicle, the higher the rebate.