Why the $5,000 Car Rebate is Bad Business

A Rebate on a Ferrari. Rolls Royce or Bentley? You Have To be Kidding Me!!!

Have you ever heard of a rebate on a Ferrari, Rolls Royce or Bentley? Give me a break! And that is not supposed to be a pun. But really where did all of these rebates originate?

Before I reveal the origin of rebates first let me tell you what goes through my mind when I hear “$5,000.00 Rebate”. It is my belief that the manufacturer has over priced the vehicle by five thousand dollars to begin with. Why didn’t the manufacturer just drop the price to the dealer by $5,000 when they sold them the vehicle?

By the way, you may not be aware of this; but when the manufacturer sells one of their factory fresh automobiles to your local home town dealer they sell the vehicle to them for full price! There is no negotiation! There is no dickering! It can be said with authority that the dealer pays full list price from the manufacturer for every car they purchase. True statement.

Back to the birth of the $5000.00 Rebate

Rebates occur in commerce when the merchandise becomes difficult to move. In the case of the Big Three Automobile Manufactures, two events six years apart fueled the fire that started the Automotive Rebate.

Event #1 started on October 15, 1973. OPEC declares a political oil embargo against the West and any other allies of the Yom Kippur War. The automobile rebate was a direct result of the events in the autumn of 1973. Here is what happened.

First the short story. Then I will offer some fill in commentary.

The oil embargo hits. People panic. Gas lines form. TV cameras show up. Fear sets in. The term “gas mizer’ is coined. American automotive show rooms are full of big, gas guzzling cars and trucks. Soon these same showrooms and car lots become bloated with big, gas guzzling vehicles. Sales of big cars go into a free fall.

Hello Japan!

All of a sudden Honda and Toyota sales go through the roof.

Everyone wants a small fuel efficient automobile. The American public not only finds a fuel efficient vehicle, they discover that the quality of these Japanese vehicles is superior to the American made “dinosaurs”.

The Birth of the “Ethical Bribe”, The $5,000 Rebate

In order to move and sell the huge excess inventory off of Ford, GM and Chrysler dealers’ lots the manufactures started to offer rebates. At first they started at $500.00 and escalated after that. The Big Three basically got into a bidding war with each other over rebates. $500, then $1,000, then $2,000, then $5,000, then stupid money.

Kaizen Will be Remembered as a Period in Automotive History

Between discounts and rebates the true cost of an American made car, truck or van lost all credibility. Because the Japanese did not have to offer rebates they where able to bring more profit to the bottom line. With the increase in their profitability they were able to invest more money in research, manufacturing and quality…to name a few. This was the start of the quality gap between inefficient American made cars and the Japanese philosophy of “Kaizen”, or never ending improvement.

Jimmy Carter and Staggering Inventories of Unsold Vehicles

The second leg in our recent history that fueled the Rebate Craze was the Jimmy Carter inspired double digit inflation in 1980 and 1981 when interest rates soared to over 20%.

The days of the $5,000.00 rebate are going to disappear as the new car consumer wants more quality build into every car, truck, crossover or SUV they buy. The Five Grand is just not going to “trip their trigger”. Today’s consumer wants innovation, technology, more creature comforts and more “bang” for their buck. Todays consumer does not want the end of the year “Fake Rebate”

The fact that Ford did not have to hold their hand out for a “gimme” from the government tells me that Ford now has created the “gap”, the separation that the Japanese started over three decades previous.

Ford Breeds Confidence, Confidence Breeds Excitement and Excitement Sells Cars

In Bartlesville Oklahoma, when you walk into our showroom you can feel the assurance and confidence of our staff. The reason we are all excited is that Ford is starting to deliver a product that breeds excitement…and excitement sells cars.

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