Rebates Can Come Back to Bite Consumers

Rick Popely in a story published in the Chicago Tribune says that consumers who are giddy about receiving a $2,000 rebate to buy a new vehicle should ponder a sobering thought: “The resale value of that vehicle just dropped $2,000.”

The more incentives and discounts that automakers and dealers slap on new vehicles to prop up sales, the less those cars and trucks will be worth down the road. Initially, at least, it can be a dollar-for-dollar reduction. "Rebates have about a 100 percent effect on used values, particularly for the first two or three years," said Charlie Vogelheim, executive editor of the Kelley Blue Book used-car value guide.

Take a dollar off the top, and a dollar comes off on the other end, too. Despite recent production cuts and vows by auto executives to get off the incentive bandwagon, Art Spinella of CNW Marketing/Research said incentives hit an all-time high in January, averaging $2,500 per vehicle. Spinella was counting just the incentives that manufacturers gave dealers and consumers in the form of rebates, low-interest loans, lease deals, and other come-ons.

He was not including additional discounts from dealers. "The car companies keep saying they're pulling back on incentives, but every time they do, their sales go into the tank," he said. "They really don't have a choice."

Such generous discounts are welcome news, says Popely, to those shopping for a vehicle, but anyone trading in or trying to sell a used car may be disappointed when finding out what the vehicle is worth.