$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions

TLDR

Automobile manufacturers frequently use cash‑incentive promotions, and while payments are nominally directed to customers or dealers, the ultimate beneficiary depends on price‑negotiation outcomes. The study compares the incidence of customer rebates versus dealer discount promotions. Program evaluation methods are employed to assess these promotion types. Customers receive 70–90% of a customer rebate, but only 30–40% of a dealer discount promotion, a $500 difference on a typical promotion.

Abstract

Automobile manufacturers frequently use promotions involving cash incentives. While payments are nominally directed to either customers or dealers, the ultimate beneficiary of the promotion depends on the outcome of price negotiation. We use program evaluation methods to compare the incidence of these two types of promotions. Customers obtain 70 to 90 percent of a customer rebate, but only 30 to 40 percent of a dealer discount promotion, a $500 difference for a typical promotion. Our leading hypothesis is that pass-through rates differ because of information asymmetries: customer rebates are well-publicized to customers, while dealer discount promotions are not.