When you visit a car dealership, you will often see a piece of paper in the window or on the windshield of a vehicle listing the asking price, or retail value, along with a breakdown of the components of the figure. This can be confusing, especially if the dealer begins to negotiate the price, offering to give you discounts on the listed value. How do you know what the car is really worth and if you are getting a good deal?
The automobile industry has built in many safeguards to ensure profit while still selling vehicles at competitive prices. Charging for everything from floor mats to rust treatments is one way a dealer adds to the sales price of a vehicle, and inflating trade-in values along with asking price is another. Knowing what the dealer paid for the car is one way you can avoid getting caught up in a bad deal and paying too much for your next new vehicle.
What the dealer actually pays to bring the vehicle to the lot is known as the invoice price, and is listed on the sticker of the car. Invoice includes everything on the car at the time of sale, unless the dealer has added after-market accessories. Invoice price is theoretically what the dealer paid for the car. Knowing this figure gives you an idea of how much the dealer is trying to make on the car.
However, the “invoice” you see on the car is not the actual invoice price the dealer paid. Manufacturers offer rebates on many of the add-ons to the dealer after the sale, so those can be removed from the equation; they are simply money changing hands, from yours to the dealer. Further, many manufacturers offer substantial rebates in order to move their vehicles; the dealer will subtract this figure, in his own mind, from the MSRP, or manufacturer’s suggested retail price, before selling the vehicle.
Most dealers are happy to get five percent over their cost. After all, the dealer has to pay his salesmen and his overhead; he cannot be expected to sell a car for what he paid for it. However, the amounts that dealers markup vary greatly, and knowing this figure gives you significant bargaining power when you are negotiating a sale.
Finding out the invoice on a new car is not particularly difficult, although you will have to do some research; do not expect the dealer to tell you. First, get the information on the car you are interested in–the year, trim level, and any other significant information about your proposed purchase, including the price of any added accessories. Next, look at the invoice price on this car at your dealer. Remove any rebates or dealer incentives; also remove any holdbacks offered by the company. You can find these at Edmunds or similar sites. If you are unsure how to do this, try Car Buying Tips: Dealers Cost, which offers free worksheets for this process. Once you have figured the “true” invoice price, offer five percent over that price for your car purchase.
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