If you want to be able to negotiate the best possible deal on a new car, there are several things you need to know including all of the terminology used in the auto industry. With all of the different auto prices that are thrown around during the car buying process it's no wonder why so many people overpay for a new car.
Then after you've requested your free, no obligation to buy new car price quote and received price quotes from multiple new car dealers, you'll have the information you need to negotiate for the right price to pay for your new car.
The sticker price or MSRP is officially what the manufacturer recommends as the suggested retail price of a new car; unofficially the MSRP is what the dealership is hoping you'll pay by not knowing any better. While the automaker might say it's a fair price to pay, informed buyers never pay the retail price.
Now the dealer invoice price is what the dealership technically pays, from an accounting standpoint, for the new car and they start paying the minute the car hits the lot; normally through a prearranged line of credit. Naturally, they pay interest on the loan, so the longer the car sits on the lot the more interest they have to pay.
Most of the automakers subsidize the interest charges, as well as marketing and advertising costs the dealership incurs by inflating the invoice price. This percentage of 2 -3% of either the MSRP or dealer invoice price is called the dealer holdback. This money is "held back" by the manufacturer and then returned to the dealer after the car has been sold. This is hidden profit for the dealership and why a lot of dealerships try to make their bottom line around 3 to 5 percent over their dealer invoice price.
Factory-to-consumer cash back rebates and financing incentives are used to create a win/win; it allows you to walk away with big savings and in doing so, it generates sales for the dealer and manufacturer. Some of these offers can be combined, while others will require you to choose one or the other.
While the consumer incentives are advertised, factory-to-dealer incentives are only spoken about in hushed voices; these are not discussed by the dealer during negotiations for a new car.
Let's look closer at the dealer invoice price. Like you read above, while technically it's the price paid to the automaker for the new car you want to buy, the true dealer cost is actually hundreds if not thousands of dollars lower than what you would see if you looked at their invoice. This is because:
The inflated amount of the invoice price (the holdback) is returned to the dealer after they sell the car to you; right off the top that just reduced their cost anywhere from 2 to 3 percent.
Then there are those factory-to-dealer incentives they won't mention to you; money to generate sales of slower moving models and rebates/incentives (money) to move last year's models to make room for the new line-up.
And they certainly won't tell you about all of the regional sales bonuses they're offered by the manufacturers; or the bonuses they get for receiving a high score on the CSI (customer satisfaction survey); or the volume bonuses; or their end of the month and year-end bonuses, and on and on.
Knowing about all of these hidden profit-makers and using that knowledge during negotiations is how you can drive home with a great deal. The icing on the cake, however, is pitting multiple new car dealerships in against each other to find the dealers who are willing to accept less profit in order to make a sale. No sale = no commission or bonus money.
Get on the road to negotiating a great deal on a new car, request a free, no obligation new car price quote. Use all of the information from this article to create a bidding war between new car dealers to get the deal you deserve on your next new car.
Remember: You only need 1 new car dealer to play ball!