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Why The Dealer Invoice Price is Not The True Dealer Cost Of Cars “Don’t Pay Too Much For Your Next Car!”

February 17, 2014

It's happened to all of us at least once in our lives; we thought we got a great deal on something only to have a friend or colleague tell us they bought the exact same thing for a lot less money. It's one thing when it's only a pair of shoes or a set of tools; however, when it comes to buying a car the amount we overpaid can amount to thousands and thousands of dollars.

In this article we're going to let you know how you can tell a great deal from a good deal and especially how you can tell if the only deal is a figment of a salesman's imagination. Then when you request your free, no obligation to buy new car price quotes and you're negotiating with the multiple certified new car dealers who submit competing price quotes, you can ensure the deal you drive home with really is a great one.

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The Dealer Invoice Price & The True Dealer Cost Of Cars What Makes Up A Car Dealer's Cost For A New Car?

The new car dealer's invoice is what the automaker would theoretically charge dealerships for an automobile; however, it does not include all of the incentives, rebates, discounts or the holdback. The true dealer cost of cars takes each of these factors into account to give you a much closer estimation of what the new car dealer paid.

So, what exactly contributes to the cost the dealer incurred for a new car? We're going to break it down for you so you can establish the best price to start negotiations.

Even though with your free price quotes one of the price points you'll receive will be the MSRP, it's really only a reference point; and will be good for comparing to the true dealer cost of cars you'll receive.

  1. The dealer invoice price is what the automaker technically charges the dealership for a new automobile. After you have received all of the free information with your price quotes and before you begin negotiations, ask the dealerships to show you their actual dealer invoice. Reason being you'll be able to see how long the car has been sitting on the showroom floor. If it's been there for a month or longer they will be very anxious to sell it.

  2. A huge contributor to the difference between the true dealer cost of cars and the dealer invoice price are all of the cash incentives that manufacturers provide to dealerships. There are cash incentives to sell specific models, monthly and end of year sales incentives, etc. This is money that the consumer never sees and most don't even know about it without researching.

  3. The destination fee is a charge that all dealerships pay to a car manufacturer to have a new car delivered to their dealership. It will appear on the invoice and this fee is non-negotiable, as every dealer has to pay to have new cars transported.

  4. Another charge that's quite common in franchises is for regional advertising. This is where the automaker charges their dealerships a fee for specific advertising in the dealer's region. Oftentimes it can also include specific advertising targeting buyers in a dealer's individual territory. In most businesses it's just considered the cost of doing business; however, some car dealers do try to pass these costs to new car buyers.

  5. Then there is the dealer holdback that is kicked back to the dealership by the manufacturer at some point, usually quarterly, after a buyer has taken delivery of the new car. It is usually a percentage of anywhere between 2 to 3 percent of the dealer invoice price or the MSRP and is money the dealership receives in addition to profits generated by the sale.

  6. A good place to start your negotiations is around the dealer invoice price minus the dealer holdback. Then if you want them to feel like they're making progress, bump it up around $500. If you do this with all of the dealerships sending the competing price quotes you put yourself in a great position to have at least one dealer willing to take a smaller share of profits to make the sale.

Understanding Market Averages To Know The Difference Between A Good Deal & A Great Deal

One thing that some salespeople might use to justify their price quote would be market averages and they can be confusing to read. Here is a brief overview of what makes up market averages so you can more accurately determine whether or not it's a legitimate illustration of the price quote or if someone is simply trying to confuse you (and sell you a price that isn't reasonable).

  • Market averages are taken from automotive data as it pertains to specific models/configurations, consumer incentives, dealer incentives, loan and financing data, insurance and many other factors. It represents a sampling of the total number of cars sold nationwide to represent the market.

  • Keep in mind though it is simply an average and there can be significant deviations between the market averages for fast selling car models versus those where sales are slow.

  • A good price would be a percentage above the current market average price and usually those above-market averages represent around forty percent of all new car sales; with a great price being an amount below the market average price. There are many outside factors that contribute to the average market price and cars falling in the great price range are often determined by supply and demand.

Now that you know what makes up the true dealer cost of cars and that it sure isn't what you would see on their dealer invoice, all you need to do to start shopping for a great deal is request your free, no obligation new car price quote. Use your new-found knowledge to negotiate a real deal on a new car.

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