There's nothing worse, especially when money is tight, to find out after the fact that we overpaid for something; especially when it's one of the biggest purchases we'll make in our lifetime; sadly, when new car buyers don't take time to get the facts before they contact a dealership that's exactly what happens.
Every profession has their unique way of doing things to make money and in this article we're going to go over all of the ways that new car dealerships hide big profits into each car on their lot. Then when you have taken the opportunity to request a free, no obligation to buy new car price quote and received competing quotes from multiple dealerships you'll be armed for negotiating a real deal.
One of the big reasons so many people overpay is that they're not familiar with the differences between the price points that are referenced during the buying process. The first thing we're going to cover are the 3 primary terms you'll hear when buying a new car or truck; as well as how they play a big part in you receiving numerous price quotes that can be completely different – on the same vehicle.
One of the most common price points is the sticker price or MSRP. This is the highest value an automaker feels a new car could sell for, however the dealer can sell it for whatever amount they wish.
Next comes the Dealer Invoice Price and this is what the automaker invoices the dealership for the cars they buy; it also includes factory installed options. There are also fees that will differ between the dealerships.
Finally, there's the Factory Invoice and it's said to be the total price/charges for getting a vehicle to the dealer's lot from the factory; however, that isn't completely correct, but is a number you should know and utilize when you negotiate the purchase price. The factory invoice is made up of 4 parts:
And that is the holdback. When it comes to reducing the dealer's true cost for a new car or truck, the holdback is one thing that plays a big part and here's how it works:
Manufacturers inflate a dealer's invoice by approximately 2 to 3% of the invoice price or the MSRP; running anywhere from a few hundred dollars to several thousand that gets kicked back to the dealership after the car is sold. Doing this benefits dealerships in several ways.
Because car dealerships must finance their inventory the holdback helps to offset any additional interest they get charged if a vehicle sits on their lot for a longer period of time. The inflated invoice price also allows them to obtain higher lines of credit.
Knowing about the dealer holdback gives buyers a much clearer idea of what the dealership actually paid for the new car; consequently, if a salesperson makes it sound like they're losing money by selling the car at the invoice price it's just not true. Like any business, car dealerships have to generate profits to keep their doors open – pure logic.
So the holdback has a role on the front-end as it affects the sticker price, then on the back-end when you buy the car. Since you're not supposed to even know the holdback exists, it allows dealerships to generate even higher profits off a sale to you.
Lastly, in addition to the holdback keep in mind that the manufacturers offer dealers sales incentives; regional, month and year end, special incentives to sell slower selling models; volume bonuses, etc.
Now that you're armed with the information you need during negotiations, request your free, no obligation to buy new car price quote and receive the dealer invoice price on the car or truck you want to buy.
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