It’s happened to the best of us: We’re floating on air because we thought we got a smokin’ deal on something, only to run into a friend or coworker and find out they bought the same thing for a lot less cash. It’s one thing if it’s a set of china or some new clubs, but overpaying on a new car can amount to thousands of dollars.
When you receive your free, no obligation to buy new car price quotes from multiple competing dealerships and are ready to start negotiating, you can be sure it’s for a real deal
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Factors That Contribute To The True Dealer Cost
A dealership’s invoice is what a manufacturer would theoretically charge a dealer for a new car or truck; however, what isn’t shown are the many rebates, incentives, discounts or the dealer’s holdback. A dealer’s true cost takes into account all of the factors so you have a much closer estimate of what a dealer paid for the car or truck you want to buy.
Below, we’ll break it down to help you establish the most reasonable figure to start negotiations. With your free new car price quotes you will receive the car or truck’s MSRP, but it’s really only a point of reference to compare to the dealer invoice price you’ll also receive. Calculating a ballpark number for the true dealer’s cost starts with the dealer’s invoice.
- The dealer’s invoice price is the amount a manufacturer technically invoices a dealer for a new car or truck. After receiving your price quotes along with the dealer’s invoice price, one of the first things you want to request from the dealerships is a copy of their invoice; reason being you’ll be able to tell how long they’ve had it in stock. The longer it’s been taking up space, the more they’ll want to get it sold.
- The big factors that determine the differences between the dealer invoice price and the dealer’s true cost for a vehicle are all of the incentives we mentioned, which the dealer receives from the manufacturer. These include regional incentives that are offered to get regional dealers to compete for sales, cash incentives to quickly sell slower moving models, monthly sales quotas/bonuses, end of month and year cash incentives.
- The dealership also has to pay to have a new car or trucked transported from the factory to their lot and every dealer has to pay this fee.
- There’s also a fee that many business have to pay and that’s regional marketing; in this case, the manufacturer charges a fee for advertising in the dealer’s region, even for specific marketing that target’s a dealer’s local market. While most businesses just write these fees off, many dealers will try to pass it on to buyers.
- The dealer holdback is a specific percentage (usually 2 or 3 percent) of the invoice price or MSRP. The manufacturer inflates the invoice by that percentage and then after a buyer takes delivery kicks it back to the dealer; further increasing profits off the sale.
- When you’re looking over the dealer invoice price use the above to give you a good place to start negotiations, i.e., dealer invoice price then subtract the holdback. Then you could even bump it up say $400 during negotiations to make the salespeople think they’re making progress. If you do this with every new car dealership that submits free price quotes, you’ll be in an excellent position to have at least one who’s willing to accept a smaller piece of the pie to close the deal.
Which Dealer Fees Are Negotiable & Which Are Not
Here are a few fees that you most likely encounter during the new car process:
Fees that will not be negotiable:
- The destination charge will vary between automakers and sometimes even between different models. Regardless of where in the US the car is delivered or where it’s been shipped from is the same amount. Since it is a fixed charge and a dealership has to pay it, it will be passed through to you. The destination charge usually runs several hundred dollars.
- Needless to say, the government wants its money so you have to pay sales tax based upon your local rate.
- Fees for titling, registering and licensing the vehicle are non-negotiable, for things like license plates, any lien fees, district fees, emissions, etc.; essentially all of the regulatory fees that are standard in your area and naturally each state’s fees will vary.
Fees that are negotiable:
- Additional common fees are those that the dealer adds on for performing various services in the selling and delivery process of the vehicle; those fees will be negotiable to some degree.
- It’s common for a dealer to charge a documentation fee for performing all of the necessary work to get the vehicle titled/registered/licensed. It’s usually under $100 and is negotiable; they must perform this service in order to sell and deliver the car (except for rare exceptions)
- Transportation fees are different from destination charges and really should only apply if you asked a dealer to find you a specific car where they had to have it delivered from another dealership .
- Market adjustments might be made if a vehicle is in high demand, or rare. Just be smart and either wait until ‘demand’ diminishes or, if you just have to have that particular car, be willing to travel to a dealership who doesn’t add those fees to their inventory.
- A dealer prep fee is where they try to charge you to get the car ready to be delivered; just say no as it’s their expected cost of doing business and already factored into their profit.
- Dealer add-ons (aftermarket) while becoming more infrequent, these are where a dealership will tack on a lot of options, add-ons, etc. and charge a substantial fee. These can range from fabric protector/scotch guard, undercoating and whatnot. Normally the price you’ll pay for these dealer installed options is substantially higher than you’d pay to simply have the services performed after the sale. Unless you specifically ask the dealer to add on those services ensure the car you want doesn’t have a lot of dealer add-ons and/or negotiate to have the charges waived.
- Finance fees are essentially markups to financing the dealer arranges and can be challenging to spot; oftentimes rolled into the APR of the loan. The best way to avoid this is to arrange financing before you speak to the dealer.
- Finally, comes the miscellaneous fees; if you see words like fee, surcharge, assessment, commission, payment, expense, toll, recompense, interest on a purchase contract, question it; if you sign the contract with those fees included that indicates you are accepting them and it’s legal. If a dealer cannot show you to your satisfaction they are 100% legitimate, then either negotiate them or refuse to pay.
Now that you’re armed with all of the information you need to negotiate for a real smokin’ deal on a new car, all you need to do is request your free, no obligation to buy new car price quot.
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