Invoice price, often just called the dealer cost, is the price on the invoice sent by the manufacturer to the dealer when the car comes from the factory. This price isn't always disclosed to buyers directly.
That means it's up to you to figure out how to find the dealer invoice price. One of the best ways to determine what the invoice price is to look at Consumer Reports. However, before investigating this matter further, it's time to learn a bit more about the invoice price and how it affects your car buying experience.
The Importance of the Invoice Price
The goal of most car buyers is to negotiate a price on a new vehicle that is significantly lower than the sticker price, also known as the MSRP (Manufacturer's Suggested Retail Price). A more attractive approach is to try for the dealer invoice cost, which is essentially the price the dealer paid to the vehicle's manufacturer. Usually, the dealer will have paid much less than the dealer invoice price that's publicized for the vehicle.
In some situations, the salesperson may show you something similar to an invoice to make you believe they aren't profiting much from the vehicle's sale.
Each car has an invoice and retail cost, for all the trim levels and each of the options. The full invoice cost on most vehicles usually spans from several hundred up to several thousand below the sticker price. One vehicle this might happen with, for example, is the 2019 Honda CR-V EX-L. It has a sticker price of just over $30,000 and may have an invoice cost that is approximately 7% lower (about $27,900).
The fact is though, dealerships sell vehicles under the invoice price each day and remain in business. Most dealers paid much less than the advertised invoice price when the car was purchased from the automaker. The MSRP is just a number that shows what the automaker would like to receive from the customer, and the invoice cost is what the carmaker wants to obtain from the dealership. In all honesty, neither of these numbers have much effect on the price you pay for a vehicle.
When a car is extremely popular, or just launched, dealers are going to charge the total sticker price, and sometimes more. As the car ages, though, more and more consumers are going to be unwilling to pay the full MSRP. Also, dealers aren't going to be paying the entire invoice cost.
How much less are they going to pay?
That is something that varies from one dealer to another, base don the bonuses and discounts received.
While this is true, knowing the ins and outs of invoice pricing can be beneficial for your car buying journey.
How Accurate are the Websites that Display Auto Invoice Prices?
Several websites display auto invoice prices, and that provides valuable research and information when you are ready to buy a vehicle. Even though this is the case, there are some charges on invoices that aren't displayed on websites.
Some of these charges are listed here:
The Mid-Year Pricing Adjustments
Most manufacturers adjust their prices at the halfway point of any model year. Because the mid-year price adjustments may be difficult to determine, not all manufacturers disclose the information to the websites. It's also a challenge for a website's pricing information to show these changes. If you discover one vehicle is more expensive than another, then it may be the mid-year adjustment that's to blame.
Online Marketing Fees
Some manufacturers offer web design services for dealerships. These online tools don't come free. The online marketing fees are charged to the dealership through the new vehicle invoice. Not all dealerships take part in the online marketing program, which means the charge may not be on all invoices.
Direct Advertising Charges
Manufacturers also offer regional advertising groups that dealerships can opt to take part in. The district ad charges are used for paying for television and newspaper advertisements. The costs for taking part in this are passed on through the new vehicle invoice.
Why Doesn't the Dealer Pay Invoice?
Several dealers pay less than what's listed on the official invoice price of the vehicle when buying the cars from the manufacturer. A dealer gets some of these by their willingness to negotiate a price that's under the MSRP, but most car shoppers will not know what the dealership paid for the vehicle.
How Discounts Can Affect the Dealer's New Car Costs
Some new vehicles have "secret" programs that can help to discount the price further. Some of these discounts include special programs, cash back, dealer holdback, factor to dealer incentives, and customer rebates.
If you aren't sure if the vehicle you are considering has this discount, the dealer will not offer it to you upfront. If the dealer doesn't let you know about the extra money, they have the opportunity to make more money on the deal. If you ask about one, some dealers will negotiate the total amount with you. Take note that a dealer holdback isn't a discount. It's extra money that many car dealers are going to negotiate.
It's a good idea to familiarize yourself with these additional savings to make sure you are paying the lowest price possible. After you determine the fair profit offer, you can use this as a base for your negotiations. You can also use it to compare to free online price quotes sent by dealers to ensure you don't pay too much on the final purchase price.
What is the Average Profit Made by a Dealer?
The average dealer profit is dependent on several factors. The make of a vehicle, regardless of whether it is used or new, and demand will influence the profit a dealer makes. Those who work in the used car business are going to have several profit margins on each vehicle.
In extreme cases of luxury vehicles or trucks, the vehicle is sold at twice what they paid for it. But in other situations with economy cars or older models, the markup is virtually non-existent. When selling a new car, the markup is calculated as a percentage of the total cost. However, it's not unusual to see an average of five to 10 percent profit for both new and used vehicles.
Additional Profit Centers
Selling a vehicle isn't what helps a dealer make money. It's the add-ons and financing that are sold through the financing office at the dealership. There are several ways that money is made on financing.
For example, the dealership can earn one to three percent in commission for any loan they make for outside lenders, such as credit unions, banks, and other financing company. It's also possible for the dealer to increase the interest rate on the loan. They can take at least some of the difference between what's paid to the bank and what the customer is charged as profit.
New car dealers also make a lot of money from the add-ons that are sold in the finance office. Some of these items include gap insurance, extended warranties, nitrogen for the tires, window etching, and more. Before agreeing to any add-ons, find out if they are really necessary, or if you can get a comparable product for less away from a third-party car lot.
Dealers are also making money on other fees that are considered "normal" with a car purchase. While some of the costs, such as the title, licensing, and destination charges aren't negotiable. Others, however, are. Add-ons, advertising fees, documentation fees, and other things you never asked for are typically able to be negotiated.
A Customer Trade-In
According to experts, you need to separate your trade-in from the new car price negotiations. That's because it's straightforward to manipulate the numbers when you use a trade-in. You may believe you got your new vehicle for $1,000 less than the invoice price, but what you may miss is that the dealership is giving you $1,000 less than what your old vehicle was worth.
What Do Dealerships Have to Pay For?
While it's crucial for customers to look for every chance to save money when buying a car, they also need to remember it's a business transaction and the dealer needs to make some profit. After all, they must finance the inventory, pay employees, improve the building, advertise and more.
While the invoice price may not be a number that shows the real cost of a vehicle to a dealership, consumers are probably never going to know what a dealer paid to get the car to their lot. In fact, there's a good chance the salesperson working with you doesn't even know the real dealer cost.
Tips for Finding Secret Dealer Money Online
As mentioned above, dealers don't typically advertise the factory to dealer incentives to consumers, which makes it hard to know if any are available. The dealer will share customer cash and rebates because they are advertised publicly as a way to get more consumers interested in the vehicle.
If you see an advertisement that showcases a low price for a vehicle, make sure to read the fine print and find out if the dealer used the incentive to get the advertised price. If you do this, it will let you know what the incentives offered for the vehicle are and if you qualify.
While finding out the dealer's true cost for a vehicle is challenging, it's not impossible. Just keep the information here in mind when you are shopping and ask the salesperson if they can reveal the invoice that was sent from the manufacturer at the time of purchase.