If you're planning to buy a new car from a dealership, then you may have heard terms like an invoice, MSRP, sticker price, true market value and the like. However, understanding what they mean and the difference between invoice vs. MSRP is integral to the new car buying process. Let's take a look at what all of these terms mean and where they fit in.
The sticker price is a term used interchangeably with MSRP, which stands for Manufacturer's Suggested Retail Price. It's exactly what it sounds like in that it's the price the automaker wants you to pay for a new car.
That is the price that the dealer paid the manufacturer for the new vehicle. However, there are a lot of caveats to this term. And the main one is that you will very rarely know or be told the entire truth of what the dealer actually paid for the vehicle.
True Market Value
TMV is essentially what people in your area are paying for a particular vehicle. The actual number of true market value is just an average, though, so you may pay less or more than this number. Usually, the TMV is somewhere between the MSRP and the invoice price of a vehicle. If the vehicle has a high demand, then the true market value may be at or above MSRP. Conversely, if the vehicle has low demand, the TMV might be around invoice price.
The Official Price Tag
Taking a closer look at the sticker price or MSRP of a vehicle, it's common to see this number as the official price tag of a vehicle. At least, that's how the dealer would like you to view it. This number is usually prominently displayed somewhere on the vehicle, often on a side window. It's the price named in any advertisements you might see in the newspaper or on TV. This document on a car's window looks very official and eye-catching. It's also the price that the salesperson will try to start negotiations. This official price tag is meant to influence you, the buyer, into thinking that it's the real price of the car.
What Does Invoice Price Really Mean?
On the other hand, the invoice price is a bit harder to define. All vehicles are shipped from the manufacturer with invoices, which are what the dealer will pay for the cars. The dealer receives the invoice and is billed for the price therein. If the dealer sells the car for over what they paid for it, then the rest is their profit. It is possible to buy a vehicle for invoice price or even below. Sometimes there are incentives from the manufacturer to help the dealership sell certain cars. The invoice from the manufacturer isn't exactly an easy document to read either. It's usually covered in numbers and abbreviations that are only clear to auto insiders. However, it does include the base price the dealer paid, plus any fees for advertising and the like. Once upon a time, the dealer would never show a customer the invoice, but in recent years, many car dealers have become more cooperative in showing the invoice. It's a good idea to ask politely to see it rather than demanding it.
The Rough Invoice Price
Often you will hear the invoice price described as roughly the price the dealer pays for the car. Why is it only a rough price? Because manufacturers designate a holdback price for most cars. This holdback is a certain percentage of the invoice or MSRP. The manufacturer then pays this to the dealer when they sell the vehicle. It means is that the dealer might tell you they are not making any money on selling a car at invoice price. But the truth is that they'll be getting a check from the manufacturer after the sale for whatever the holdback amount. That is why it's not necessarily true that buying a car for the invoice price is paying the absolute minimum you could pay.
What Exactly is True Market Value?
The TMV is a car price point created by the automotive site Edmunds that gives car buyers a number more important than MSRP or invoice. The reason this number is so significant is that it's based on analytics that determines the popularity of the vehicle in a particular market, what the vehicle is selling for and an average of what buyers are paying. Generally speaking, the TMV is lower than the MSRP, but over the invoice price. As previously mentioned, TMV is an average, so some buyers pay more and others to pay less. Nevertheless, it should give you a good idea of what to expect.
What's the Blue Book Value?
It is another term you might hear when shopping for cars. The blue book value refers to the price assigned by Kelley Blue Book to used vehicles. That isn't necessarily a term you need to know when shopping for a new car, however. KBB assigns values to used vehicles based on various criteria. Dealers often use these car pricing values to make offers on trade-ins. In fact, KBB lists both trade-in values and private party values. If you're trading in an old car, you can get an idea of what it might be worth by checking KBB before going to the dealership.
More On Factory to Dealer Incentives
As previously mentioned, these reduce the invoice price of the vehicle by allowing the dealer to make money even if they sell the car for invoice price. These incentives might come in the form of rewards for a specific sales target, or they might be offered to boost sales for certain vehicles. A dealership does not have to pass these savings to the customers. It's also not easy to figure out when dealer incentives exist because they usually vary by region.
Regional ad fees are usually listed on the dealer invoice and are typically not negotiable. Manufacturers use these fees to recoup the expense of marketing certain vehicles. If you see these fees on a dealer invoice, you can pretty much expect to see them on the final sales contract as well. If, for some reason, the dealer doesn't include these fees on the invoice, but they are on your sales contract, then you may be able to negotiate out of them.
A destination charge is basically what it sounds like. It's the fee to transport a vehicle from the manufacturing plant to the lot where it is to be sold. This expense is charged to the car dealership and the dealer, in turn, passes it on to the customer. The amount of this fee is usually some hundreds of dollars. Like ad fees, these are fixed costs that aren't negotiable. The amount only differs depending on models and not with how far the vehicle had to travel.
Manufacturer to Consumer Incentives
The manufacturer also has some rebates and incentives to pass on to consumers for new cars. These usually come in the form of either low-interest financing, cash rebates or special leases. The cash rebate can generally be used as a down payment, which reduces the price of the vehicle. There are various calculators online to determine how much money cash rebates or low-interest financing can save you in a particular situation. Remember, that even if it's low interest, you will still pay more for the vehicle over time due to the interest.
What is True Dealer Cost?
So what is the formula for the True Dealer Cost of a vehicle? Take the dealer invoice price and subtract the holdback and any rebates or incentives, and then you have the dealer's actual cost. Of course, this assumes that the dealer shows you all this information in the first place. They may not.
Where is the Profit Margin?
The profit margin for any dealership and any car is the amount that they sell the car over what they originally paid for it. That's why dealers often want to use MSRP as a negotiation starting point. The sticker price is already a markup, and if they can get more for it, then that just means more profit. In some cases, dealers end up having to sell the vehicle for a stated invoice price, but it's still possible that they will make a profit if there are incentives for selling the car.
MSRP vs. Invoice
The difference between these two new car price points varies widely in both dollar amounts and percentages. For example, an economy car in the most basic trim with little to no options might only have a $500 difference in price from MSRP to invoice. On the other hand, a luxury SUV might have thousands of dollars of profit between the invoice and MSRP. Popularity counts too. An in-demand vehicle will usually have plenty of profit padding between the invoice and MSRP. As previously mentioned, you may not be able to cut into that profit if the vehicle is extremely popular in your area and the TMV is close to MSRP.
Finding the Invoice Price
Technically, finding the invoice price isn't all that difficult. It's more a matter of whether this is the true price the dealer paid for the vehicle. As previously mentioned, there's a lot of flux depending on regions and incentives. However, you can usually find a rough invoice price on sites like Edmunds or Kelley Blue Book. A good strategy is to start with the invoice price in negotiation, while also keeping in mind what the TMV of the vehicle is. Naturally, the dealer will want to work up to MSRP or keep it as close as possible. Meanwhile, you can come up from invoice and ideally meet somewhere in the middle.